New world

Nov. 1, 1999
Embracing change is the key to successful trucking in the new millenniumAs we enter the new millennium, we can look forward to unprecedented investment and business opportunities, as well as an abundance of high-quality lifestyle choices. That is, as long as we're willing to embrace change rather than deny it.It's time to change our thinking about everything from managing our finances to running our

Embracing change is the key to successful trucking in the new millennium

As we enter the new millennium, we can look forward to unprecedented investment and business opportunities, as well as an abundance of high-quality lifestyle choices. That is, as long as we're willing to embrace change rather than deny it.

It's time to change our thinking about everything from managing our finances to running our businesses, from where we live and shop to how we stay in touch with friends, family, and co-workers.

Harry Dent, one of the world's most prescient economic prognosticators, can help us navigate this minefield of change. In his latest book, The Roaring 2000's, Building the Wealth and the Lifestyle you Desire in the Greatest Boom in History, Dent helps make sense of the sweeping changes in economics, technology, and social structures that will influence every facet of our work and personal lives. He views the future by looking back - at the impact of different generations as drivers of change.

Dent's mission is simple: helping people understand change. He has predicted many fundamental changes in the economy since the mid-1980s. In 1989, for example, Dent forecast that the Dow Jones Industrial Average would crash through the 10,000 barrier, that inflation would fall, and that the U.S. would re-emerge as the dominant force in world markets. All have come to pass.

But that was yesterday. What has he done for us lately?

Dent maintains that birth rates are the most reliable indicator of economic trends. "Simply put," he says, "people who consume in a predictable manner over the course of their lifetimes drive our economy. It expands as new generations of consumers and workers move through a predictable earning and spending cycle. It reaches its height when the greatest numbers of consumers reach their peak spending years." In addition, we have seen an increase in the number of people who have immigrated to this country over the past generation - bringing more workers and more consumers.

Why are these numbers so important, and why does Dent put so much faith in them as an indication of the coming boom times?

Here's his answer. "We enter the work force, on average, at about age 19, get married, on average, at age 25.5. We buy our first car, move into apartments, and furnish them. ... The average person then buys a starter home around age 33 to 34, getting the first mortgage, and purchases all of the furnishings to go with it. By age 43, we trade up to the largest home we'll own, and fully furnish it by age 46.5, when most of our children leave the nest at age 19, making 46.5 the peak spending age today."

Since birth rates peak about every 40 years, we see long-term economic expansions or bull markets lasting about 26 to 29 years, followed by economic contractions lasting 12 to 14 years.

The convergence of key technology developments and an aging population accelerates this trend. What we're witnessing now is an explosion of information technology. As information technology assumes a bigger role in mainstream society during the next decade, it will spark a broad-based productivity revolution, changing how we live and work more dramatically than almost any event in our history. Add to this development the economic effect of baby boomers hitting their peak spending years, and we're almost certain to witness the greatest boom in our history, says Dent.

What makes Dent's scenario so compelling is the fact that the baby-boom generation is three times the size of previous birth waves. This huge group of consumers "will drive the greatest economic boom in our history," he argues, "with increased productivity, real-wage gains, rising savings, and falling debt ratios. We should see a Dow of at least 21,500 and as high as 35,000 as the baby boomers and the recent wave of immigrants move into their peak spending years around the year 2009." That's when the lights go out. Translation? We better prepare for a depression around 2008 or 2009.

While this pig of baby boomers and immigrants moves through the python, the "old economy of products, services, technologies, and production methods" is on its way out - and a new economy is about to burst on the scene, propelled by a new entrepreneurial generation, says Dent.

The first stage is the innovation wave, bringing radical change in technologies, social values, and consumer trends as the new generation enters the work force. They buck tradition, experimenting with new approaches until a breakthrough occurs.

Dent draws a parallel between the current wave of innovation in information technology and the contributions of entrepreneurs some 80 or so years ago. Dubbed the Henry Ford generation, this group was responsible for inventions such as cars, electricity, phones, and planes.

The fuel behind today's economy is the powerful and intricate electronic communications network known as the Internet. But the real revolution will not be purely technical. Computers, software, and the Internet represent the infrastructure that will facilitate substantive changes in how we work and live.

For instance, Dent predicts that in the workplace we'll see a return to customer focus, the resurgence of dynamic work teams, and more value placed on entrepreneurial skills. In the future, successful companies will be run from the customer back. Every customer will be a market and every employee will be a business - sparking a surge in productivity that promises to drive company profits and wages to new highs.

