An Update on the Elements Driving the Transportation Capacity Crunch & 5 Quick Tactics to be a “Shipper of Choice”
In October of last year we first wrote about the transportation capacity crunch. In that first post of the ongoing series, we did what we do with all firsts in the series: we defined it. We then went on to state what are the 4 contributing factors, at the time, fueling the capacity crunch.
After posting the article into one of the LinkedIn Groups I am active in recently, I received a question, or rather a request, to provide an update of a “Where are we now with the transportation capacity crunch?” Today, I will present some of the top factors and elements of the current transportation capacity crunch and how now, with carriers able to choose shippers based on the attractiveness of freight, you can implement 5 quick tactics on how to stay a “shipper of choice” in times of tight capacity.
But first, let’s recap our very first post on this subject.
What does it mean when someone says “Transportation Capacity Crunch?”
Essentially a transportation capacity crunch refers to having less truck containers and truck container space available for freight, making it very difficult for a shipper to find a full truckload to even haul freight to specific destinations, or causing a dramatic increase in full truckload pricing.
Capacity crunches of note have been on the rise in the last decade due to many factors. We saw major transportation capacity crunches in times of recession, such as in 2001, 2004, 2006, 2009, and now again here in 2013.
Then, after we defined it, we cited what were the 4 contributing factors of the capacity crunch then. They were briefly:
- Less Trucking Companies, Less Trucks
- Lack of Drivers Replacing Retiring Drivers
- Economic Factors Decreasing Equipment Investment
- Government regulation Affects the transportation capacity crunch
So, have these factors changed much from almost a year ago? Let's take a look....
The Current Factors of the Current Great Transportation Capacity Crunch
1. Money, Money, Money
Economics remain the most important factor in how carriers evaluate and rate shippers, with carriers indicating market competitive rates and fair fuel surcharges as “critical” or “important” factors.
Payment terms and average length of time until payment was also a key area for many carriers ranking it as a “major factor” and considering it “important but not critical.” 30 day payment terms are considered acceptable by the majority of carriers and paying in less than 30 days would really differentiate a shipper. Volume potential and positive credit rating were also consistently rated as a major factor.
2. Overall Productivity and Efficacy on the Shipper and Carrier Side
Driver productivity is continuing to be a focus for carriers and one of the most critical factors in shipper freight profiles or practices. Carriers consider dwell time as an “important” or “critical” factor in determining the preference status of a shipper. In-transit delays are also a major and important factor. The ability to use drop trailers, shipper load count and type of freight are also key factors in efficacy.
Carriers rank driver-friendly practices highest based on those that enhanced driver productivity, such as onsite parking and available bathrooms for drivers. Regular updates on loading and unloading status and a guard shack for drivers to receive instructions are also high on the list.
3. The FTR Shippers Condition Index and the Outlook Seems Bleak For Rest of the Year
The most recent edition of the Shippers Condition Index (SCI) from freight transportation forecasting firm FTR showed one of the highest readings of the year with their most recent report.
FTR describes the SCI as an indicator that sums up all market influences that affect shippers, with a reading above zero being favorable and a reading below zero being unfavorable and a “less-than-ideal environment for shippers.”
According to FTR Transportation Intelligence, its Trucking Conditions Index (TCI) increased to a reading of 8.49 for July – one of the highest points this year –reflecting rising prices and service lapses caused by the current capacity tightness.
Jonathan Starks, FTR’s director of transportation analysis, noted in a statement that the firm’s TCI could go even higher this fall if the economy accelerates.
The reasons for this, explained FTR, have to do with both spot rates and contract rates heading up in a full capacity environment and with the fall shipping season rapidly approaching, it explained conditions for shippers could further deteriorate.
“When looking at the TL market, for much of 2014 it has been a tale of two markets,” he explained. “Spot activity has been very strong, especially in rates, [while] the contract market has been less robust but still showing signs of stress on capacity, costs, and rates.”
Starks said FTR expects those two markets merge this fall as a shipper’s core carriers get further stressed and contract rates move higher. “Keep an eye on spot rate as we head into September as they will be an early indicator of capacity shortages and stress in the system,” he added.
