The shipping industry saw growth and expansion in 2014 when compared to the state of the industry since 2008. The economy was on the road to recovery, and more technology was being developed and deployed to increase the productivity and efficiency of fleets. However, inconsistencies in service levels, including the use of inaccurate data, an economy that hinges on the state of foreign markets (think China), and changes to regulations and labor requirements are continuing to impact the capacity of the shipping industry. Unfortunately, the capacity crunch is real, and shippers need to know how to face the prospects of a slower 2016 to stay competitive and meet the demands of their customers and partner businesses.
Capacity of today’s fleets is tight. Shippers are focusing on using dimensional pricing to cut down on wasted space, and consolidation of freight has become the new buzzword. Although capacity is tight, especially considering the number of carriers who are prioritizing freight to boost production, reports Roger W. Gilroy of Transportation Topics News, shippers are looking to the future through investment into current operations to ensure long-term success and stability.
The driver shortage means nothing if trucks and trailers are unavailable. While the driver shortage is a real threat to the state of the shipping industry, more carriers, such as UPS and FedEx, are expanding their fleets to address the capacity crunch. Werner Enterprises expects to invest between $400 and $450 million to increase fleet capacity by 3,000 trucks. Meanwhile, shippers expect the overall cost of shipments to increase by 1 percent, reports William B. Cassidy of JOC.com. Yet, contractual parties, such as third party logistics providers (3PLs) are expecting increases in freight of between 2 and 3 percent from 2015. As a result, most carriers, including local and 3PL carriers, are also increasing the size of their fleets.
Part of the discussion on the current state of the capacity crunch must include a discussion on the Panama Canal. Since 2007, the Panama Canal has been under construction to allow larger ships to pass through the gates, which will bring a huge shift in the amount of ocean freight being delivered to both sides of the country, asserts JOC.com Staff. Rather than addressing multiple smaller, incoming shipments, carriers and shippers will face the perils of more product arriving faster, which only compounds to the amount of incoming freight today.
Electronic logging devices are going to become a requirement in November 2017, and drivers are already being pushed to take more breaks than currently required by the hours-of-service regulation. Unfortunately, the problem with increasing the number of required stops for truck drivers will only increase risk to other drivers, due to sharp turns and entering or exiting freeways. Even though the number of fatalities among truck-passenger car accidents declined to record-breaking lows in 2014, these regulations will make keeping truckers on the road for longer periods more difficult. As a result, it will take longer to get products from origination to destination, driving up costs to truckers and shippers concurrently.
The state of the capacity crunch is also directly related to increasing technology. As the level and degree of technology increases in the shipping industry, which includes auditing to catch errors, improvements of freight optimization in small package shipping, and intermodal shipping analysis and selection, the overall stress on existing capacity will increase. Essentially, getting more packages out faster is going to place more strain on an already stressed system, resulting in increased costs and delays in product transit times.
While the capacity crunch is not ideal, it does pose some interesting concepts for today’s shippers. Ultimately, carriers continue to retain a huge amount of the power in deciding the fate and time requirements for each shipment. However, small shippers can take advantage of this selection by making their freight more attractive than the freight of their competitors, which was discussed in great detail in our previous blog post, “10 Tips on Making Freight More Attractive to Ease Your Capacity Crunch Woes.”
If you think back to the beginning of this post, we spoke about the size of today’s fleets. In keeping with this motif, the trucker shortage will play a significant role in how the industry responds and adapts to the capacity crunch. More organizations, including shippers and carriers, are working to improve driver satisfaction by making pay appropriate and providing benefits to drivers. This includes reducing dead time and driver-related processes that are not driving.
For example, having drivers oversee the individual unloading of freight from a truck can be replaced with drop shipments, allowing drivers to devote more time to getting to the next haul. Meanwhile, shippers can increase communication with drivers and carriers to prevent delays during loading or unloading and eliminating congestion in distribution centers.
2016 is not the year that capacity will break, or it does not yet appear to be headed in that direction. However, low fuel prices could continue to cause additional pressure, and a sudden jump in fuel costs, which is a greater risk of operating during the summer months, could push the capacity of the shipping industry to a breaking point. The time to act and ensure operations are efficient is before the capacity crunch becomes a capacity break, and fortunately, a dedicated transportation management system can help you prepare in the event that the industry sees an even higher resurgence than what is expected.
The squeeze is on. Higher fuel prices, a driver shortage, a major wave of government regulations and an improving economy are all playing their part in creating a problematic logistical environment – a nationwide truck capacity crunch and rapidly rising costs. We have been here before. Analysts hyped the trucking capacity crunch of 2004 as the “perfect storm” – when an improving economy and new Hours of Service (HOS) regulations caused
a record shortage of drivers.
In the last recovery, the capacity crunch crisis lasted about one year. This time we could get a full three years of tight supply (capacity). Up to 10% of freight will not move on its intended schedule. This is a condition that causes supply chain failures, with very large cost penalties. Under these conditions, the 30% price increases currently forecast over the next three years would get much higher on the most affected lanes.
Fast forward to 2013, and here we are again, new hours of service, higher fuel prices, same song, and same dance. While managing supply chain variables has become trickier, it’s not mission impossible. Proactively managing through this issue in the short term will set shippers up for success in the long term. As we talked about yesterday in our trucking capacity crunch series, co-loading and continuous move routing through collaboration by multi-freight shippers and carriers are two great strategies to undertake when you are looking to squeeze the most costs savings even in this capacity crunch we are seeing currently. Today we will talk about ten tactics you can employ today to combat the rearing ugly head we call the capacity crunch.’
Making Freight More Attractive and Ease Your Capacity Crunch Woes
There are different approaches shippers or logistics providers can make with their freight to make it more attractive. Some tactics are simple, some are more complex. Slight changes in each can make a difference in how carriers, providers and drivers view and eventually price your freight.
Don’t let the capacity crunch get you down. We’ve been here before, and we’ve weathered the storm. If you are finding you are having continual issues fighting the capacity crunch as a shipper, and are currently doing your transportation management in house, a great way to combat this is to look at hiring a expert logistics provider who can provide both custom solutions and great technology to combat rising transportation costs due to the capacity crunch.
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