The law of supply and demand is a basic tenet taught to every economics student—even those in high school. All too often, supply and demand permeates the world of supply chains. Because the demand for truckload capacity is always changing, the availability of equipment is always in flux. During times of tight capacity, high demand for equipment means carriers can be more particular about the shippers they haul for. Accordingly, shippers must find new ways to stand out from competitors or prepare for higher transportation rates.
What Causes Tight Truckload Capacity?
Economic growth, investment in new trucks and regulations that lower fleet efficiency are just a few of the factors that play on available capacity and can result in a capacity shortage. Some examples that influence truckload capacity include:
Hurricane relief and rebuilding divert drivers from regular routes:
Even prior to Hurricanes Harvey and Irma, the FTR Transportation Intelligence trucking update for October estimated that 99.2 percent of the active for-hire truckload fleet was already being utilized. As relief and rebuilding efforts continue, capacity will only tighten more in the region while trucks are needed to bring in supplies.
The labor market is extremely tight:
Several employment sectors that lure drivers away from trucking are in full swing—including construction. Wages in these other areas may prove more lucrative than truck driving wages, especially in areas needing to rebuild. Not to mention that jobs in other employment sectors may be more attractive for the lifestyle option they present. As drivers move into other jobs, equipment could sit idle and capacity options will diminish even further.
Changes That You Can Make Today
It’s never too late to adjust your truckload capacity strategy. Some changes are even easy to implement immediately. Regardless of the current economic or market conditions, it’s possible to build a truckload strategy that’s ready to thrive.
Provide ample lead time for carriers:
Typically, carriers plan routes up to a week in advance. If possible, provide 48-72 hours notice of tender to increase the capacity you can access before it’s committed elsewhere.
Be flexible on pickup dates and hours:
As delivery windows shrink, adding flexibility for drivers picking up shipments can help you better align to carrier needs. One strategy is to offer afternoon pickup hours or a pickup window.
Understand current market fluctuations:
Stay on top of market changes and communicate openly with your team and company leaders. Everyone needs to understand when conditions are beyond your control.
Consider all viable options:
Be open to revised pricing, spot quoting, live-loading, and other processes to increase capacity options. Even temporary changes can help open up additional truckload options.
Changes That Pay Off in the Short Term
Some changes take time to make a difference in your capacity options. Start considering what will help the next time capacity tightens.
Benchmark to set realistic expectations:
Compare last year’s transportation rates to this year’s rates. And verify that rates are aligned with overall market prices.
Maintain a stable set of providers.
Realign with service providers where it makes sense to drive real access to capacity and savings.
Don’t try to time the market.
Seek competitive rates at a given point in time and maintain an annual cadence.
Share the truth about your business.
If you run lean, consider adding extra safety stock and time. Ensure staff and vendors understand your business and the implications of a tight market.
Changes That Require Long-Term Planning
Change can’t always happen overnight. Bigger changes to your truckload strategy will have farther reaching results, but may take some long-term planning to make possible.
Implement a TMS to uncover opportunities. Use trend analysis information captured from a TMS to manage supply chain and service provider performance.
Use advanced bidding tools.
The right tools can help you understand the trade-offs between different service providers and award and pricing strategies.
Conduct annual procurement exercises.
Every year, select a period to review rates and service providers. Consistency allows for better prices and carrier alignment.
Avoid long-term exposure to the spot market.
Because the spot market is a small part of the market, there’s less capacity and higher volatility to contend with.
The Right Changes for Your Business
Whether you decide that all, some or none of the strategies discussed above make sense for your business, remember that an ongoing effort to seek alignment between shipper and service provider networks yields the most benefits for everyone involved. When your business goals and those of the carriers you work with most align, it can result in better rates, more capacity options and exceptional service levels over time.