The capacity crunch does not need to be a chaotic for your business, but you will need to adapt. Below are some suggestions to help you deal with the changing landscape.
By Jaron Klopstein, Vice President at Motus Logistics
Until late 2017, capacity crunches were largely speculative predictions from industry experts who saw the writing on the wall, so to speak. In the fourth quarter of 2017 the crisis finally reared its head. Demand for trucks was booming and supply was limited. In fact, the load to van ratio peaked at over 17:1. That means there were over 17 loads of volume needed for each truck operating on the road. To put this in perspective, two years prior the ratio was 2:1.
What is causing the capacity issues?
The lack of carrier capacity can generally be traced to three areas:
Driver Shortages: plain and simple, there are just not enough drivers operating on the roads today. The American Transportation Association estimates that the industry shortage could grow to more than 174,000 drivers by 2026 and current shortage numbers may range anywhere from 40,000 to 50,000.
Government Regulations: In addition to driver shortages, stricter government regulations are also contributing to the problem. The new electronic logging device mandate (ELD), for example, may lead to even more capacity issues if carriers struggle to adopt the technology. Drivers can no longer keep paper logs, and instead, must utilize ELD’s which track their hours automatically. Not only is this expensive upgrade pulling drivers and small fleets off the road, but the drivers still operating are logging fewer hours, and freight is taking longer to reach its destination.
Growing Economy: Manufacturing is on the rise in the United States, and while this is a great thing for the economy, it means more product is moving over the roads and increasing the demand for trucks.
What can you do?
The capacity crunch does not need to be a chaotic for your business, but it will mean you need to adapt. You should expect carriers to miss pickups more often, take longer to deliver freight and increase rates to take advantage of the market flip. Here are some suggestions:
Expand your carrier mix: Stop wasting time waiting on your preferred carrier and take advantage of the freight availability of all carriers. Having more carrier options is essential to landing better contracts with existing carriers when it comes time to renew or renegotiate your contracts. When trucks become scarce, you’ll wish you had a larger network of providers to handle your volume.
Become a “Shipper of Choice:” Businesses are now competing against each other to book loads at a reasonable rate. If your competitor is willing to pay more for the same load, you’re going to lose out. One way to combat this is to become a “shipper of choice” — a customer that is easy for your carrier to service.
Drivers are a carrier’s single greatest asset, so treat them as if they were your own employees. Get them in and out as fast as possible; drivers who linger lose out on chances to pick up other freight and don’t want to waste crucial hours behind the wheel.
Additionally, offer drivers basic amenities, such as bathrooms, refreshments and a place to wait while freight is loaded. If you expect dock delays, let the carrier or your 3PL know. You may even consider adjusting your pickup hours to allow freight carriers to come later in the day. Remember, everyone wants their freight picked up at 4:45, so be flexible when you can.
Stop purchasing purely on price: In the capacity crippled market, shippers should think about how they can utilize carriers more efficiently and factor in the quality of their service in addition to cost. Implement a Transportation Management System (TMS) to find cost-savings in routing your carriers correctly and utilizing the least-cost provider as often as possible.
In addition, utilizing carriers within their direct footprint in lanes they bid aggressively on will ensure the carriers continue to view your business performing well — something that will benefit you when you renew your pricing. Lastly, remember that not all freight moves equally. While some carriers may offer more aggressive pricing, don’t lose sight of transit time, ease of use, transit visibility, and on-time performance.
Consider modal shifts, when possible: Another way to circumvent capacity problems is to ship with less constricted modes — such as small parcel, air, and rail. While each will offer pros and cons relative to an LTL or over the road shipment, these modes have been less impacted by capacity issues and driver shortages.
Consider moving your bulkier shipments on rail when transit time is less of a concern, or your lighter shipments via small parcel when you can justify the likely higher cost of shipment.
Don’t let the capacity issues become a thorn in your side. With the right approach, planning and execution you can thrive in a market where most shippers will struggle.
Jaron Klopstein is Vice President at Motus Logistics, a full-service freight management and logistics consulting company providing solutions in the Small Parcel, LTL (less than truckload) and FTL (full truckload) arenas for shippers across North America. For more information, visit motuslogistics.com.
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