"We are moving from a standardized economy powered by assembly-line organizations that used powered machinery to automate physical work to a customized economy powered by network organizations that use computers to automate routine thinking work. But in the future, the race will belong not to who has the best product, technology, or service, but rather to the speediest, most nimble competitor.

"The next economic boom will get its start in two predictable trends we can see right now: the peak spending years of the baby-boom generation and the emergence of simpler home computing devices which will make the Internet an indispensable mass-communications technology." Despite all the hoopla surrounding the Internet, Dent maintains that most people greatly underestimate its impact. "We won't see its real value until important innovations in ease of use reach the customer, nor will we see its real power until the bandwidth of the information highway, a technical term for its capacity to deliver data in a given period of time, greatly increases."

The secret to understanding changes in technology, as well as how they change us, is to understand how new products and services move into the mainstream. Using an earlier wave of innovation as a model, we can look at some of the first industrial products introduced during the late 19th century. Electricity, lighting, cars, telephones, and electric motors were all used in business long before they made their way into the home. There was no dramatic economic boom or productivity gain until these items became consumer products, used just as commonly in the home as in business.

The lesson Dent draws from this is that "revolutions in productivity and our standard of living lag behind the introduction of new technologies. It takes three to four decades for innovative products and services to become popular mass-market consumables. When they do, prepare yourself for big changes fast."

The Internet, in Dent's words, "is to the coming economic boom of the Roaring 2000s what the moving assembly line was to the Roaring Twenties. It is the key productivity lever that will rapidly transform the economy into a direct producer-to-consumer economy. Whereas the assembly-line shift was fundamentally a production revolution, this will be a revolution in distribution and marketing. For instance, it will:

* Collapse many layers of administrative, marketing, and distribution functions to greatly reduce the cost and improve the efficient delivery of products and services to consumers.

* Allow companies to tailor products and services to individual needs at very low costs that will improve their quality and make customized items more affordable.

* Initiate sweeping changes in management practices as successful companies radically eliminate, rather than streamline, bureaucracy, evolving from a traditional top-down structure to a more consumer-oriented bottom-up structure like the Internet.

Until that happens, businesses will continue to rely on traditional management solutions like re-engineering. By streamlining bureaucracies and training employees to be more attentive to customers, companies can create just enough cost savings and improvements in service and quality to make re-engineering profitable.

What's wrong with this? According to Dent, "The danger in re-engineering ... is that it merely reinforces the top-down, hierarchical organization model of the past century, while masquerading as a revolutionary change."

Dent prefers the network model, where leaders guide entrepreneurs and self-managing teams through a chaotic, real-time process that's organized around the ever-changing needs of customers.

The payoff? Companies that organize their human resources along this model will be able to deliver customized products and personalized services to consumers at affordable prices. These consumers are demanding more choice and greater personalized service. The companies that can respond to these demands are those that operate from the customer back.

Dent uses a metaphor to describe the difference between the old organizational paradigm and the new one: a whale versus a school of minnows.

The whale represents the old structure of business- massive and powerful organizations vertically integrated and designed to do one thing well. The new network model, on the other hand, has more in common with a school of minnows. That's because it's comprised of individuals and self-managing teams who share critical information in real time for fast, informed decision-making.

The network corporation will use computers, telephones, and Internet technologies to support employees in their efforts to become stellar producers by placing them in a structure that rewards individual productivity. Such a company gives its employees instant access to critical information, authority to make decisions, and clear accountability for performance.

In the new network economy, there won't be jobs, just businesses. We'll all become entrepreneurs - either on the front lines as human browsers and consultants, or on the back lines as human servers and consultants to the front lines.

For a closer look at how these changes may impact trucking, we turned to a forecast prepared for the American Trucking Assns. by Standard & Poor's DRI, Lexington, Mass. The analysis presents current-year estimates and forecasts for both the volumes and revenues generated by primary freight movements across all modes.

While not as booming in its outlook, the DRI report does contain some good news for your business. Economic growth is expected to remain in the 2% to 2.5% range in the near term, with a gradual slowing through the year 2002. A moderate risk of recession is also expected during this period.

While the share of the U.S. freight market captured by trucking has risen steadily and dramatically over the past five years, DRI expects that growth to plateau and perhaps even dip over the next 10 years.

