Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

How to Prepare for Tight Truckload Capacity

truckload_capacityIn the aftermath of Hurricane Harvey—and as Hurricane Irma moves closer— truckload capacity is tighter than it has been for years, giving some shippers challenges in covering freight. Here are the factors at work, along with some suggestions for what you can do now to prepare yourself for the market ahead.

Factors Contributing to Tight Truckload Capacity

These are only some of the factors that are combining to create the tight market:

  • Peak holiday shipping is in full swing. The Stephens Rate Index shows 99.1% of the trucks that are available in the market were already being utilized before Hurricane Harvey hit. FTR Transportation Intelligence estimates that from now through the end of September, 25% of trucks in the Gulf Coast region west of the Mississippi will be impacted by the disruption.
  • Weather. Initially, trucks in the Gulf Region had to wait for storm waters to recede before they could reach loading docks and move about freely. Trucks were diverted from other regions to deliver relief items, and more will be required to deliver construction supplies for the rebuild. As the water recedes, more trucks will be needed to relieve backed-up loading docks. All eyes are watching Hurricane Irma’s approach, but with its anticipated strength when it makes landfall, all of us are concerned about how that storm will affect the people in that region.
  • The labor market is extremely tight. The economy is at full employment, including the usual employment sectors that lure drivers away from trucking, such as construction. Now, with a major metropolitan area set to rebuild and extreme competition for workers, construction wages will likely be more attractive than truck driving wages. Expect more people to switch from driving to construction jobs.

We all know that tight truckload capacity leads to higher spot market prices. This effect has already begun. In a post, Noël Perry of FTR says he expects spot prices to jump in the next several weeks, with very strong effects in Texas and the South Central U.S. FTR research showed an increase of 7 extra percentage points of annualized pricing in the 5 months after Hurricane Katrina, and a peak of 22% year-over-year spot price increases following the winter storms of 2014. Today’s weather events—plus fuel cost increases, ELD mandate effects, and other factors—are poised to lead us into a period of fast-rising rates.

There is usually some lag between rising spot market prices and contract prices, but contract pricing already shows signs of increasing. According to a article, larger carriers are already getting 3% rate increases from contract customers, and predicting 8% to 10% increases for those who wait to sign until later.

How to Prepare for Tight Truckload Capacity

In this kind of market, you can still take a few steps to brace yourself for the challenging market ahead, and keep shipping rate increases as low as possible.

  • Meet with carriers now. Negotiations are most successful when both parties get what they want. Carriers are well aware that tight truckload capacity puts them in a better position to make a greater profit on their assets. Pressure on equipment availability means they can be far more selective about which shippers they will serve. Still, most carriers also value consistent freight volumes because they make it easier to justify equipment and capital investments.
  • Review awards. Carriers value different characteristics in their freight. If your freight characteristics do not fit the carrier’s ideal model (e.g., small volumes, odd lanes), they may abandon those lanes for more attractive freight. Talk to carriers to understand their transportation volumes and customers by lane or region and how your freight fits into the carrier’s service network.
  • Identify potential problem areas. Examine your business processes and make it easier for carriers to do business with you. Resolve issues that carriers have with your receivers. Focus on areas that carriers mention frequently as they work to improve their operations and margins. Intervene If a receiver refuses to pay detention or treats the driver poorly—or if your freight is leaving the dock late enough to make carriers late for scheduled appointments, which incurs a penalty from the receiver.
  • Reduce change orders and short lead times where possible. These issues are shown[1] to produce much higher levels of tender rejections. Short lead times (0-8 hours) incur a $24 penalty per load, or more if it is an expedited shipment.

Final Thoughts

Finally, don’t forget that in the U.S. market, 89% of carriers have 1-5 trucks; they control 28.6% of all equipment in the market. Leveraging a logistics management provider and TMS could help you aggregate the equipment of all these carriers, which can also help you find truckload capacity, even in challenging times like these.

You’ll find more ideas on how carriers think about shipping rates in times like these and how you can bring some stability to rates in the white paper, Strategies for Transportation Spend: Understanding the Dynamics of Carrier Pricing, Service, and Commitment.

[1] Caldwell, Erik, and Bryan Fisher. “Impact of Lead Time on
Truckload Transportation Rates.” MIT Master of Engineering in
Logistics Outstanding Thesis Award, 2008.