If you were to ask a group of transportation analysts where freight rates are heading in 2018, most would say higher. That’s not surprising, considering we are riding the wave of a healthy economy. Logistics Management magazine says we are experiencing the “best global growth rate in seven years.”
What are the main factors pushing freight rates higher, and what can you do to mitigate and prepare for these increases? From my position as Senior Vice President of Carrier Relations at GlobalTranz, I’d like to share what we are learning from the carriers we work with daily and pass along insights that will help you more efficiently manage your logistics operations.
Driver Shortage & Capacity Crunch
In my conversations with our valued carrier network, the number one factor driving higher costs is a lack of qualified drivers. It’s having a domino effect, leading to today’s widespread capacity crunch.
Some carriers say they can’t hire drivers in line with the pace of growth. Ironically, carriers can buy trucks, both to replace aging equipment or increase capacity, but they can’t get the drivers quickly enough behind the wheel. Therefore, many carriers are unable to fully capitalize on today’s robust freight market.
One large regional LTL carrier recently shared that in the course of the next five years, over 20 percent of its driver force is going to retire, yet another drain on the driver pool. Depending on the source, most analysts think the driver shortage is between five to 15 percent.
That’s also why many people in the industry are calling this new reality a carrier’s market. With lower shipping capacity, carriers can, in turn, set higher prices—a natural result of supply and demand economics. At the same time, carrier costs, such as driver salaries, are increasing as a means of enticing more to join the ranks. Driver pay will continue to rise this year as carriers compete for fewer drivers.
While the electronic logging device (ELD) mandate began in December 2017, its official enforcement didn’t start until April 2018. John Larkin, a trucking analyst, says as a result of the ELD mandate, “Additional rate increases may be forthcoming.”
Driver time behind the wheel will be strictly enforced with ELDs. Gone are the days of paper logs, which are easier to alter, enabling operators to drive more hours than legally allowed. This change is having an impact on transit times, especially in the range of 450 to 800 miles. A lane that once was traveled in a day now takes two, resulting in inherent rate increases.
The nature of freight is changing. As B2B buyers mirror consumer purchasing behaviors and delivery expectations, more businesses want inventories closer to customers. The result is more frequent shipments that are lighter in weight, yet can be bulkier in size.
LTL carriers get paid based on what they can load into a trailer, so an increase of lightweight and bulky items that “cube-out” a trailer leaves less room for heavier stackable items, which can impact a carrier’s profitability. To contend with the changes to freight density, carriers are adjusting their rates to focus more on how much trailer space the shipment occupies (dim-weight or density pricing) and less on weight and class. For carriers that haven’t made the jump to permanent dim-weight or density pricing systems like UPS and FedEx, these price adjustments sometimes take the form of W&R (weight and research) adjustments and/or additional accessorial charges.
About 80 percent of our LTL carriers have reached out to us in the past six months to say, “We have to start charging differently for long, over-sized, light-weight freight.”
How to Mitigate Higher Prices
With higher shipping prices predicted in the months ahead, there are several steps you can take to save on your overall logistics costs:
1. Identify Inefficiencies in Dock Operations
How do your employees interact with carriers? Is the driver getting in and out of your facilities quickly? What is your check-in and check-out process with drivers? The longer drivers sit idle at your dock losing productivity, the more likely your freight costs will be higher.
2. Optimize Your Packaging
Are your products adequately packed and protected in a box that’s not too big for the actual item(s)? We’ve all received packages from a seller where the item may be a small box packed into a much larger box and filled the rest of the way with bubble wrap and foam peanuts. As carriers move to rates based on the amount of space a shipment occupies on a truck rather than weight-based NMFTA classifications, shippers will need to be conscious of their packaging strategies, to avoid higher costs.
3. Combine Modes or Mode Shift
Leveraging multimodal shipping services and logistics solutions, like combining rail with truckload, or creating pool distribution opportunities, helps reduce your overall costs while mitigating capacity challenges and meeting your customer delivery demands. When you need to ship standard dry freight 700+ miles, and transit speed is not critical, intermodal shipping is an option that can drive consistency, cost savings, security and reliability into your supply chain.
4. Consider Drop Trailers
Drop trailers are often used at locations that have enough outbound shipping volume to fill multiple trailers each week. They enable shippers to load freight when convenient and combine shipments into a full truckload, which would otherwise ship as LTL. Drop trailers also reduce the amount of time drivers sit idle waiting for their truck to be loaded. In today’s tight capacity market, and with the recent launch of the ELD mandate, carriers and drivers are more conscious of dwell time and lost productivity. Using drop trailers creates flexibility for your dock and warehouse schedule, helps mitigate capacity issues, and enables drivers to quickly pick up your delivery, which in turn helps keep your freight costs down.
5. Centralize Transportation Procurement
Use a web-based TMS (transportation management system), with a network of pre-qualified carriers, to provide a consistent means to quickly compare carrier rates, transit service, and match the best carrier with your shipment. Using a TMS provides visibility to all your outbound and inbound freight, so you can see all your shipment data in one place to track key metrics and better optimize your total freight spend, which will drive operational efficiency and aggregate transportation cost savings.
6. Partner with Logistics and Supply Chain Experts
As logistics operations, capacity and rates continue to increase in complexity, 90 percent of Fortune 500 companies have turned to 3PLs for logistics management. Third-party logistics firms offer shippers access to deep carrier networks with reliable capacity, multimodal shipping solutions and transportation management software that helps mitigate freight market fluctuations, meet your customer delivery demands and gain competitive advantage.
Soften the Impact of Freight Rate Increases
Analysts are predicting shipping increases anywhere from seven to 11 percent this year, but by improving logistics operation efficiencies and leveraging the partnership, capacity and advanced technology of 3PLs, you’ll soften the impact while driving operational efficiency and cost savings into your supply chain.