Trucks move most of the time-sensitive, high-value manufactured commodities shipped within the U. S. Goods transported by truck, which tend to be lighter than the bulk commodities carried via rail or water, will continue to grow, but at a slower rate than bulk commodities.

The conditions that favored the trucking industry's gain in market share in the '90s are drawing to a close as railroads improve their level of service and reclaim some of the markets they lost. DRI expects air cargo to double in both value and volume, capturing a growing share of international shipments. A brisk 7.1% annualized growth rate is expected. In spite of this growth, however, air cargo is expected to account for only 0.2% of all freight by the year 2007.

Rail intermodal is not expected to fare as well. DRI expects this segment to experience more modest growth rates during the next five years than in the past, primarily because of imbalances between containerized imports and exports moving through U.S. ports. This situation will remain stagnant until world economic conditions rebound.

Here are some of the key findings:

* Total tonnage of primary freight shipments in the U.S. will increase from 11.2 billion in 1997 to 13.6 billion in 2007, an increase of 21.2% over a 10-year period.

* The types of primary freight movements that make up this volume include bulk goods (raw materials) and general freight (semi-finished and finished goods). In general, bulk goods generate relatively low revenues per ton shipped, while general freight yields high revenues. Of the projected increase, bulk goods represent 61% of the volume but only 28% of the revenue.

* The additional 2.4-billion tons of freight volume will be distributed as follows: trucking will capture the largest share at nearly 56%, with rail (21%) and waterborne freight (20%) taking most of the rest.

* Freight revenues are another story. Total revenue derived from primary freight shipments in the U.S. will increase from $457 billion in 1997 to $584 billion (adjusted for inflation) in 2007, a 27% increase.

* Trucking is expected to capture more than three-quarters of the $126.3 billion in new freight revenues. That represents a loss of 1% of their current 81.3% share of total revenues.

This reflects the types of commodities carried, the distances involved in the shipments, the level of service available through truckload and less-than-truckload (LTL) motor carriers, as well as the time-sensitive nature of general freight shipped via motor carriers, according to the report. The value of the services motor carriers provide to shippers requiring time-definite delivery is reflected in the costs shippers are willing to pay. So in addition to improving the revenue picture for the trucking industry, the report concludes, "the increasing sensitivity of the trucking industry to on-time performance also improves the productivity of the entire national economy."

n General freight will comprise 43% of all primary shipments by weight in 2007 (up from 38% in 1997), and will account for 75% of all revenues (up from 72%).

What do these freight projections mean in terms of demand for equipment? We asked Martin Labbe of Martin Labbe & Assoc. to take a look. He found that the growth in the Class 8 population needed to meet shipment volume requirements, coupled with vehicles being scrapped, dictates a 19% increase in the number of medium- and heavy-duty vehicles on the road by the year 2007.

Fleets will need more trucks, and the trucks will be covering more miles. Total miles driven by these vehicles will increase by nearly 34%, while ton-miles will expand by nearly 33%.

This suggests that Class 8 truck sales will average 176,000 units per year over the forecast period. Medium-duty (Class 6-7) will average 145,100, while midrange (Class 3-5) will average 137,300.

While LTL carriers accounted for only 3.1% of the general-freight volume moved by truck, this segment generated 16.3% of the revenue, a slight increase over the last four years. With companies downsizing their private fleets, the share of general freight moved by this segment will continue its gradual decline over the same time period. Companies offering in-house transportation are refocusing on core functions that often don't involve transportation, as well as more international movements that require greater expertise in port logistics and freight-forwarding operations.

The rapid shift to for-hire trucking that we saw in the early to mid-'90s will be replaced by a slightly slower but still steady growth in that segment during the next 10 years. For-hire carriers can attribute this shift to improved efficiencies of scale and cost-containment efforts. In addition, the productivity, technology, and communications advances made by these fleets are moving forward more rapidly than in other sectors.

Shipper demands for increased productivity, however, continue to exert significant pressure on for-hire rates. The proof is in the pudding. Although truckload carriers improved their share of general-freight volume, their share of overall revenues slipped slightly, to 37% from 39%.

Projections for the economy in the new millennium may be promising, but no one can predict with any degree of certainty what will actually happen. But one thing is certain: The ride promises to be interesting - and full of unanticipated twists and turns.

So fasten your seat belts and get ready for the ride. To quote management guru Peter Drucker, "The only way to predict the future is to create it."

Or drive it.

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