The freight capacity crunch has dominated supply chain and logistics since 2014, and many shippers fear it will arrive sooner than many experts believe. However, the capacity crunch may be less severe than anticipated, and it could easily reflect growing pains in the industry. Thus, shippers need to understand why it has not yet taken hold, why some experts believe it may still occur and what preventative actions are needed now to prepare.
The Freight Capacity Crunch Has Not Yet Reared Its Head.
The freight capacity crunch remains an object of speculation in among logistics providers and shippers. In the 2017 State of the North American Supply Chain Survey, only 11 percent, one in nine respondents, expressed issues with capacity over the past year. Meanwhile, the U.S. gross domestic product (GDP) rose 3.5 percent during the third quarter of the year, followed by a heightened holiday shopping season. Yet, the overall economy saw fewer sales throughout 2015 and 2016 than predicted. Thus, the volume of existing shipping containers did not change much.
Each of these factors would suggest a capacity crunch is on the horizon, but fewer overall shipping services were utilized last year. This begs the question, why do experts still expect a capacity crunch in the future.
Why Do Some Point to a Forthcoming Capacity Crunch?
Growth in GDP and increased consumer spending is great, but it does not necessarily mean that more packages were shipped last year than during the pre-recession spikes. As explained by the Journal of Commerce (JOC), consumers are indeed spending more, but they are spending money on travel, health care and data plans. Consequently, the additional spending has not had a true impact on the number of packages being shipped.
Forthcoming regulatory actions also allude to a capacity crunch on the horizon. Starting December 18, 2017, truckers will be required to implement and use electronic logging devices (ELDs), and existing hours-of-service (HOS) regulations are currently in effect. Essentially, drivers will no longer be able to tell “white lies” to get more products delivered. The ELD mandate means drivers will be locked out from driving in excess, putting more pressure on capacity. Meanwhile, the driver shortage is only going to grow worse, increasing the risk for a capacity break.
What Do Shippers Need to Do Now?
Regardless of personal and expert opinions, history teaches that those that fail to prepare for the worst of times will suffer great setbacks. So, shippers need to know how to prepare for a possible capacity crunch before it occurs.
Look to Increase Intermodal Shipping Options, Including Alternative Shipping Solutions.
The most influential aspect of a freight capacity crunch is its impact on rail and intermodal shipping options. Shippers can leverage this information to take advantage of better rates among rail and intermodal shipping providers. These alternative shipping solutions, which could easily include drone delivery within the next few years, provide a safety net against the capacity crunch. However, their relative ease of accessibility now will only last so long as the capacity crunch stays on the brink. In other words, companies need to start working with alternative shipping solutions providers now, not when the capacity crunch becomes a major problem for the industry.
Build Strategic Transportation Partnerships, Focusing on Strategic Transportation Management Technology and Services.
The second step to protecting against a possible capacity crunch involves building strategic partnerships with intermediaries and third-party logistics providers (3PL). In recent years, the role of the 3PL in providing IT services has increased exponentially, and most shippers believe the IT Gap has rescinded into history. Clearly, strategic partnerships have the potential to alleviate the concerns of a coming capacity crunch.
Strategic transportation technology and services include value-added services, such as small packaging shipping, freight consolidation, and freight auditing. With dimensional pricing (DIM pricing) models replacing traditional freight classification, the importance of cost savings cannot be overstated. In other words, auditing and ensuring proper classification can help carriers manage the available space they have. Meanwhile, analytics and insights from Big Data can help shippers identify peaks and contractions in business, helping the industry adapt to capacity changes with more ease.
Will the Capacity Crunch Hype Go Away Soon?
No one really knows for sure. Some experts suggest that capacity crunch could still become a major nightmare for shippers in 2017, but others report a decreased likelihood of its fruition. Rather than simply hoping for the best, shippers need to act immediately to protect and safeguard their assets if the capacity crunch does suddenly threaten and undermine the efficiency of the industry.
For shippers that have already entered strategic partnerships with 3PLs or even the so-called 4PL, providing value-added services in addition to logistics services, the capacity crunch may pass by without disruptions. However, failure to take advantage of a pre-crunch economy will lay the groundwork for bankruptcy and layoffs in the coming years, especially if the capacity crunch does occur.