The shipping capacity crunch is not a new topic, but the end of 2017 is shaping up to reveal an unprecedented crunch, reports Chris Brady of Logistics Viewpoints. An active hurricane season, the forthcoming implementation deadline for electronic logging devices (ELD) and record-shattering projections for the upcoming holiday shipping season reflect some of the top factors affecting the current state shipping capacity crunch. Moreover, according to Dustin Braden of the Journal of Commerce (JOC), the driver shortage is worsening in tandem. To successfully mitigate the potential setbacks from shipping capacity crunch, your organization understand more about its current and projected driving forces.
The Shipping Capacity Crunch Is Back After an Active Storm Season
Hurricanes Harvey, Irma, and Maria did much more damage than anyone could have predicted, and in heavily affected areas there was a great crunch in capacity. As explained by Lawrence J Gross of JOC, past years’ data on harsh weather and its impact on U.S. tracking demand and supplies indicate continuous growth within the trucking industry for at least the next year.
The damage from the overly active storms damaged both freight containers and trucks, and in Houston, the trucking industry is barely back to life. Unfortunately, the official end of hurricane season is still nearly a month away, and if another major storm system makes U.S. landfall, the impact on the trucking industry will cause a major break beyond any past capacity crunch.
A Shipping Capacity Crunch Will Likely Worsen With ELD Mandate Implementation
If the physical storms sound like a nightmare for the trucking industry, the ELD mandate implementation could also be a major driving in tightening the shipping capacity availability. As explained in a previous blog post, drivers have already been pushed to take more breaks than currently required under existing hours-of-service (HOS) regulations in preparation for the ELD mandate implementation. However, some trucking sectors may have avoided preparations for the implementation in the hopes of a push back to its implementation deadline. As it stands today, reports Jeff Berman of Supply Chain 24/7, the ELD mandate is set to take full effective December 10, 2017. Specifically, many owner-operators of small trucking enterprises and local drivers are among those most likely to be impacted by the ELD mandate.
Strong Projections in Manufacturing Will Tighten Shipping Capacity Further
As the stock market continues to climb, the likelihood of increased manufacturing in the U.S. becomes more of the fact. Meanwhile, manufacturers have already started to ramp up production in advance of the 2017 holiday shopping season, and U.S. factory activity has risen to the highest levels since 2004, in response to the active hurricane season as well. Similarly, construction spending is increasing, and overall demand on the existing logistics network will increase, says Old Dominion Freight Line, Inc. CEO, David S. Congdon, reports DC Velocity. Consequently, the annual shipping rate increases may be much more daunting and frequent as the holidays approach.
Multiple Shipping Rate Hikes Are Coming, Stretching Capacity to the Limit
Last month, UPS announced plans to raise ground and air rates approximately 4.9 percent beginning December 24, and FedEx announced a similar general rate increase to take effect on January 1, reports William B. Cassidy of JOC. While less than truckload (LTL) have risen steadily since spring, LTL rates may receive yet another increase as holiday shopping gets underway. Meanwhile, J.B. Hunt Transportation Services has advised clients rates could rise more than 10 percent within the next two months alone. With higher rates, comes tighter capacity as more carriers and shippers attempt to consolidate freight and eliminate deadhead. In addition, if the capacity crunch comes to a head, carriers may raise rates again, much more than expected annual or even semi-annual increases.
The Driver Shortage Will Worsen Still
The driver shortage will play a role in the current shipping capacity crunch as well. As capacity tightens, driver wages will grow inherently. Specifically, driver wages could climb 40 percent within the next two years, explains Iris Kuo of Trucks.com. Therefore, the number of available drivers willing to work for carriers and local logistics providers will decrease, reducing the number of trailers moving and further tightening overall capacity. While increased rates can help carriers make up increasing driver wages, the overall problem remains.
The Big Picture
UPS is expecting to deliver 715 million+ packages this holiday shopping season, an increase of 5 percent from last year. Now, consider how the ELD mandate will impact this record-breaking surge in demand two weeks prior to Christmas. Shipping capacity crunch is a powder can, and any of the aforementioned driving forces could set to match and cause a catastrophic cascade across the industry. But, if woes and challenges of past years capacity crunch teach us anything, it is understanding its causes is key to preparation.