Most all shippers have felt the recent tightening in capacity. Even giants like General Mills, Tyson Foods, and Campbell have reported strained budgets due to a rise in transportation costs over the past few months.
A multitude of factors have led to the current environment. A mix of weather-led constraints in 2017, a continual shortage of semi-truck drivers, and the enforcement of hours of service (HOS) rules with electronic logging devices (ELDs) have all accelerated a rise in transportation costs.
But one market has been impacted most dramatically. Producers of consumer goods have the added complication of strict retail and grocery delivery standards.
Retail Delivery Standards
Retailers grade suppliers on their ability to deliver shipments on-time and in-full. Just a few years ago, delivery windows had some wiggle room and arriving ahead of schedule was acceptable. Today, with omnichannel pressures and a drastically different retail environment, stores are working hard to eliminate excess inventory and penalize vendors for early (and late) deliveries.
Trucks must set appointments and arrive on time. If early, they’ll be forced to wait, sometimes hours. If late, they are forced to reschedule, which could be for a different day (or week), completely derailing subsequent scheduled deliveries.
As you can imagine, with a tight transportation market, it’s become even more difficult for vendors to source reliable trucks. And even when they do book a carrier, if that driver is unfamiliar with retail facility stipulations, they could end up costing the vendor thousands of dollars in chargebacks.
When off schedule, deliveries become subject to fines. Issued either as flat fees or a percentage of goods sold, these fees can quickly equate to unmanageable volumes. If a shipment doesn’t arrive on time and there are empty shelves, the retailer must make up for the loss in revenue.
Direct Consumer Impacts
USA Today reports that a severe shortage of truckers is pushing up freight costs and, in turn, nudging up retail prices. Tags could soon be creeping higher for everything from cereal to socks.
On the other hand, Bloomberg reports that leaders like Walmart, Aldi, and Amazon are making it impossible for other chains to raise prices and remain competitive. Consumers are buying based on price and less on brand loyalty.
Whether brands can make up for rising transportation costs through a hike in product costs remains yet to be seen. Therefore, its essential that companies look for sustainable saving opportunities in other areas of the business.
How to Deal: Solutions for CPG Shippers
Some people are clinging to self-driving vehicles as a solution, but driverless trucks won’t be on the road any time soon (think 5 to 10 years). Adjustments need to be made to standard procedures if a solution is to be achieved in the meantime.
In some instances, accepting higher prices is just part of today’s reality. But overall, there are some steps shippers can take to mitigate how high rate increases stretch.
Driver Treatment – To attract more drivers to the market, fleets are offering signing bonuses and increasing overall pay. Truck drivers haven’t seen an appropriate cost of living increase in years, so it’s time. Some predict the average trucker salary could go from $50,000 up to $70,000.
In general, the market needs to treat drivers with more respect. An already tough job is made even less desirable when staff at pick-up and receiving locations don’t show drivers appreciation or provide minimal assistance. Retraining staff on what’s acceptable could positively impact the reputation of your facility and/or product, and ultimately help shippers score capacity.
Facility Improvements – Load refusal is real and frustrating. Truckers are flat out denying requests if a shipment facility is bad to work with. Ben Cubitt from Transplace says, “On some lanes you can go to 50 carriers and not get a yes.”
Making investments to improve facilities can pay off big. Clean bathrooms (male and female) available to drivers, space to park trucks, short wait times… it all goes a long way. Or investments that improve traffic patterns, ease dock congestion, and improve safety can also make a location more desirable.
Drivers keep track of what facilities are better to work with, using apps like Dock 411. Shippers should check their address and the addresses of copackers or distribution facilities on the app to better understand what it takes to become a “shipper of choice.”
Scheduling Flexibility – Adding operational hours to facilities can also go a long way. Retail distribution centers are notorious for having late night or early morning appointments. If your facilities don’t help a driver accommodate for these nuances, they will be unable to optimize HOS and may turn down your freight. Working with and not against truckers can help you save money in the long run.
Holistic View – Looking at transportation holistically can make a massive difference. Logistics can no longer be an afterthought or siloed department.
Decisions made in different business units — like sales, sourcing, customer service, or production — can all indirectly cause transportation prices to soar. For example, if an account representative tells a customer they can have their 2-pallet order a few days early, they cause a domino effect of cost increases for the transportation team. Rather than being able to include the shipment in a full truckload order, they are forced to break a part the order and ship LTL, paying rush service fees.
Engage Specialists – Working with specialized carriers or 3PLs who have deep familiarity with retail and grocery standards can help mitigate or decrease the occurrence of chargebacks and costly failures. Their expertise is particularly relevant during difficult freight environments.
Specialists can also aid with consolidation programs. Whether its consolidating your LTL orders on to full truckloads for multidrop routes, or sharing truck space between like customers, specialists can help you identify new ways to reduce logistics spend.
Stop Looking Externally for Solutions – Many companies have shifted short-hauls to rail as a temporary solution, trying to avoid ELDs and the tumultuous truck market. Some have even broken up truckload shipments into LTL orders, trying to trick their way into more capacity.
These solutions aren’t sustainable and are causing issues for other modes. The increase in rail utilization is leading to congestion and service failures, which is particularly detrimental to retail shippers. And the increase in LTL is leading to more price hikes.
Focus instead on optimizing internal behaviors and rebuilding strategies to fit today’s new landscape. Simply switching modes won’t address the issues at hand.