In the aftermath of Harvey and Irma, truckload capacity is tighter than it has been for years, giving some shippers challenges in covering freight. Here are the factors at work, along with some suggestions for what you can do now to prepare yourself for the market ahead.
What’s causing tight truckload capacity
Keep in mind, these are only some of the factors contributing to the tight market, but enough to give you a clear picture:
Available trucks already in use.
The FTR Transportation Intelligence October trucking update shows 99.2% of the trucks that are available in the market were already being utilized before Hurricane Harvey hit. FTR estimates that from now through the end of September, 25% of trucks in the Gulf Coast region west of the Mississippi will be impacted by the disruption.
Back to back natural disasters change everything.
Initially, trucks in the Gulf Region had to wait for storm waters to recede before they could reach loading docks and move about freely. Trucks were diverted from other regions to deliver relief items, and more will be required to deliver construction supplies for the rebuild. As the water recedes, more trucks will be needed to relieve backed-up loading docks. In short, the normal freight flows aligned with established economic corridors were disrupted and carriers had to find new corridors for displaced trucks to keep drivers moving.
The labor market is extremely tight.
The economy is at full employment, including the usual employment sectors that lure drivers away from trucking, such as construction. Now, with major metropolitan areas set to rebuild and extreme competition for workers, construction wages will likely be more attractive than truck driving wages in these areas. Expect more people to switch from driving to construction jobs and for driver wages to rise in order to compete.
These factors affect the truckload market
We all know that tight truckload capacity leads to higher spot market prices. This effect has already begun. In a post, Noël Perry of FTR says he expects spot prices to jump in the next several weeks, with very strong effects in Texas and the South Central U.S.
FTR research showed an increase of 7 extra percentage points of annualized pricing in the 5 months after Hurricane Katrina, and a peak of 22 percent year-over-year spot price increase following the winter storms of 2014. Today’s weather events—plus fuel cost increases, ELD mandate effects, and other factors—are poised to lead us into a period of fast-rising rates. There is usually some lag between rising spot market prices and contract prices, but contract pricing already shows signs of increasing.
It’s not too late to address tight truckload capacity
In this kind of market, you can still take immediate steps to brace yourself for the challenging market ahead, and keep shipping rate increases as low as possible.
Increase lead times where possible.
These issues are shown to produce much higher levels of tender rejections. Shipment tender lead times are directly correlated to price. Same and next day lead times can be difficult to respond to and have a higher likelihood of shipment tender rejection.
Be flexible on pick-up and delivery windows.
When possible, provide a window for shipment pick-up and delivery. This in turn allows for carriers to be more flexible to your transportation needs and utilizes a driver’s available hours of service more effectively.
Understand current market conditions.
The only consistency in the transportation market is its tendency to fluctuate. If you are able to stay up-to-date on market changes and openly communicate with your team and company leadership, you may be able to better anticipate potential impacts to your business and plan accordingly.
Consider all viable options.
In reality, there might be some good business reasons or processes that limit your ability to pull some of these levers, but when possible, be open to revised pricing, spot quoting, live-loading, and other processes to increase your capacity options and lessen the impact of a tighter market.
Keep in mind
Finally, don’t forget that in the U.S. market, 89 percent of carriers have 1-5 trucks and carriers with 50 trucks or fewer control 57 percent of the for-hire class-8 tractors in the market. Leveraging a logistics management provider and TMS could help you aggregate the equipment of all these carriers, which can also help you find truckload capacity, even when capacity is tight.
*This article is a repost from TMC Connect Blog from September 8, 2017* Chris Brady serves as the director of Americas for TMC, a division of C.H. Robinson. As a Certified Six Sigma Black Belt, Chris co-authored TMC’s approach to operational excellence, which helps customers optimize and improve their global supply chains. He is an active member in both the Association of Operations Management Professionals and the Council of Supply Chain Management Professionals. Chris is a Certified Supply Chain Professional and a graduate of Miami University.