Logistics Trends - November 2007

We all look for opportunity to propel our companies to greatness. Usually though, the opportunity is hidden in the shadows of masked circumstance. Only after the opportunity has long passed do we ask ourselves how a competitor was able to trump us.

Consider the following:

• Recently oil prices closed above $90 per barrel for the first time in history. While many of you pass the cost of fuel onto your customers as a fuel surcharge, you're well aware that these escalating and out of control prices increase the cost of everything else we purchase.
• The Canadian Dollar which was at $.62 US at the beginning of 2003, recently was quoted at $1.03 US, a 66% increase in less than 5 years.
• The International Monetary Fund said the risk of a recession hitting the United States has grown as a result of a steep slide in the housing market.
• The Denver Post recently reported: "By this time next year, the U.S. economy will face a recession that will drag the Colorado economy down with it in 2008, U.S. Bank regional economist Tucker Hart Adams predicted Tuesday. In her closely watched annual economic forecast, Adams placed the chances of a national recession in 2007 at three-in-four."

All indicators are pointing to a high risk of recession, quite possibly starting in the last few months of 2007. But consider this. If a recession commenced on October 1, 2007, don't expect to hear the "R" word until sometime in May 2008, because the definition of a recession requres two successive quarters of economic contraction. If you're waiting for the government to confirm that we are in a recession, you're placing your company in a competitive high risk category. My feeling is that unlike typical recessions in which prices fall due to a lack of demand, in this recession prices could quite possibly continue to rise initially to match the cost of oil before they started a downtrend.

All of these factors affect your business from not only a cost perspective, but also from a revenue generation perspective. Fewer sales by your customers mean fewer shipments for you. And you can bet those customers will want to negotiate lower rates. It's the "triple whammy"; less business at lower revenue with higher costs.

As business managers, we are forced to be business planners. While a war overseas or changes in the value of the US dollar may not be perceived as immediately impacting us, rest assured that they will have a severe impact on your company in the months to come. You will not be able to pass on these hidden costs as you do with fuel surcharges as customers will rightfully state those costs are a generic cost of doing business. Most carriers will react by laying off drivers and customer service representatives as they view that methodology as getting the biggest bang for the buck in terms of protecting margins.

But that is exactly what you don't want to do, as therein lies the opportunity for greatness. You want to continually move forward with your company as you have planned, as personnel layoffs lead to service deterioration. Let your competitors be reactionary while you take the high road to further enhance your franchise. Reduce costs in other areas while maintaining or enhancing service to your customers. No customer wants to see service deterioration, and while you may have to agree to some price concessions in the short term, cost reduction in other areas will compensate for the reduced per unit revenue. When the downturn ends, your company will find itself in a much better and profitable competitive position. But to accomplish this takes pre-planning as well as the intestinal fortitude to weather the storm.

The time for you to act is now. You need to evaluate total costs and uncover hidden costs. Whenever possible, enter into fixed price agreements with your vendors. Waiting until a downturn in the economy to reduce your costs will not give you a competitive advantage as your competitors will be doing likewise.

Hidden costs are the the profit killers of organizations. One of our customers recently told us that he had been paying approximately $800 per month to his cell carrier for messaging costs to his drivers. In using OnTime he not only eliminated those costs, but the total cost of all the services we provide to him are less than his $800 cell bill. And that is only one area in which he reduced his costs.

The lesson to be learned is don't assume that a specific cost is a cost of doing business. Even though OnTime has reduced many of your costs, look at each of your individual costs to determine if they can be trimmed. If you feel they can, but you need to rely on technology to do it, let us know. If we feel it can be used by all customers, we'll include it in one of our free updates for all to use.

We've heard many accolades regarding how OnTime enhances technological, service and marketing capabilities. However, if you're not also utilizing it as a financial implementation tool, now is the time to do so. Whether you choose to analyze your historical data yourself or choose to use a software forecasting program, now is the time to take action to weather next year's potential storm.

As business managers we know the one axiom that is right on target: It's not how much you make, but what stays in your pocket.