How shippers can tackle the capacity shortage crisis by using efficient transport logistics solutions
In the last quarter of 2017, some companies found it more difficult to secure carrier capacity at reasonable rates. Heading deeper into 2018, this problem may be developing into a capacity shortage crisis. How can companies ensure their shipments don’t get left behind? We asked Jan Rzehak, Director Business Consulting at Transporeon Group, for his thoughts.
Who saw this coming? Did shippers know there would be carrier capacity shortages?
Most companies across Europe and North America probably saw this coming but often a clear picture emerges only after all the different pieces of information fall into place. To have some level of certainty about the scale of the problem, shippers needed to recognize and correctly interpret developing patterns of change in freight rates, truck availability and more.
At Transporeon, do you have a clear picture of what’s happening?
The latest editions of our Transport Market Monitor, published to update shippers and carriers about key developments and trends, reveals extreme levels of capacity and price indexes. The overall available capacity was down by nearly 23.3% while the freight rates increased by more than 14% from Q4 2016 to Q4 2017 in Europe. In fact, the end of 2017 represents something of a cliff edge. In the Benelux region, available capacity shrank by more than 31% for transports from Germany to Belgium and by more than 21.5% for transports from Germany to Netherlands. The average freight costs in both relations increased by nearly 8% – these are shocking statistics. And the development continued in 2018. In the second quarter 2018 the average transport prices in Europe were even more than 17 percent above the transport prices of Q2 2017, indicating that the transport service providers are once again expecting a shortage of transport capacities.
Why is this happening? When will things get back to normal?
On both sides of the Atlantic – Europe and North America – consumer indexes show that productivity is increasing. Basically there is more business but only the same truck capacity. We cannot expect any “return to normal” because economic growth continues while transport growth is lagging way behind. Natural disasters and the rise of e-commerce add to this imbalance.
There are also some region-specific issues. Central Europe is experiencing truck shortages not because vehicle numbers have changed but because truck distribution has altered. Today many carriers in Eastern Europe are bidding for work that keeps drivers within these more easterly countries or on the most profitable international lanes through Russia. Also, many eastern European drivers are now switching profession, choosing to work locally in well-paid factory jobs. In North America, the new electronic logging device (ELD) mandate has put pressure on many fleets, forcing some carriers out of the market and pushing up freight rates. Increased regulatory pressure is having a similar effect in many parts of Europe, particularly Germany and France. At the end of last year, some carriers even told customers to brace for substantial rate increases.
If this is the “new normal”, what can shippers do to secure their capacity needs?
Manufacturers, suppliers, and retailers must move fast. The race is on – shippers are competing to make themselves more attractive to logistics and transportation service providers. The best way to do this is by offering seamless digital processes that ensure cost efficiency and speed for carriers at the ramps and in their workflows. Carriers don’t want to work with shippers that persist with time-consuming manual processes.
Why do carriers prefer shippers with digital processes?
If a shipper uses a digital solution to manage time slots, their inbound and outbound flows will be efficient. With better planning and improved truck allocation throughout the day, processes are well organized and effective, cutting carrier time at the ramps – there’s less waiting around and faster loading/unloading. Today, with carrier capacity at such low levels, it doesn’t make sense for drivers to waste their working day having to stand idle at the shipper’s premises or spend extra time on loading and unloading tasks.
The right time slot management solution gives carriers the flexibility to book slots aligned with their own capacities and resources, minimizing empty journeys.
In addition, digital processes enable better workflows. Carriers can react in real time on receipt of every new transport order as well as any changes to this order. It is important to choose the right digital solution that allows carriers to integrate fully with their customers’ IT landscape without media breaks. This provides carriers with instant visibility of all relevant information and updates. Digitization can also allow carriers to efficiently undertake complex tasks such as handling the extra cost of unexpected events, meaning carriers and shippers can control, share, and audit all relevant data to quickly resolve any surcharge issues.
What else can shippers do to ensure shipments aren’t left behind?
Adopting end-to-end digital processes is only one of the steps that shippers should take right now. They should also consider using the full power of their logistics community. Benefits for shippers from a huge logistics community include optimized utilization of available truck capacities and, with Transporeon, an RFI function that enables focused carrier searches to expand their pool of qualified carriers.
So these are the steps you suggest shippers should take right now. What about looking ahead to the future?
What might seem counter-intuitive at this point is likely to become reality very soon. While many manufacturers, suppliers, and retailers currently consider themselves in direct competition with other shippers, the capacity shortage is moving these organizations to collaborate in new ways. If your company can’t fill a truck on a specific lane, why not share that capacity with a ‘frenemy’? This collaborative approach even with competitors could reduce freight costs and help to avoid empty journeys.
Another decisive change that’s on the horizon is better use of data. Our powerful platform contains data that can explain market dynamics, create actionable knowledge of future market trends, and predict upcoming prices and capacity. Imagine if shippers could match capacity and demand in real time so that empty kilometers are eliminated once and for all? The capacity shortage is real but with new predictive capabilities, shipments won’t get left behind.