Marketing 12th Edition by Charles Lamb,Charles Lamb,Joe Hair

Exercise 4

It is often said that the U.S. transportation industry serves as a bellwether for the future conditions of the larger economy as a whole. Retailers and manufacturers must plan for demand fulfillment in advance, and one of the first tasks they accomplish following forecasting is contracting with the transportation companies that will transport their offerings to the marketplace. The years 2008 and 2010 were difficult ones in the trucking sector of the industry, with the American Trucking Association reporting a drop in loads of up to 23 percent-the largest such drop since the ATA began collecting annual data, and rivaled only by figures associated with a 1994 transportation workers' strike. When the economy recedes, as in the case of 2008-2010, much of the available shipment capacity leaves the market, as drivers, dispatchers, and logistics workers leave the industry in search of new careers, quickly and sometimes never to return.

However, what happens when the economy stabilizes and retailers and manufacturers begin to receive orders again? In the case of the recent recession, this can result in a "capacity crunch," where the amount of goods to be shipped is far greater than the available transportation needed to get them to customers' local stores. Capacity crunches happen because it is far easier for workers to leave the transportation industry than to enter it. When times are bad, drivers quickly find other jobs in manufacturing, mining, and other blue-collar vocations; when times are good, not all of the displaced drivers return, and it can take months or years for new ones to replace them due to long driver training and licensing periods, insufficient or expensive equipment, and a general distrust in transportation as a stable and profitable career field. Because the U.S. has enacted strict regulations regarding drivers' work hours for safety reasons, companies cannot make up for lost capacity by offering overtime or extra shifts. Shippers have to have a game plan ready in the event that customers might want to buy their products, but they become stuck in the warehouse due to drivers' inability to service the stores in which customers shop. In addition, the shortage of transportation drives up carrier prices as many firms bid for relatively few cubic feet of cargo space in trailers. These costs are then passed on to end customers in the form of higher prices, on everything from lettuce to gasoline to video game systems.
A recent publication distributed by Chainalytics, an Atlanta-based supply chain consulting firm, recognized the problems associated with transportation capacity shortfalls, and offered some solutions that shippers could consider as they seek to avoid the ill effects of the impending crunch. One strategy the firm suggests is the reduction of the total number of carriers that shipping companies use, in advance of the crunch hitting full force. By consolidating carriers in advance, more capacity can be offered to the fewer remaining carriers, and the discount prices achieved for larger buys can serve to trade off against future transportation price hikes. In addition, where excess assets such as trucks and trailers exist, they will tend to exist at cheaper than usual prices; if the shipping company has any internal expertise in terms of doing its own carriage, before a crunch is a good time to buy up equipment and begin to train drivers. Shippers should also seek out opportunities to employ intermodal shipping and/or partner with carriers in long-term deals in search of more favorable rates and treatment. By taking one or more of these steps, many manufacturers and retailers who ship goods across long distances give themselves a better chance of surviving the crunch and returning to profitability sooner when the recession subsides.
Which of the criteria for choosing a mode of transportation are most affected by thecrunch? Discuss how that knowledge affects choosing transportation.