Economic conditions are solid as we approach the first quarter of 2018. Unemployment is low and companies are hiring. Demand for freight transportation services should be strong during the first half of the New Year. Shippers need to contend with a range of variables that are shaping the supply and demand for freight transportation services.
Hurricanes Harvey and Irma
Two natural disasters have had a dramatic effect on Texas, Florida, and the surrounding states. Hurricanes Harvey and Irma, two of the most powerful hurricanes in years, have created significant destruction to power grids, infrastructure, homes, and their contents. Repairing, replacing, and rebuilding will consume significant transportation resources, lumber, roofing materials, electrical equipment, appliances, paint, and other materials. These activities will continue during 2018.
The ELD mandate
The mandate to utilize Electronic Logging Devices (ELDs) in trucks in the United States will place further limitations on capacity. Because a significant percent of the US trucking industry is currently non-compliant, some drivers and trucks may be put out of service by April 1. Some drivers are even expected to quit truck driving altogether rather than comply. Carriers are actively discussing the impact of this development with their customers.
eCommerce
Consumers are using their smartphones, computers, and tablets to order from manufacturers, fulfillment centers, and retail stores. The explosive growth in eCommerce is causing carriers to extend their services, fleets, and drivers to capture a share of the B to C market.
What does this all mean for shippers?
Capacity will be tight in the early part of 2018. Motor carriers will be closely monitoring their fleets to make sure their capacity is provided to shippers that are “carrier friendly.” The ELD mandate will shine a spotlight on shippers who are inefficient in terms of loading and unloading practices and in the administration (i.e. availability of bills of lading) of their freight operations. Carriers are allocating their capacity to customers who permit them to operate within allowable hours of service.
An increase in freight activity means fewer trucks are available on the spot market, which drives up competition and rates. Transport companies are seeking rate increases, in some cases significant amounts. These rate increases will be tied to the location of the shipper, the number of off-route miles required to pick and deliver the freight, availability of head haul and back haul loads, ease of handling, and the profitability of each account.
To minimize freight costs, shippers are advised to follow a series of steps.
1. Clean up your freight operations and remove any hurdles that impact on carrier efficiency.
2. Review your list of carriers and arrange meetings with all the major players.
3. Conduct frank discussions with respect to whether they are making money on your business, what you can do to increase efficiencies and whether they wish to be “partner” carriers or just transport providers.
4. Fix any issues raised by your current carriers and confirm with them that the problems have been solved.
5. Conduct your normal carrier procurement exercise and add to the mix, carriers, on those segments of the business, where either you or your carrier do not see a “partnership” arrangement (i.e. poor service, damage, rates too high, freight does not fit well in their operation etc.).
6. As part of this exercise, review all modes and lanes and find out which pieces of the business your carriers would like and can handle successfully (i.e. have sufficient trucks and drivers to move your freight).
7. As you complete the procurement exercise, arrange meetings with your short-listed carriers.
8. Conduct a full discussion on service, capacity, rates, and the nature of the partnership to be established.
9. Be flexible on rates and be prepared to pay a few percentage points more to lock in capacity with your core carriers.
10. Sign multi-year agreements (with minimum volume commitments, if possible and progressive discipline and exit clauses for poor performance) with your core partner carriers.
11. For new carriers, conduct meetings with their operations personnel to ensure they fully understand your requirements and you understand theirs.
Business conditions have changed. While the ELD mandate itself is not expected to have a dramatic effect on capacity in the short term, the impact will come in combination with stable economic growth, the natural disasters, growth in eCommerce and driver shortages. Shippers should take a proactive, holistic, carrier-sensitive approach to protect the integrity of their company’s supply chain. This is the time to clearly identify your true carrier business partners and formalize relationships with them.
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