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Supply Chain News: Stifel Releases Its Top 10 "Game Changers" in the Logistics and Transportation Arena Part 2


Excellent Insights on the Trends and Technologies Impacting Shippers and Carriers

Jan. 22, 2018
SCDigest Editorial Staff

The transportation analysts at investment firm Stifel as usual released at the beginning of the new year a list of what they call "game changers" – the top 10 major strategic changes occurring throughout the freight transportation and logistics universe.

Two weeks ago, we covered game changers 1 through 5, which were as follows (see Stifel Releases Its Top 10 "Game Changers" in the Logistics and Transportation Arena):

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1. Automation and reduced regulation not occurring fast enough to keep pace with growing blue collar labor shortage and demand growth

2. Ecommerce changes the playing field and raises the bar

3. Amazon's insourcing tendency could prove problematical, over the longer term

4. Electric vehicles are coming

5. Technology is transforming the industry at an accelerating rate

This week, we'll summarize Stifel game changers 6 through 10:

6. The tax bill is a huge shot in the arm for business: The recently passed federal tax decrease for most individuals and businesses comes at a good time for carriers – most of which must continue to increase driver pay to keep them in seats.

After aggressive wage increases over the last two years, many carriers are raising driver pay by another 5-10% here in early 2018, Stifel says.

"The driver shortage is so acute presently, that many carriers are taking this step even before locking in the rate increases needed to pay for the driver pay increase," Stifel writes, noting that "the driver shortage/turnover problem is as severe as we have ever seen it, and we have been tracking the industry since the early 80's."

Stifel also says that while the tax changes may incent carriers to add more trucks, the driver shortage will act as a real obstacle to asset expansion, meaning capacity is likely to get even tighter.

"In the end, the lower effective tax rates will most likely be harnessed to pay drivers more, renew fleets, and to fund industry consolidation related M&A activity," Stifel says.

7. Industry consolidation is poised to accelerate: Stifel says that in the US logistics sector, industry consolidation has accelerated in recent years, yet most sectors of the industry remain highly fragmented.

"The less-than-truckload sector is partially consolidated, while the truck brokerage, drayage, logistics, truckload, and contract logistics segments remain relatively highly fragmented, still," Stifel says. "We would expect operating firms to continue consolidating their industry sectors and/or diversifying their range of services offered in 2018 and beyond."

Interestingly, Stifel notes the driver shortage likely will lead to more mergers among carriers as the lack of drivers limits a carrier's ability to grow organically, such that acquisitions may be the best path to growth, especially as the cost of debt and equity remain low.

8. Infrastructure investment remains sorely lacking: While the US interstate highway system built in the 1950's through the early 1970's is a supreme achievement and changed the country, little thought was given to how to fund maintenance for the system over time, Stifel says.

Meanwhile, the federal tax on gas and diesel hasn't increased since 1993, while the per-mile cost of highway construction has soared since then.

Stifel appears to look favorably at the so-called vehicle miles tax (VMT) on miles driven as a means to augment and/or replace the fuel taxes, in part to deal with the negative revenue impact from ever-improving mileage rates and soon electric cars. (We will note a recent report from the American Transportation Research Institute (ATRI) says a huge bureaucracy – almost the size of the IRS – would be needed to manage and enforce a VMT).

Also referenced positively is a similar approach to tax freight movement called a ton-mile tax, under which there would be a higher price for heavier and longer vehicles - if they are ever approved - which in theory at least disproportionately contribute to the rate of pavement and bridge deterioration.

Stifel also seems favorably disposed to raising/adding tolls to US roadways are well, noting that many states are raising fuel taxes and tolls in the face of federal inaction. The American Trucking Associations, we will note, is supportive of increases in fuel taxes but not on more/more expensive tools.

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"Clearly the transportation network in the US. is the primary logistical backbone supporting the existing economy and any incremental growth," Stifel writes. "It is time for Congress to wake up and address this critical issue or it may run the risk of putting further negative pressure on our global economic competitiveness."

9. Population shift continues, as demographics remain challenging as boomers age: Stifel notes that companies continue to expand within and relocate to the more business friendly states. Then in turn, the population migration pattern generally continues as workers follow the jobs and the job growth.

States losing population are put in a real financial bind, while on-going population redistribution creates new demand patterns for consumers and new B2B demand patterns that impact freight flow volumes and lane balance. What's more, these population changes directly drive the need for incremental infrastructure spending – more needed in areas of rising population, less in areas losing residents and businesses.

Obviously, demographic changes impact demand and thus supply chain network design. Stifel reminds us that "Logistics companies, carriers, shippers, and receivers all need to be mindful of this slow but sure need to adapt their internal networks and asset allocations to match better match morphing population density trends."

10. Peak urbanization may have already been reached: There are been many articles and news reports of a migration back into urban areas, driven largely by millennials looking to be closer to where the action is.

But Stifel believes that trend may have peaked, and as the millennials start families there will again by migration back out to the suburbs.

This accelerating suburbanization will put a strain on highway systems and suburban infrastructure, Stifel says, especially in the modern urban regions where jobs are not disproportionately located in the central business district. Instead, clusters of office buildings are scattered throughout a region creating a hodgepodge of an urban traffic pattern that makes a hub and spoke transit system much less effective than it might otherwise be.

"With reduced population density in the suburbs, last mile delivery is complicated, by the increased distance between stops, the reduced number of parcels per stop, and worsening traffic congestion," Stifel observes.

So there you have it, a summary of all 10 Stifel logistics game changers. Nice job by Stifel analyst John Larkin and team.

What do you think of these 10 "game changers?" Let us know your thoughts at the Feedback section below.


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