The driver shortage is affecting available trucking capacity. Since the third quarter of 2017, many manufacturers have been regularly confronted by scarcity in the transportation market – a problem they haven’t encountered in years. Despite long-term contracts and fixed rates, shippers are seeing orders refused by carriers that have reliably transported their freight in the past. Due to a lack of drivers, carriers are simply not able to offer an available driver or an empty truck for delivery.
When this happens, the shipper must react quickly. With luck, the shipper may find and contract with another carrier that has available space despite the driver shortage and scarce capacity. Often, however, the shipper has to tell its customer that an order cannot be delivered on the agreed-upon 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 requirements and expectations.
In the context of cross-industry implementation of continuous-flow and lean manufacturing, delivery volumes are shrinking and delivery times are being reduced. This results in the need for more shipments, which can be an added burden on each shipper’s 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 customers despite the driver shortage and bottlenecks in trucking capacity?
Scarce available trucking capacity leads to higher shipping costs
If companies hope to provide products at competitive prices both now and in the future, their logistics costs must remain constant. The driver shortage and lower available capacity, however, is increasing the amount of administrative effort required to move freight, which in turn 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 logistics solutions.
Freight prices are also going up because of carrier rate increases since the last half of 2017. The lowest available capacity in the market was observed in October 2017 and carriers used this tense market situation – available freight capacity at very low levels – to raise their freight rates. More capacity subsequently became available in early 2018 due to seasonality, but rates did not fall as expected. On the contrary, prices in Q2 2018 were more than 17% higher than prices in Q2 2017, indicating that carriers expect ongoing freight capacity shortages.
The new normal: Available trucking capacity at historically low levels
Since Q3 2017, available capacity in Europe has been at historically low levels. Nearly half of U.S. carriers have reported that they have been at capacity utilization rates of 95% and higher from the last quarter of 2017 through mid-2018, as evidenced by recent surveys conducted on the Transporeon platform. Demand for both outbound and inbound freight remains highest in the Southeast, Texas and Upper Midwest regions, with demand outpacing available carrier capacity.
To summarize, there is less freight availability on the market in the long term, meaning that shippers should anticipate a further downturn in total available capacity through the end of 2018 and freight rates are likely to remain high. Many carriers affected by the driver shortage refused freight orders between March and May 2018, and will continue to do so. To mitigate for fluctuating and scarce capacity, shippers must act immediately rather than remaining passive.
Three ways to tackle driver shortages and fluctuating, scarce trucking capacity
- Shippers should digitally network with transportation service providers
More than 50% of all companies continue to rely on too many manual logistics processes (source: Everything 4.0 or Is This Just Hype? Key Trends in Transport Logistics, RWTH Aachen University & Transporeon). To ship their products, these companies are issuing freight tenders by fax and email, and placing freight 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 transportation service providers, external warehouse operators and 3PLs, freight forwarders and agents). These services include transportation procurement, freight rate management, shipment execution, time slot management and dock scheduling for efficient freight loading and unloading, and real-time shipment tracking and visibility.
Less work, simple coordination processes, optimized route planning and reliable loading at the agreed-upon time – all of which turns the shipper into an attractive partner for carriers, something that is particularly valuable in times of trucking capacity shortages. With automated shipment execution, the shipper receives enquiries and quotes within minutes. If one carrier refuses a freight 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.
- Move toward the logistics of the future
Consistent digitalization of logistics processes is now a basic requirement for shippers, and the only way to work transparently and efficiently with your carriers.This is, however, only a first step in the overall transformational journey to the logistics of the future – Logistics 4.0. This will be characterized by comprehensive cooperation between all parties in the logistics value chain, with vertical and horizontal data exchange as well as intelligent data use for the benefit of all.
- Adapt the freight allocation strategy to handle scarcity
An effective way to tackle fluctuating and scarce freight capacity in times of driver shortage is to divide annual freight volumes. The shipper can continue to assign a percentage of total freight volume to fixed-contract carriers while offering the remainder on the spot market. This allows the shipper to capture the attention of logistics 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.