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 Is Tight, Not Impossible.
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.
Fleets Are Expanding.
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.
Expansion of the Panama Canal Will Increase Incoming Ocean Freight.
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.
Increasing Regulations Are Taking Effect.
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.
Automation Is Becoming a Major Part of the Supply Chain.
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.
The Importance of Making Freight Attractive to Carriers.
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.”
Better Trucker Wages and Benefits Are Being Used to Fight the Capacity Crunch.
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.