Current and future capacity crunches are often analyzed for impact in the U.S., but they exist around the globe. The same holds true for their impacts on varying transportation modes. All modes of transit feel the effects of capacity crunches, but those that suffer the biggest effects tend to involve ground-transit, including less-than-truckload (LTL), full truckload (FT) and parcel shipping. Since shippers in the U.S. rely on these three dominant transportation modes, let’s look at how capacity crunches affect them.
FT Is First to Feel the Effects of Capacity Crunches
Freight consolidation is the go-to solution for addressing capacity crunches, and since LTL shipments can be consolidated faster, they are first to fill available space in FT, explains Jeff Berman of Supply Chain 24/7. However, consolidating freight may require negotiations with carriers that shippers have not previously considered, so third-party logistics providers (3PLs) tend to be the go-between for consolidating LTL shipments to FT.
FT also feels the pressure from capacity crunches due to their predisposition to regulatory reform. For example, the electronic logging device (ELD) mandate contains an exemption for short-haul shipments. According to ELDFacts.com, short-haul shipments are those that possess the following characteristics:
- Short-haul shipments require less than 11 hours of total drive time.
- They have a start and return duration of less than 12 hours.
- They maintain a time-clock function.
- They are within a 100-mile radius of the starting point.
- Drivers have 10 consecutive hours of off-duty time between shifts.
Since FT often requires multiple driving days and go outside the 100-mile radius, the general rule of thumb is for all FT drivers to use ELDs by the mandate compliance deadline. This can be applied to other regulations affecting FT loads more than other modes, so FT experiences the major brunt of a capacity crunch. However, it is important to consider how tightening capacity in FT impacts LTL trucking too.
Capacity Crunches Wreak Havoc on LTL and Parcel Shipments
As FT availability declines during capacity crunches, shippers must choose between LTL and parcel shipping. Although LTL shipping may appear more cost-effective, it is only as good as the volume used. In other words, non-palletized LTL shipments that have a lower dimensional volume and pricing may benefit from parcel shipping instead. Essentially, shippers will look for ways to consolidate parcels into larger LTL shipments, but getting freight to its destination without adding unnecessary travel miles to an LTL van can be difficult. As a result, shippers tend to turn outside the company for help, 3PLs.
3PLs can manage LTL shipping across multiple carriers and consolidate freight from multiple shippers and carriers and encourage co-loading among competing shippers too.
Parcel Shipping Gets Tighter
Although parcel shipping might seem like the exception to a capacity crunch, it is important to consider the major parcel carriers, USPS, FedEx, and UPS. Each of these carriers sets rates based on existing shipping rates across the country. According to Dustin Braden of the Journal of Commerce, both FedEx and UPS recently announced across-the-board rate hikes of 4.9 percent, including small package shipments. Meanwhile, USPS announced plans to increase parcel shipping costs by 2.7 percent. As a result, shippers will be clamoring to reduce freight spend, devoting more attention to LTL and FT shipping instead.
Even Air Shipping and Railroad Feel the Pinch
Although air and rail modes tend to be immune from the adverse effects of a capacity crunch, a crunch can have some side effects on these modes. Air rates may increase, provided fuel costs have been a contributing factor to capacity crunches. Meanwhile, the demand to move FT-sized freight long distances tends to result in more collaboration between shippers, carriers and rail providers. As a result, overall capacity in rail declines, pushing rail rates upward and diverting more shippers to LTL and FT shipping.
The Big Picture
The way capacity crunches impact different transportation is inherently complex. Even parts of the transportation network that rarely see major changes can begin to feel the effects of a crunch, and in turn, the entire network starts to tighten. In addition, drivers feel the pressure to move more freight and are the front-line faces of carriers. As a result, the risk of drivers resigning increases, further reducing the available capacity for the given mode.
The only way to overcome a capacity crunch is through collaboration between LTL, FT, parcel, air and rail carriers, shippers, 3PLs and everyone else in the transportation and logistics industry. There are many factors that play into capacity crunches, and even more are uncontrollable and unavoidable. Shippers can use this knowledge to level the playing field, focusing more on organizing, packaging and sending freight via LTL and parcel when available and cost-effective, compared to the costs and headache of consolidating freight for FT shipping. But, LTL and parcel can quickly add to your overall freight spend, so having a comprehensive view of all possible shipping options through a dedicated transportation management system (TMS) is key to reducing spend during capacity crunches.