How To Manage The Current Capacity Crisis In Logistics

Blog Post
April 20, 2018

"Crisis" is a strong word—but when talking about the current state of logistics, it might be an appropriate descriptor. It's not time to panic yet, but if we look at some basic economics, things are certainly getting dicey.

Capitalism is all about supply and demand: if the demand is higher than the supply, then things are going to get expensive. Right now, the trucking industry demand for freight is very high, and supply of equipment is very low. It's a seller's market and can be ugly for the customer or client. Let me illustrate: if there are four times the loads to truck ratio, the shipper (buyer) needs to pay top dollar to the truck (seller). The bidding war favors the truck. The truck can cherry pick the better of the number of loads available: highest price, fewest stops, easiest route, fewest shipper demands and instructions, etc.

Logistics is a time sensitive business, and it’s extremely competitive right now. But, as in any competitive business, there will be low bidders and the common law of business is, you get what you pay for. As John Ruskin states in his Common Law of Business Balance: “When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business prohibits paying a little and getting a lot—it can’t be done.”

This all means that shippers appear to face two hard options: pay more for good logistics vendors or take a hit on the quality to maintain lower costs. However, there are tactics shippers can use to find a middle ground. Read on.

How did this capacity crisis start?

There is not one factor that led to this crisis, because there have been a number of issues squeezing the industry:

  • Weather/Natural Disasters: Even though hurricanes have subsided, there have been several consecutive events, especially “Nor’easters”four in March 2018 alone!
  • Maintaining Equipment: This includes rising insurance costs, and an increase in federal regulations and emissions requirements.
  • Increase in eCommerce: This is another example of increased equipment demand coinciding with the increase in eCommerce retailers, such as Amazon, et al.
  • Driver Shortage: In addition to pay increases among drivers, this comprises an aging workforce that is not growing. This reduces the equipment inventory and availability.
  • Electronic Logging Devices (ELD) Mandate: In effect as of December 18, 2017, this device is “ensuring” that truckers comply with federal rules of service, limiting driving to no more than 11 hours a day within a 14-hour work day (followed by 10 consecutive hours of downtime). However, according to this article, as of March 26, nearly 10 percent of drivers have failed to comply, potentially putting thousands of vehicles out of service.

All of the above leads to a huge load to equipment ratio costing clients a ton of money—which is often trickling down to the consumer

How do you manage a crisis?

While there probably isn’t an easy to way solve for this logistics trend, there are ways for shippers to manage it—and they’ll need to manage it well. A common law of good business is developing strong relationships based on solid communication. There’s no substitute for carrier relationship development, and candid, honest, transparent, constant communication. 

But what you also have to do is separate yourself from the many other shippers looking for a carrier. Here’s how:

  1. Beat the competition to the available trucks. It may be a cliché: but the early bird catches the worm. If you get into the office at 7 a.m. and immediately start booking loads, you’re going to get ahead of those who start at 8 a.m. Carriers want to get out there on the road. The tough part of their day is finding the load. If it's well-known that you're reliable and at work early, then that works toward your favor.
  2. Work with carriers for creative ways to shop. The bottom line is, in order to be good at booking freight, you’ve got to think like a carrier. One of the key things a driver or carrier wants is a hassle-free job and, ideally, driver-friendly freight—this means no long waits while it's being loaded and, preferably, a load they don't have to manually put on their vehicle.
  3. Remain flexible and easy to work with. The trucking industry is a very difficult business. You’ve got weather issues to deal with, timing issues when loads aren’t ready yet, equipment to maintain, sometimes pallets and trucks aren’t packed and loaded well and can be dangerous, freight can fall over, etc. If they have a question or an issue with a load, you need to be readily available to help them.
  4. Pay your carriers on time. Not only does this get you a good reputation, it allows for stronger rate negotiation positioning. Carriers will call you looking for freight!
  5. Share successes to enhance your relationship. This is booking salesmanship. As you get to know your vendors, carriers and drivers better, tell them of some of the successes you’ve had, and let them know why they would want to do business with you. 

Navigating the current capacity crisis is a challenge for everyone—but becoming a shipper that carriers want to work with will work in your favor and help you to book your loads faster at a more reasonable cost. Using third-party logistics (3PL) providers can also help to alleviate these pressures by providing additional capabilities and maximizing efficiency. Find out how and why as we look at the value of choosing 3PL in our next post.