“To date in this recovery, aside from the weather-plagued winter of 2014, freight growth has been both fairly stable and relatively modest. This has allowed fleets to operate with very little excess capacity and keep contract rates relatively low as they focused on baseload contracts. This has moved much of the demand fluctuations to the spot market - in which price swings can be much more dramatic. Spot rates have started to show an early upward movement at the end of the summer season, highlighting potential capacity issues as we move into the fall freight shipping season. Contract rates will be moving up, but it will be wise to watch spot rate activity to see how demand and capacity are matching up.”
4. According to Some Experts, though, The Worst of the Transportation Capacity Crunch is Still Yet To Come...and it Again....it Revolves around Government Regulation
According to a recent article in "Fleet Owner", they had the following to say:
A shortfall in trucking capacity is not expected to fully develop until at least two years from now, according to several industry experts, as current “supply and demand” between available trucks and loads is more in balance than many might think.
“Supply and demand is not currently imbalanced, in the aggregate,” noted Scott Moscrip, founder and CEO of load-board provider the Internet Truckstop, in a conference call last week host by Wall Street investment firm Stifel, Nicolaus & Co.
“It is just that some trucks are positioned where little freight is available and some freight is available where an insufficient number of trucks are positioned,” he explained. “In theory, through better use of [load availability] data, these imbalances can be partially eliminated.”
Moscrip stressed that the driving force behind us not seeing the real struggle of the transportation capacity crunch is due to sweeping transportation regulations, such as electronic logging devices, more drug testing, and speed limiters, which will not quite yet going into full effect for another few years:
“Too much effort is focused on trucking industry safety and the truck driver and not enough attention is paid to the other 99% of the traffic that plies our highway network,” he said.
As with FTR's Shipper Conditions Index, this points to a rush to Spot Market to cover loads. That increased demand will boost spot pricing which, in turn, will convince more carriers – typically small carriers, but increasingly mid-sized carriers – to allocate capacity away from contract customers and towards the higher priced segments of the spot market.
The Capacity Crunch Seems Like the New Normal....So what is a Shipper to Do? Here are 5 Quick Tactics to Keep in Mind to Stay a "Shipper of Choice"
Thecapacity crunch is here, and many shippers find themselves forced to compete with one another for carriers. In fact, it is so vogue now to say "Shipper of Choice" that you can find countless blogs (ours included) that are going to give you some quick tips on how to do so. If you find yourself struggling to keep up with transportation in general and all that goes into it, you may want to look at outside help from someone like Cerasis, who is a third party logistics company focused on transportation management. If you want to sit down and consult with one of our Account Executives, don't hesitate to reach out today. In the meantime, use the 5 quick tactics to help improve your life during times of tight capacity:
- Tender Accordingly: Your carriers have their sweet spot just like everyone else. Make sure you understand how your outbound and inbound aligns with your carrier needs and then tender accordingly. Make transportation a win-win partnership.
- Reduce Dwell Time: Keep your yard clean, your doors clearly marked and your loads ready. Have the resources to load efficiently and help your loading driver get on his or her way. Make it nice to do business with at the dock as well as the corner office.
- Respectful Treatment: We value our drivers and the carriers we partner with at Cerasis, and it is the reason we continue to find capacity with for our customer shippers, and we greet them with a collaborative partner mindset. You too should think this way. If you think about it, without the carriers at all, how would you get your product to your customer?
- Open Communication: Being a shipper of choice means assuring your carriers with ongoing communication and complete, detailed load information and availability. Our expertise and TMS allow us to make communication with carriers a top priority. If you are not using the right tools or have the right people in place to effectively sustain and scale your transportation efforts, again, consider looking for outside help.
- Quick Payment: As previously stated, recognize the importance and vital role your carriers play in the success of your logistics business. It’s just another way to show your respect and give reason to join your carrier community. At Cerasis, our freight payment and freight invoice consolidation services allow us to quickly pay carriers, making sure our shippers stay shipper of choice. Then our customers enjoy only one invoice per week vs. the many they could receive.
How are you holding up in these great transportation capacity crunch times? What tips would you offer? There are some that also say there is NOT a transportation capacity crunch at all. What do you think? Let us know in the comments section below!