Cost savings should be at the top of every shippers list this year. There is no question that freight rates have taken a giant leap skyward over the last six to nine months. Shipping costs have ballooned ever since the pandemic took hold and consumer’s erratic buying behaviors turned the market upside down.
Choosing the right transportation provider to help move your freight in 2021 could be the most critical factor influencing your business’s bottom line. For some companies, it could be the difference between keeping your doors open or going out of business.
(Source: DAT Solutions, LLC.)
There is the hope that once the vaccine gets wider distribution, life as we know it pre-COVID-19, will return to normal. Americans will go back to spending their hard-earned cash on service-related industries such as restaurants, hotels, and travel. As a result, the freight market will return to a more predictable ebb and flow of activity and rates should come down, right?
Not necessarily. Even if the prognoses for the pandemic improves over the next few months and has little or no bearing on the market, there are still other intractable issues that are playing a role in elevated prices.
What are the reasons for 2021's rising freight costs?
Third party logistics companies are used to freight rates rising and falling, but 2020 was anything but business-as-usual. America's shortage of toilet paper and napkins was a perfect example of what can happen when unexpected demand hits; order fulfillment lags due to insufficient inventories, resulting in a shortage of capacity. Whenever there is a shortage of capacity, there are higher freight rates.
So, 2020 set the stage for 2021. Already, in the first few weeks of the new year durable goods are still in high demand as we have witnessed in both the ecommerce sector and truckload freight shipping.
A swell in demand is not the only factor affecting capacity. The driver shortage has been widely publicized over the last few years and unfortunately, it is not going to remedy itself anytime soon. The American Trucking Association cited a deficit of 60,000+ drivers in the industry at the end of 2018 and the situation has only gotten worse.
The Drug and Alcohol Clearing House mandate that went into effect in January of 2020 reported in August that the number of drivers not yet approved for “return-to-duty” status was 26,443, making an extant problem exponentially worse. Fewer drivers on the road mean fewer trucks which means tighter capacity and higher rates.
The industry has made attempts to remedy the situation. Increased wages, for example, has been a helpful catalyst to attract new drivers to the industry. Unfortunately, this cost is being passed on to shippers.
Carrier insurance is another factor contributing to higher rates. The increasing number of incidents accompanied by huge payouts for large claims is putting insurance companies in the hot seat. To cover these costs, carrier insurance premiums are escalating and are expected to continue to do so.
Industry experts also anticipate a rise in fuel costs which have been historically low during the pandemic. Once the economy begins to get back on its feet people will be back on the roads commuting to work, taking vacations and consuming more fuel. That will drive prices up.
How can the right 3PL help?
Finding the right match is important when you are shopping for transportation services. If you choose a freight broker that specializes in less-than-truckload shipping and you primarily have truckload freight on your docks, it might not be the best fit. There are some providers, however, that have multimodal capabilities and can provide excellent services for a number of different modes. Do you homework and make sure you are contacting the right service provider for your specific equipment needs.
There are several valuable attributes to look for in a 3PL that will help you save money immediately as well as long-term. Tremendous improvements have been made in our industry through technology, but relationships are still one of the most important building blocks toward a cost-effective, efficient supply chain.
Find a 3PL representative you like, who is interested in your business, eager to understand your needs and willing to assess, measure, and identify problem areas. This will give them the tools to make suggestions for improvements. 3PLs are renowned for these value-added services that can save shippers thousands of dollars in annual freight expenditures.
Benefit #1: Power to Negotiate
Shippers hire 3PLs not only to save time sourcing and vetting trucks, but for the tremendous negotiating power they have covering freight. 3PLs work with thousands of carriers every day and are proficient at negotiating prices. They also have their fingers on the pulse of industry, which can change day-by-day or even hour-by-hour. Knowing the market, its capacity constraints, the average spot and contract rates by lane, provides a great advantage when negotiating the best rates.
Benefit #2: Technology Boost
3PLs have made substantial investments in transportation technology to better serve their shippers’ diverse needs. As a result, all the benefits of real-time location tracking, temperature monitoring, pick-up and delivery status, and dwell times are now at the shipper’s fingertips. Online load tendering, payment options and access to important downloadable shipping documents such as BOLs and PODs are also valuable benefits that didn't exist just a few years ago. Technology saves time and time saves money.
Choptank Transport has a customer portal called ORBIT TI that harnesses the power of API integration and GPS tracking to offer its customers unparalleled transparency into their shipments.
Benefit #3: Experience and Skill in the Marketplace
You cannot put a price tag on experience. 3PLs have a vast knowledge of the industry. They have seen it all, from dealing with hurricanes, tornadoes and snowstorms to tackling problems like broken-down trucks to virus outbreaks. They know how to avoid problems when possible, and how to facilitate early and accurate communication when the occasional problem arises. Identifying issues before they escalate is part of what makes a good 3PL a great transportation provider.
Benefit #4: Multimodal 3PLs provide Single Source Services
If you are researching 3PL companies and want the best possible match, keep in mind that there are only a handful that offer multimodal services. This is important because an experienced third-party logistics company that offers truckload, less-than-truckload as well as intermodal services can be quite the advantage for a shipper. They can provide options adding tremendous flexibility to your supply chain, not to mention a number of cost-saving opportunities.
The unfortunate reality is that it costs more these days to move freight, but there are ways to mitigate these rising costs. Reach out to your 3PL today and see what can be done to help you save money and get your freight budget under control.