Just because there’s more trucking capacity available today than there was a year ago doesn’t mean that shippers can overlook the basics. Here’s how to maintain capacity in all market conditions.
WHAT A DIFFERENCE A YEAR MAKES.
When the market was tight a year ago, Inbound Logistics’ trucking edition feature article was titled, “Six Ways to Find Capacity.” This month, while not exactly the opposite of a year ago, finds the industry with more capacity and as a result, with lower rates, too.
“Truckload freight rates hit record highs last year, and for-hire carriers did very well,” says Eileen Hart, vice president of marketing and corporate communications for transportation information company DAT Solutions. “Many invested their profits back into the business, buying record numbers of new trucks and improving driver compensation.”
In addition, new carriers attracted by the high rates also entered the market. “As a result, there a lot more trucks are available this year,” Hart adds.
And while truckload freight volume has grown compared to 2018, it hasn’t been at the same pace as capacity. That extra competition for freight has pushed rates back down.
DAT tracks load-to-truck ratios, which measure load posts divided by truck posts on the DAT network. When the ratio goes up, there’s more competition for trucks. When the ratio goes down, there’s more competition for loads. In July 2019, the ratio for dry van freight fell 40% compared to July 2018, which underscores how much more capacity is available this year.
Don’t get too comfortable though. Experts warn that capacity is bound to get tight once again.
“It’s important for shippers to realize that capacity can change very quickly, like it did in the second half of 2017,” cautions Curt Stoelting, CEO of Roadrunner Transportation Systems, a transportation service provider based in Illinois.
“Take a strategic, long-range view and understand that while there’s a dip in demand today, over time that will change,” adds Geoff Muessig, executive vice president of Pittsburgh regional carrier Pitt Ohio. “Partner for the long term, not the short term.”
IN IT FOR THE LONG HAUL
Carriers point out that shippers who approach transportation sourcing from a long-haul perspective, so to speak, will do best in all market conditions. They advocate for three constants in the shipper-carrier partnership:
- Building and maintaining relationships
- Good communication
- Taking advantage of technology
“Having solid relationships and a good understanding of the partners you’re working with and their ability to execute on the promises made are critical, not just for long-term, high-volume relationships, but also for individual transactions,” says Tim Gagnon, vice president of analytics and data science at C.H. Robinson, a third-party logistics (3PL) provider.
He uses a soda manufacturer as an example. Consumption typically increases in warm weather months; freight planning takes that into account. But what happens when a temperature spike earlier or later than usual causes a surge in demand? The shipper needs a capacity procurement model that not only executes against plan, but also prepares for the unexpected. That’s where relationships play an important role.
“It’s a given in our landscape that when we commit to plans, they’re right until they’re wrong because of variables, whether it’s the economy or the weather,” Gagnon says. “They all point back to the best practice of having relationships and understanding each other’s business.” Tina Satariano, Director of Strategic Accounts for Florida-based 3PL BlueGrace Logistics, agrees.
“Relationships are what will save you in a tight market like last year,” she says. “Carriers can see you through in both an up market and in a down one.”
“When capacity loosens up, we ask shippers to stay with us because we stayed with them when capacity was tight,” Stoelting adds.
Good communication is essential in any partnership, but particularly in transportation sourcing. Carriers need to ask questions; shippers need to share specifics. “We want to understand the shipper’s business model so we know what’s required for them to be successful and how we can help them do that,” says Gagnon.
Satariano recommends establishing baseline requirements that include specifics ranging from the minimum cargo insurance necessary to general loading requirements.
“When you have an honest conversation with your vendor, you can understand that it is well-positioned at one shipping location, but not at another,” says Muessig. “The key to getting the best value over time is having these exploratory conversations with your carrier base.”