If you follow this blog or if you are anyway involved in the transportation process you know that freight rates continue to rise. Not only are shippers paying a higher fuel surcharge than they did last year, but they also have to pay higher line haul rates. This is a result of an increase in demand for trucks and a decrease in the supply of both trucks and drivers. Right now there are fewer trucks on the road than there were last year. However, carriers have more freight to choose from, which is not a good thing for shippers. This means carriers control the market and they are doing everything they can to keep it that way.
Even with the increasing demand for trucks, carriers can’t just easily add additional assets to their fleets. There is a backlog on new truck orders and the priority for most fleets is not adding additional equipment, but replacing older equipment that they held onto during the recession. Carriers are also working to retain good drivers or to replace the drivers that they lost as a result of CSA. There is not a surplus of drivers that are just sitting around waiting for a carrier to hire them, so adding additional trucks and drivers is not something that will happen any time soon.
Most carriers are going to do everything they can to maximize the profitability of their fleet with the assets that currently have. They know if they continue to add equipment to meet demand then they will create a more balanced market and lose their rate leverage over shippers.
So if you are a shipper you have a few options. You can continue to pay more and more to move your freight, which will probably have a negative impact on your bottom line. At some point you will have to try and pass these costs onto your customers. However, the better option is to get creative and find ways to become more efficient and find cost savings throughout your transportation processes instead of just trying to reduce your freight rates. The shipper that can absorb these increases in transportation costs without passing them onto their customers will have an advantage over their competition.
I recommend that you take a look at your processes, technology, and personnel. If you are doing things the same way you have always done them, than there is probably some room for improvement. The transportation market has gone through 3 major changes in the last 3 years alone and most companies have had to make significant changes to their processes to keep costs down.
As efficient as most companies believe their processes to be, transportation is generally one area that is overlooked. Many companies view their freight spend as a cost of doing business and therefore do not spend enough time reviewing their transportation processes. However, in the transportation market we are in, that cost of doing business is going up and companies can no longer afford to overlook their transportation department.
If the only technology you are using to manage your transportation is a combination of a fax machine, spread sheets, and email, then you probably have some room for process improvement and the ability to at least create soft cost savings.
If transportation is handled by someone who does not have a transportation title such as customer service, sales, or by someone in purchasing, than you probably have some room for process improvement and cost savings. If you are asking your customer service team to become rate shoppers and handle the transportation, which is a full time job in this market, when do they have time to provide customer service? When people become over whelmed they are going to try and get things done, not necessarily get them done correctly. Your company may think that they are saving money because they did not hire a transportation person, but they are most likely costing themselves money because they are not maximizing the productivity of the customer service team.
I would also recommend that companies take a look at the transportation expertise of the people handling their freight. People only know what they have done or been taught and if the people making transportation decisions for your company do not have a lot of experience or exposure to transportation information outside of your company then you probably have room for improvement.
Keep in mind, there are many 3pls and transportation consultants that can help you and your company create cost saving solutions if you do not have the time or resources to do it internally.