Some of the tightest of the previous capacity crunches have occurred within the last two decades. In the aftermath of Hurricane Katrina, capacity hit a breaking point. The same held true after Superstorm Sandy and the unyielding winter of 2014, reports Lawrence J. Gross of the Journal of Commerce (JOC). Also, the driver short has continually grown worse for the last eight years, and it is expected to continue through 2026, asserts Iris Kuo of Trucks.com. However, shippers have learned a few things about how to respond when Mother Nature or consumers throw a proverbial curveball.
Increased Freight Rates Can Tone Down Capacity Crunches
Go-to solution for responding to the crunches been higher freight rates, and while carriers have traditionally been in control of this, shippers can no longer pass the costs along to consumers directly. In other words, shippers must include the average cost of shipping when determining product price points and incorporated in a way that does not appear to cost more than shopping with a competitor, such as Amazon.
After the Great Recession, retailers and manufacturers could negotiate substantially lower freight rates with carriers and logistics providers. However, retailers, manufacturers underestimated the power of carrier, and as demand increases, passes capacity, says the Wall Street Journal, carriers now have the advantage to increase rates to the dismay of shippers. In response, shippers are devoting larger portions of the education budgets to shipping directly to consumers. By eliminating the need for freight consolidation and using parcel or small package freight options, shippers can tap into lower per-package rates and better savings for both consumer and enterprise.
Another strategy that is working the past to keep carriers from putting forth outrageous rate hikes is appeasement. As explained by Steve Baker of Logistics Viewpoints, many shippers tend to change their business processes to be more “carrier-friendly” shippers eliminate the extra work required for carriers, and in turn, carriers are more likely put that shipper’s freight first. Essentially, this ensures a certain shipper receives preferential treatment when sending the product. Of course, this strategy has been around for some time, so shippers must think outside of the box and use new technologies to make it more effective, says Tom Heine of Inbound Logistics.
Modern Technology Reduces Work for Carriers
New technology and platforms, such as a transportation management system (TMS), can effectively eliminate much of the required for carriers. Shippers can schedule freight pickup, delivery, print bills of lading, input package details and without necessarily visiting a physical carrier location. Furthermore, shippers using technology to simplify the process for drivers are less likely to encounter pushback from carriers regarding treatment of drivers. Shippers also need to reduce the amount of time it takes for drivers to load and unload their trailers, so more shippers may turn to implementing a yard management system (WMS) or better protocols for gate management to streamline the process too.
Since the average cost of hiring and training new drivers exceeds $5000 per driver, shippers that treat drivers well or more likely to receive preferential treatment by carriers. Although favoritism might not seem ethical, it is going to play a leading role in the ability of a shipper to survive the capacity crunch. Think about. Any contract negotiation in which a shipper is guaranteed to receive certain services at a given price point is really a contracted list of preferential and non-preferential treatment. So, shippers that take advantage of this concept can overcome the capacity crunch.
Consolidate. Consolidate. Consolidate.
Freight consolidation is the ultimate solution to any capacity crunch. While capacity may be near 100 percent, chances are good availability exists somewhere. Carriers have a personal stake in eliminating deadhead, reducing the number of miles driven with an empty load. When shippers take the time to understand carriers’ routes and networks, shippers can work directly with carriers to eliminate deadhead, tapping into an almost inexhaustible resource for added capacity.
What Do the Responses of the Previous Capacity Crunches Mean for Responding to the New Capacity Crunch?
The previous capacity crunches reveal three keys to overcoming short-term and long-term capacity issues, and shippers need to start using them today. Make freight attractive to carriers. Use technology to work with carriers and drivers. Eliminate deadhead and take advantage of multimodal shipping options wherever possible. These are simple steps that will have a big impact on your ability to survive the next capacity crunch too.