Supply Chain Commentary: What Shippers Need to Know About Market Tightness
After a two-year slide in transportation prices, the logistics sector is experiencing capacity constraints and historically high and enduring truckload volumes. As we head into peak shipping season, rates have been rising significantly, particularly in the wake of hurricanes Harvey and Irma. Shippers can expect this trend to continue into 2018. The market isn’t likely to retreat in the near future, so shippers need to be aware of potential roadblocks and strategies to manage rising costs and maintain service levels.
Shippers can expect a variety of challenges as a result of the tightened market:
- Sustained higher rates (on a year-over-year basis).
- Potential slippage in service levels.
- A reluctance on the part of carriers to cover loads. Even carriers that have locked-in rates may decline freight when the market opportunity exceeds previously agreed-upon rates. This can result in being caught flat-footed and an inability to get freight moved during peak season.
- Strained or potentially damaged relationships. Throughout the industry, there are going to be many challenging conversations related to rates, load acceptance, and service.
Strategies to Keep in Mind
During this transition, there are several strategies for managing rising costs and ensuring service is maintained that shippers should keep top of mind:
- Utilize residual bids to lock down pricing on projected overflow through the end of the year. This will help hedge bets throughout peak shipping season.
- Longer term, discuss dedicated operations with a third-party logistics provider.
- Clearly communicate with your providers as to which freight takes priority (i.e., primary shipments vs. spot loads) so they do not make erroneous assumptions on your behalf.
- Diversify your carrier base. Smaller carrier bases can drive operational efficiencies, but in a tighter market a diversified portfolio helps mitigate risk.
- Know when paying the higher price is worth it, and take into account the risk of noncompliance fees on the back end. For example, with Walmart’s recent OTIF (On Time/In Full) requirements, paying a premium for service is potentially far less costly than racking up fines for noncompliance (not to mention the costs of potential damage to an important customer relationship).
- Maintaining candid and proactive two-way communications with 3PLs and carriers is always a best practice—but even more critical in a tight market.
The fourth quarter of 2017 is shaping up to be a uniquely challenging time for shippers, carriers, and logistics providers alike. The pre-holiday freight push seemingly began earlier than usual, trepidation remains in regards to the implications of the ELD mandate, and with rates at multi-year highs, now is the time for shippers to take a strategic approach in order to control costs and service issues. While capacity has loosened somewhat since the disruptions caused by the recent hurricanes, the market is far from “normal.”
Shippers that focus on service, communication, and collaboration, will be well-positioned to avoid being blindsided by the rapidly changing market.