Shippers should be prepared for some changes in the transportation industry. That's the message that came out of the National Small Shipments Traffic Conference (nasstrac) in Naples, Fla., April 1-3. Consolidation of service providers, new security concerns and regulations, new distribution models, and the impact of technology will make the current transportation market a distant memory and both shippers and carriers need to adapt or pay the price.

Opening the conference was keynote speaker Joe Clapp, administrator of the Federal Motor Carrier Safety Administration (fmsca) in the Department of Transportation (DOT). Clapp set the tone with a message of change from his administration in the near future. First off, he gave an update on the hours of service regulations, saying the administration received more than 53,000 comments on the issue and an independent contractor is now performing a cost benefit study to see how proposed changes in hours of service may affect the trucking industry. Clapp could not provide a date when a final rule can be expected.

The fmsca is also conducting a crash causation study at 24 sites around the country and looking into new technologies that would minimize the number of accidents on the roads involving trucks.

Security is also a big issue on the fmsca's agenda. Clapp said security visits now take precedence over compliance inspections. So far, the fmcsa has made more than 100 referrals to the FBI as a result of security visits following the Sept. 11 attacks. The USA Patriot Act also brought closer inspections on hazardous materials applications and Clapp encouraged shippers to use the administration's Web site to check for DOT-certified hazardous materials carriers.

But overall, Clapp said safety on the roads goes far beyond his agency and lies in the hands of carriers. "It's not just about regulations or inspections," he said. "They are an important means to an end. But it's also about having the right driver. The quality of the individual you put at the controls, who will be making life and death decisions, is much more important."

Consultant Benjamin Gordon of Boston-based BG Strategic Advisors predicted some big consolidation in the logistics industry. The consolidation, he said, will create many losers and a few big winners, similar to the success FedEx and UPS saw in the wake of the small package market consolidation. "UPS spent $1 billion on technology last year," Gordon said. "How do you compete with that?"

Gordon said most independent logistics firms face one of several choices to compete in the consolidating marketplace. First, they can sell or merge their business with a larger firm. Second, they can grow organically or through acquisition and bulk up to withstand the competition. Third, smaller companies can group with similar providers in other regions or modes and combine their offerings to gain more geography and breadth of offering. And the last possible strategy is to harvest the business, or build it up and squeeze profits out of it for the short term.

"There is no doubt we will see more of these [consolidation] trends and we have to think about where we as an industry want to be," Gordon says. "Logistics providers need to pick a strategy by choice, not default. Shippers have to pick partners that are well positioned to be successful."

Tom Weidemeyer, COO of Atlanta-based UPS and president of UPS Airlines, said technology is one of the things that has helped UPS navigate the sluggish economy. He said companies with increased visibility in their supply chains have been handling the economic downturn with more success than their competitors and recommended logistics firms get closer to their customers and suppliers. He also said benchmarking with other industries and launching new initiatives can be useful in a down economy.

UPS sees great opportunity in the Chinese market, according to Weidemeyer. The company has doubled its business to China in less than a year of providing service there. Weidemeyer beat conference attendees to the punch, saying he could not comment on current negotiations between UPS and the International Brotherhood of Teamsters union, except to say he is "optimistic about the outcome of these negotiations."

C. John Langley, a supply chain professor at Georgia Tech in Atlanta also feels greater connectivity between supply tiers will increase not only in terms of basic communication but also in the sense of urgency to communications. "The success of a company depends on its suppliers," Langley said. "As you go upstream to higher supply tiers, you don't get a sense of urgency." He said an OEM might get strong support from a tier one supplier, because the OEM may be 70% of the supplier's business. But the same OEM may be only a 10% piece of a raw materials supplier's business further up the stream. Greater visibility among tiers will provide better information to materials suppliers, he said.

Ted Scherck of the Colography Group observed five major market trends that, he said, may affect the transportation market in 2002 and beyond. First, average shipment weights are dropping roughly 7% per year. Next, shippers are looking for a new, more efficient distribution model to be closer to both customers and suppliers. Third, technology is changing the services offered by logistics companies. Next, mode is becoming less important as reliability and time of delivery become the focus. Last, mergers and acquisitions are continuing.

Scherck, another speaker from Atlanta, said security, insurance and restructuring expenses are growing so fast for air carriers that customers cannot absorb them and ground shipping is growing in importance as manufacturers move products closer to customers in a new distribution model.

"Two-thirds of all goods shipped in the U.S. today are shipped less than 600 miles," Scherck said. BAX Global's President Joseph Carnes also sees modal lines blurring as time-definite shipments take priority over modal selection. Carnes noted also that the centralized distribution model is changing to regional distribution centers.

Douglas Duncan, president and CEO of FedEx Freight in Memphis, Tenn., said customers in the LTL industry are keeping lower inventories today and moving to a pull demand model, which increases demand for rapid replenishment and special handling. "Many products today are shipped right to the shelf and have to be handled accordingly," Duncan pointed out.