As transportation costs remain high, shippers should explore new strategies.
There are so many confluent factors affecting shipping prices right now that it is hard to determine if any one makes up the bulk of it, but the fact is, the spot market is seeing record high prices and there is no immediate relief in sight.
WHY ARE PRICES SO HIGH?
We are looking at a recently infused, robust economy where data shows consumer spending over the 2017’s holiday season was the highest in four years. Add to that the fact that the U.S. has increased manufacturing to a 13-year high, according to an article in American manufacturing numbers soar in September. Another report shows factories received more orders in December than they have since 2004. What does all this mean? It means more manufactured “stuff” is being shipped, either headed for export or travelling over the road to distribution centers and final destinations across the country, and it all takes up capacity.
Capacity was heading for a sharp curve in the road even before the boost in manufacturing was added to the mix. The restricted hours of service that carriers are now governed by has had a significant effect on the time it takes to get goods to market – more time, less trucks. Then came the ELD mandate which most of us believe, the full effects haven’t been fully realized, and won’t, until the final law goes into effect in April of this year. The driver shortage, which has been a concern for years, according to the American Trucking Association, is reaching an all-time crisis with an expected shortage of 50,000 drivers at the end of last year.
Most concerning is that, historically, this quarter is what is called the “slow time” in the industry. Volume tends to pick up rapidly in the spring, with nursery, produce and agriculture becoming more active, all at the same time the ELD mandate will be putting non-compliant carriers out of service.
We also can’t dismiss the fact that natural disasters and weather have played a role in higher prices as well. Two hurricanes, wild fires, and significant snow storms have challenged both shippers and carriers alike to get shipments delivered to areas that are less than hospitable, and many times, downright dangerous.
In a January 19, 2018 article in The Produce News a citrus grower in Texas explained he was having extreme difficulty getting all their loads covered. He went on to say that he has never seen such a shortage in the two decades he has been in the citrus business. When they do get the freight arrangement secured, they are finding rates that cost $2,700.00 in November have now climbed to $5,500 in early January. The article goes on to reiterate that if truck capacity is short now, we could be in for a huge problem when the season picks up.
Chart courtesy of DAT Solutions website
The U.S. spot rate market, according to DAT Solutions, showed an increase of dry van rates up 19 cents a mile at the end of the first week in January. The national average for refrigerated spot rates increased 25 cents higher during the same time frame.
NEW STRATEGIES TO COMBAT HIGHER SHIPPING COSTS
“Necessity is the mother of invention.” - Plato
The new hours of service/ELD mandate combo has made a driver’s time their most precious commodity, other than their truck. Carriers who are repeatedly asked to wait to offload or are stuck in detention are going to be less likely to want to accept loads to those locations. Some are seeing trends where carriers are deliberately working less hours per day so as to avoid any fines, which then delays shipments, lowers productivity, thus raising rates.
As a shipper, being ready for the arrival of your freight, having available parking, implementing new and faster loading and unloading processes while running a tight ship on the loading dock, will help with efficiency. If you become a preferred shipper to work with, dedicated carriers and brokers will be more likely to court your business, possibly giving you the volume or preferred pricing you need to mitigate higher shipping costs. In today’s tight market, being easy to do business with can be a huge asset.
Using experienced brokers and other transportation consultants can help you find new ways to save money. Maybe switching from truckload services to several, smaller, LTL shipments will save you costs. Taking a look at the intermodal marketplace might be a good option if the lanes you are using are near distribution centers that utilize rail.
CASE STUDY: Saving on shipping costs in this high-dollar environment can be done in several ways. This recent example illustrates how an experience sales representative was able to optimize a shipment in order to save the customer 38.4% over their original quoted market rate.
Shipment Details: One pick up, three drops of 691.4 total miles. A full truckload market rate was $3,400.77. After running some numbers for the customer the sales representative discovered that doing this shipment as three, separate, dry LTL shipments, would save them significant money. The total charge to the customer was $2095. 65, a savings of $1,305.12. That’s profit the customer can put back in their pocket!
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