For the thousands of companies that rely on the nation’s trucking network to get their goods to market, perhaps no issue in the past few years has become more critical than the capacity crunch in trucking. And this year, on top of the already tight capacity, the weather (and soon the flooding from thaw out) will only increase the tightness we are seeing in full truckload capacity.
According to this recent article from DC Velocity, the capacity crunch in trucking is not just some ethereal vapor or “water cooler” talk. The full truckload capacity is in full effect:
The latest evidence came today from consultancy FTR, whose monthly index of trucking conditions showed “unprecedented capacity constraints” in February, similar to the month before. Severe winter weather amplified an already-tight supply situation, and FTR expects a sellers’ market for truckload services to persist for the rest of 2014.
When taking the bad February weather into account, the monthly reading represented the “tightest truck market on record,” FTR said.
Jonathan Starks, FTR’s director of transportation analysis, said the imbalance is driven largely by changes in the regulatory landscape that have compressed driver and rig supply. However, he added in an email that “demand has held up pretty well so far this year.”
While the reasons for the capacity crunch are multiple—a weak economy that forced truckers to sideline rigs, a shortage of available drivers, rising operating costs, and a lack of adequate credit for carriers to replace aging equipment or expand their fleets—the fact is, if you are planning well and thinking strategically as a shipper, you are not at the mercy of the capacity crunch. In fact, we have written at length around the capacity crunch, by first telling you what is the capacity crunch in trucking, and then giving 10 tips on making your freight more attractive to fight the capacity crunch, and how to maximize an alternative to full truckload by shipping via an LTL Volume freight move. If you are facing sky rocketing capacity crunch full truckload prices, you may want to read these blogs for some great information.
With capacity limited and demand increasing to procure trucks for freight, carriers can afford to be more selective about the freight they’ll accept. They also have greater leverage when bargaining with customers over rates. For many shippers, this raises the twin problems of securing the capacity they need and how much they’ll have to pay for it if and when they do.
Shippers who’ve adopted a tactical rather than strategic mindset are likely to encounter the most difficulty obtaining needed capacity. These shippers share several traits that carriers view as red flags: They switch back and forth between carriers in search of the cheapest deal; they confine the topic of carrier discussions to rate matters, and they ignore carrier complaints about service issues such as long loading and unloading times, and freight that is difficult to handle.
These shippers also “time the market” in an effort to lock in rates at what they believe to be the absolute bottom. This approach often backfires. Not only do shippers get in at the wrong time and end up paying more over the long run, but they alienate their carriers by failing to care what impact their decisions have on the trucker’s business.
Beating the capacity crunch in trucking won’t be easy. But it’s not an insurmountable problem, as we have said in our previous posts. The road to restoration begins with a change of attitude. What follows are some tips on developing the right mindset for long-term success.
Shippers need to frame capacity discussions in terms of what works well for both parties, as opposed to engaging in a zero-sum game where one benefits at the expense of the other. Seeking alignment between business goals and outcomes of both shippers and carriers can result in better rates and exceptional service over time.
One of the most important tenets for shippers is to be truthful about the traffic they tender. During the procurement process, shippers may make their freight look better than it really is. But if carriers discover that the freight isn’t available at the right times or is difficult to handle, they may choose to accept someone else’s freight instead. If the primary carrier doesn’t take the freight, the shipper may find himself in a bind. As the shipper goes down the service guide in search of providers, he’s likely to find that his rate and service options become increasingly less attractive.
On the other hand, if the shipper doesn’t disclose the attractive qualities of the freight, the carrier may “assume the worst” and price capacity at less-than-optimal rates. Again, here is our handy guide chock full of tips on making your freight more attractive to carriers.
Shippers should aim to spread their loads over an entire month, rather than compress them into a one-week period at the end of the month. This rewards a shipper’s core carriers—the ones offering the best price-service matrix—by allowing them to better plan their schedules and thus carry more loads.
Carriers favor consistency in their customers. When capacity is tight, carriers will take care of the ‘steady’ load customers before the erratic load orders. Shipper consistency can result in better rates because carriers prefer a steady revenue flow to higher-priced but less-predictable freight.
The mantra of consistency should apply to the procurement process as well. Shippers should conduct a procurement exercise once a year without fail, and do it at the same time each year. This gives service providers a better idea of future demand, so they can develop annual strategic plans that keep them from getting stuck in a bad situation for an extended period of time.
With an annual plan in place, providers are far more likely to adapt to all types of market changes, continue to accept shipments, and provide quality service. Perhaps most important, shippers who follow this template build credibility in the market as reliable, even-handed customers, and carriers like that.
As a shipper try and relax your pickup and delivery rules to accommodate drivers if necessary. Nothing burns up drivers, and costs more, than drivers’ sitting idle, waiting to make a pickup or delivery.
If they’re given longer lead times to respond to orders, carriers can do a better job of capacity planning and synchronizing driver availability with customer loads.
It may sound like an obvious statement given their demonstrated benefits, but there is no substitute for transportation management systems (TMS) when it comes to monitoring a transportation and logistics operation. From carrier performance data to order-level reporting to savings analyses, these systems provide unbiased information on virtually everything a shipper needs to know. A TMS allows shippers to benchmark real costs with historical and planned costs. Without this insight, it won’t be clear why a plan succeeded or failed to meet the budget at the end of the year. It also gives service providers the insight they need to perform at higher levels.
TMS services are readily available through multiple channels—including the budget-friendly Web-hosted model, such as the Cerasis proprietary web-based TMS, the Cerasis Rater—and their value has hardly been kept under wraps in the industry and the media. Yet, somehow, the software is not as widely used as you might expect. We are continually amazed at how many shippers we’ve talked to who do not use a TMS. For many shippers, it’s a competitive advantage, and often, it’s the secret sauce.
Just because companies compete on the store shelf doesn’t mean they can’t share supply chain resources. More shippers should collaborate to create round trips out of one-way hauls and combine freight to create “continuous move” truckloads or even take a look at less-than-truckload (LTL) movements (although you do have to account for a bit more time, but you can find the space at a great price).
As stated in our LTL webinar we held last month, we additionally advise shippers that use “pool distribution” services for their outbound transportation (shipments from DCs to stores) to negotiate reduced rates with carriers to pick up backhaul loads from suppliers located near the carriers’ outbound destinations. This not only results in savings for the shipper, but also benefits the carrier by reducing the number of unproductive empty miles. And both sides benefit by utilizing truck capacity that’s already been allocated.
Historically, the shipper community gets creative when its collective back is to the wall. This time is no exception. And this time, there is hardly a person who will say the capacity crunch in trucking isn’t causing more difficulty in getting your freight to your customer on time……and we all know the horrible feeling of having to go to your customer and say their product will be late, because you were victim to the capacity crunch.
However, you do have a dog in this fight, but you must, as is all things successful in logistics….plan for it.
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