Wall Street Journal excerpt, July 1
Freight costs have jumped as much as 14% for U.S. consumer packaged goods companies since 2012, driven largely by a truck-driver shortage and deteriorating transportation infrastructure, according to a report by The Boston Consulting Group and the Grocery Manufacturers Association.
The authors surveyed supply chain leaders at more than 40 major companies, such as Procter & Gamble Co., Bumble Bee Seafoods LLC and Land O’ Lakes Inc., and found that transportation issues were a top concern across the board.
“That’s surprising because we did the same work two years ago and nobody mentioned transportation,” said Elfrun von Koeller, a principal with BCG and one of the authors of the report.
In total, the packaged goods industry spends about $15.5 billion a year on transportation.
“It used to be one of those things like air, you just breathe it,” Ms. von Koeller said. But in the last two years, a freight capacity shortage—particularly in domestic truck and rail transportation—has come down hard on supply chain managers. The economic recovery has boosted the construction industry, which is luring workers away from trucking, as the booming oil and gas industry is requiring more truck and rail capacity, Ms. von Koeller said.
Those constrictions on capacity come just as the economic recovery is leading to a rise in consumption in the U.S. The packaged goods companies surveyed in BCG’s report say they’re finding it increasingly difficult to meet demand because their products simply can’t get to where they need to be.
All the while, aging infrastructure is adding further delays. Between 2012 and 2014, on-time arrival industry-wide fell by nearly 5%, according to the survey.
Ms. von Koeller said companies have responded to transportation challenges by relocating their manufacturing and warehouse facilities in some cases. “Three years ago, only 6% were changing their [logistics] network structure,” she said. “Now it’s 72%.”
They’re also trying to be more “freight friendly,” to maintain positive relationships with transportation companies, she said. One manufacturer provided its truck drivers with free candy bars, for example.
As capacity continues to shrink, transportation issues have risen to the forefront for major companies. It’s become “part of the strategic discussion, where it might not have been in the past,” Ms. von Koeller said.