This is a very interesting year in the world of freight transportation. The economy is improving but at a very slow pace. Supply and demand for freight transportation services are pretty much in balance. Trucking companies are all singing the same song. Their number one problem throughout North America is finding qualified drivers. Carriers are replacing equipment that comes to the end of its service life but are not making additions to their fleet for potential growth. Adding capacity without the drivers to move the rigs and customers that commit to provide the freight is not a sound business approach.
Carriers are being very strategic in how they allocate their capacity to their customer base and to uncommitted prospects. Improved asset management technology is allowing transport companies to manage their fleet more effectively and to pinpoint (and charge for) abuse. Freight rates are on the rise. This is confirmed by some of the better known published freight rate indices.
While the pendulum has not totally swung back in the carrier’s favour, it has certainly tilted in their direction. Shippers are not having the same easy time reducing or controlling their freight rates as they did during the Great Recession.
While freight bids are still prevalent, there are less of them in 2012. Some shippers are receiving a rude awakening. Shippers that put their freight out for bid to the same core group of carriers as they have in the past, run the risk that the result of the exercise will be higher rather than lower rates. For shippers that cannot find the capacity and rates they are seeking, they run the risk of an even nastier surprise if they put their business on the spot market. Freight that may have moved for $1.30 a mile may be moving at $2.00 a mile on the spot market.
What can shippers do to mitigate freight rate increases in 2012? For companies that have not put their business out for bid in the last couple of years, it always worth testing the market with a high quality RFP that is sent to a broad range of carriers and logistics companies.
But there is so much more a shipper can do. It is always important to do an audit of one’s freight transportation business practices or hire a qualified company to do this for you. As businesses change and transportation services evolve, it is always essential to challenge all of the assumptions that are the underpinnings of a company’s freight program.
It starts with looking at the location and volume of business coming from vendors and going to customers. For many companies, this is changing rapidly. As order sizes are altered and companies become more global in their outlook, shipping patterns can vary significantly from what they were even a few years ago. As customer locations shift, it is necessary to revisit pool points, warehouse locations, shipment delivery intervals, shipment sizes and modes of transport. Shippers also need to make their freight as “friendly” as possible and work collaboratively with their carrier partners to take costs out of their transportation and warehouse operations.
The transportation industry is evolving as well. Intermodal transportation is becoming cost and service effective on lanes as short as 600 miles. Experts are predicting some industry consolidation over the next couple of years as certain baby boomers seek to exit the industry while other companies seek to add customers, drivers and trucks to their fleet.
While the economy is in the process of a turnaround, there continue to be ominous clouds. Oil prices seem set to escalate and could hit jump if there is more unrest in the Middle East. The continuing economic problems in Europe and the possible slowdown in China raise further question marks about the sustainability of the recovery. In this uncertain world where capacity is tight, drivers are hard to find and freight rates are on the rise, shippers need to look at their full range of supply chain processes and at the full arsenal of cost reduction opportunities that exist to keep their freight spend under control.
