Shippers are feeling the effects of scarce transport capacities in the market
The driver shortage is affecting available transport capacities. Regularly since Q3 2017, many shipping companies have been confronted by transport scarcity – a problem they’ve never known before. From one day to the next and despite long-term contracts and fixed transport rates, shippers are seeing transport orders refused even by carriers that have reliably transported their freight for years. Because of a lack of drivers, carriers are simply unable to offer an available driver or an empty truck for delivery.
When this happens, the shipping company must react quickly. If they are in luck, they may find and contract with another carrier that has free freight space despite the driver shortage and scarce transport capacities. Often, however, the shipping company has to tell its customer that an order cannot be delivered on the agreed date.
Both of these scenarios are problematic for the shipper. In the first scenario, additional administrative effort and resources are required which pushes up costs. In the second scenario, customer satisfaction is negatively affected – which is particularly difficult when companies are trying their best to meet ever-increasing customer expectations and requirements.
In the context of cross-industry implementation of flow production and lean production, delivery volumes are shrinking and delivery times are reducing. This results in the need for more transports, an added burden on each shipper’s transport logistics budget. At the same time, competitive pressure is increasing and all parties are trying to cut prices and costs. What can be done to deliver on time to the customer despite the driver shortage and bottlenecks in transport capacities?
Scarce transport capacities lead to higher transport costs
If companies in industry and retail hope to provide goods at competitive prices now and into the future, their logistics transportation costs must at least remain constant. But because of the driver shortage and lower transport capacities, there is an increase in administrative effort and this causes transaction costs to rise. The problem is particularly acute for shippers that continue to rely on manual processes instead of switching to proven digitized solutions for transport logistics.
Transport prices are also going up because of carrier rate increases since Q3 2017. The lowest available transport capacity in the market was observed in October 2017 (source: Transporeon Transport Market Monitor) and carriers used this tense market situation – available transport capacities at very low levels – to raise their transport prices. Subsequently, for seasonal reasons more capacity became available in early 2018 yet transport prices did not fall as expected. On the contrary, prices in Q2 2018 were more than 17% above prices in Q2 2017, indicating that carriers expect ongoing transport capacity shortages.
The new normal: available transport capacities at historically low levels
Since Q3 2017, available transport capacity in Europe has been at a historically low level (source: Transporeon Transport Market Monitor). This has continued into mid-2018, as evidenced by recent surveys conducted on the Transporeon platform. Echoing the 2017 transport market developments, European transport capacities have declined by 36% from Q1 to Q2 2018.
To summarize, there is less available freight space on the market in the long term and this means shippers should anticipate a further downturn in total available transport capacity by Q3 2018, while transport prices are likely to remain high. Carriers affected by the driver shortage refused transport orders between March and May 2018, and will continue to do so. To mitigate for fluctuating and scarce transport capacities, shippers must react immediately.
Three ways to tackle driver shortages and fluctuating, scarce transport capacities
- Shippers should digitally network with transport service providers
More than 50% of all companies in industry and retail continue to rely on too many manual processes in transport logistics (source: Everything 4.0 or Is This Just Hype? Key Trends in Transport Logistics, RWTH Aachen University & Transporeon). To ship their goods, these companies are issuing transport tenders by fax and email and placing transport orders by phone and email. This is an entirely unnecessary investment of time and money, instantly replaced with a state-of-the-art online network information exchange and real-time communication.
For example, the cloud-based Transporeon platform provides access to digital services for the logistics departments of industrial and commercial shippers, their central warehouses and distribution centers, and tens of thousands of carriers (logistics and transport service providers, external warehouse operators and 3PLs, freight forwarders and agents). These services include transport tendering, freight rate management, transport assignment, time slot management for efficient freight loading and unloading, and real-time shipment tracking.
Less work, simple coordination processes, optimized route planning, and reliable loading at the agreed time – all of this turns the shipper into an attractive partner for carriers, something that is particularly valuable in times of transport capacity shortage. With automated transport allocation, the shipper receives enquiries and quotations within minutes. If one carrier refuses a transport order at unexpectedly short notice, the shipper is immediately informed and can identify alternative carriers at a glance, contacting them with the click of a mouse.
- They need to take steps towards transport logistics of the future
Consistent digitalization of transport logistics is now a basic requirement for shippers, and the only way to work transparently and efficiently with familiar and new carriers.
This is, however, only a first step in the overall transformational journey to the transport logistics of the future – Transport Logistics 4.0. This will be characterized by comprehensive cooperation between all parties in the transport logistics value chain, with vertical and horizontal data exchange as well as intelligent data use for the benefit of all.
- And adapt the transport allocation strategy to handle scarcity
An effective way to tackle fluctuating and scarce transport capacities in times of driver shortage is to subdivide the annual transport volume. The shipper can continue to assign a percentage of total freight volumes to fixed-contract carriers, while offering the remainder on the spot market. This allows the shipper to capture the attention of transport service providers on the spot market even during critical capacity scarcity. For deliveries that must be rescheduled at short notice, up-to-the-minute spot market offers can be called up at acceptable rates.
To find out more, please read the interview with Jan Rzehak, Director Business Consulting at Transporeon Group: Talking about the capacity shortage. How shippers can tackle the crisis by using efficient transport logistics solutions. In addition to the ongoing driver shortage, Jan identifies further reasons for recurring bottlenecks in available transport capacities and recommends pragmatic strategies to respond appropriately in changing market conditions. He also explores the advantages of consistent digitalization and explains the transformational journey to Transport Logistics 4.0.