Tips to beat the truckload capacity crunch
By: Phil Sneed
Latest news feed from Tandem Logistics 6/21/2011:
Experts say there are ways to ease the squeeze, but it will require a change in mindset.
For the thousands of companies that rely on the nation’s trucking network to get their goods to market, perhaps no issue in the past five years has become more critical than capacity.
Available truckload capacity is dearer than at any time since the middle of the last decade, experts say. While the reasons for the shortfall are manifold—a weak economy that forced truckers to sideline rigs, a shortage of available drivers, rising operating costs, and a lack of adequate credit for carriers to replace aging equipment or expand their fleets—the fact is, rig counts are down by as much as 15 to 20 percent from their 2006 peaks.
With capacity limited and demand firming after a four-year freight recession, carriers can afford to be more selective about the freight they’ll accept. They also have greater leverage when bargaining with customers over rates. For many shippers, this raises the twin problems of securing the capacity they need and how much they’ll have to pay for it if and when they do.
Shippers who’ve adopted a tactical rather than strategic mindset are likely to encounter the most difficulty obtaining needed capacity, according to a recent study by C.H. Robinson Worldwide Inc., the nation’s largest freight broker. These shippers, according to Robinson, share several traits that carriers view as red flags: They switch back and forth between carriers in search of the cheapest deal; they confine the topic of carrier discussions to rate matters, and they ignore carrier complaints about service issues such as long loading and unloading times, and freight that is difficult to handle.
These shippers also “time the market” in an effort to lock in rates at what they believe to be the absolute bottom. This approach often backfires, according to Robinson. Not only do shippers get in at the wrong time and end up paying more over the long run, but they alienate their carriers by failing to care what impact their decisions have on the trucker’s business, Robinson said.
Beating the capacity crunch won’t be easy. But it’s not an insurmountable problem, experts say. The road to restoration begins with a change of attitude. What follows are some tips on developing the right mindset for long-term success:
• Be real, and be fair. Shippers need to frame capacity discussions in terms of what works well for both parties, as opposed to engaging in a zero-sum game where one benefits at the expense of the other. “Seeking alignment between business goals and outcomes of both shippers and carriers can result in better rates and exceptional service over time,” concluded the Robinson study.
One of the most important tenets for shippers is to be truthful about the traffic they tender. During the procurement process, shippers may make their freight look better than it really is, Robinson said. But if carriers discover that the freight isn’t available at the right times or is difficult to handle, they may choose to accept someone else’s freight instead. If the primary carrier doesn’t take the freight, the shipper may find himself in a bind. As the shipper goes down the service guide in search of providers, he’s likely to find that his rate and service options become increasingly less attractive, the study concluded.
On the other hand, if the shipper doesn’t disclose the attractive qualities of the freight, the carrier may “assume the worst” and price capacity at less-than-optimal rates, Robinson said.
• Be consistent. Gough Grubbs, senior vice president, distribution/logistics for national retail chain Stage Stores Inc., advises shippers to try to spread their loads over an entire month, rather than compress them into a one-week period at the end of the month. This rewards a shipper’s core carriers—the ones offering the best price-service matrix—by allowing them to better plan their schedules and thus carry more loads, Grubbs says.
“Carriers favor consistency in their customers,” Grubbs says. “When capacity is tight, [carriers] will take care of the ‘steady’ load customers before the erratic load orders.” He adds that shipper consistency can result in better rates because carriers prefer a steady revenue flow to higher-priced but less-predictable freight.
The mantra of consistency should apply to the procurement process as well. According to the Robinson study, shippers should conduct a procurement exercise once a year without fail, and do it at the same time each year. This gives service providers a better idea of future demand, so they can develop annual strategic plans that keep them from getting stuck in a bad situation for an extended period of time, Robinson said.
With an annual plan in place, providers are “far more likely to adapt to all types of market changes, continue to accept shipments, and provide quality service,” the study said. Perhaps most important, shippers who follow this template “build credibility in the market as reliable, even-handed customers,” it noted.
• Be flexible. Dave Howland, vice president, land transport services for third-party logistics giant APL Logistics, advises shippers to relax their pickup and delivery rules to accommodate drivers if necessary. “Nothing burns up drivers, and costs more, than drivers’ sitting idle, waiting to make a pickup or delivery,” he says.
If they’re given longer lead times to respond to orders, carriers can do a better job of capacity planning and synchronizing driver availability with customer loads, Howland says.
• Be automated. It may sound like an obvious statement given their demonstrated benefits, but there is no substitute for transportation management systems (TMS) when it comes to monitoring a transportation and logistics operation. From carrier performance data to order-level reporting to savings analyses, these systems provide unbiased information on virtually everything a shipper needs to know. A TMS allows shippers to benchmark real costs with historical and planned costs. Without this insight, “it won’t be clear why a plan succeeded or failed to meet the budget at the end of the year,” the Robinson report said. It also gives service providers the insight they need to perform at higher levels, the study said.
TMS services are readily available through multiple channels—including the budget-friendly Web-hosted model—and their value has hardly been kept under wraps in the industry and the media. Yet Grubbs of Stage Stores says the software is not as widely used as you might expect. “I’m amazed at how many shippers I’ve talked to who do not use a TMS,” he said. “It’s the secret sauce.”
• Be collaborative. Just because companies compete on the store shelf doesn’t mean they can’t share supply chain resources. Grubbs suggests shippers collaborate to create round trips out of one-way hauls and combine freight to create “continuous move” truckloads rather than settling for more costly less-than-truckload (LTL) movements. Grubbs says the two strategies lessen the need to find new capacity since space already exists for one leg of the circuit. Participants also stand to reap considerable savings because round trips are generally cheaper than one-way hauls, and truckload services typically run as much as 40 percent per hundredweight below the price of LTL.
Grubbs also advises shippers that use “pool distribution” services for their outbound transportation (shipments from DCs to stores) to negotiate reduced rates with carriers to pick up backhaul loads from suppliers located near the carriers’ outbound destinations. This not only results in savings for the shipper, but also benefits the carrier by reducing the number of unproductive empty miles. And both sides benefit by utilizing truck capacity that’s already been allocated, Grubbs adds.
Historically, the shipper community gets creative when its collective back is to the wall. This time, Grubbs says, is no exception.
“I find it intriguing that it takes the strains of a challenging economy to make us entertain alternatives that we should have considered all along, and drives us to execute with better discipline,” he says.
DC Velocity, June 6, 2011