Opinion: The 2017 Capacity Crisis: Past Lessons, Current Advice
Trucks are harder to find and more expensive than ever.
In late September, FTR and Truckstop.com reported load availability was up 110% over 2016. By mid-October, DAT reported the van load-to-truck ratio hit 7.0 loads per truck鈥攖he 鈥渉ighest ever recorded鈥 in DAT Trendlines鈥攁 study that began in 2010.
Some of the largest truckload providers are preparing their contract customers for double-digit 2018 price increases.
Tucker
We saw a glimpse of things to come in 2014, and again in June 2017 when rates peaked, but no one could have been prepared for the market change in September.
Shippers that depend on fall sales are luring temperature-control capacity from other shippers by paying contract rates, plus $1,000 or more, depending on the lane. In this market, one moment you have a truck, and the next, it鈥檚 gone.
Options are limited: Freight expeditors, far more expensive than market prices, are often booked days in advance. Truckload carriers, large and small, dry and temp-control, are equally scarce. Sophisticated carriers are prioritizing which customers to serve, and which to abandon, based on their potential return on investment.
Shippers are angry and frustrated. At the many shipper groups I鈥檝e addressed this fall, including the Council of Supply Chain Management Professionals, I鈥檓 asked the same questions, such as, 鈥淗ow much should I add to my 2018 freight budget?鈥 I don鈥檛 know. Shippers also ask, 鈥淚s this 2014 all over again?鈥 meaning, is this storm-related noise that will pass? I don鈥檛 know, but I doubt it.
For those of us with tenure in this crazy business, market conditions are reminiscent of the crisis that began in the third quarter of 2003, and didn鈥檛 let up until 2005. At the time, the United States had recently emerged from recession, and trucking was lackluster, with volumes up one quarter and down the next.
But then-President George W. Bush and Congress passed a stimulus package in that 2003 third quarter, which gave rise to an impressive 8.2% annualized GDP pace that quarter. That remarkable increase in spending, coinciding with peak third-quarter shipping, overwhelmed trucking. Shippers went from operating on autopilot to vigorously competing with each other for trucks, bidding up the price of trucking.
With capacity at crisis levels, FMCSA鈥檚 hours-of-service mandate took effect in January 2004, reducing drivers鈥 productivity by another 3% to 4% at the worst possible moment. Sound familiar? Truckload providers disappeared for some shippers, and freight flooded LTL carriers and intermodal. Train speeds slowed, forcing some intermodal back to truck. Capacity was impacted for about 16 months before the market normalized.
Today鈥檚 market situation feels similar, but I believe it鈥檚 a bit worse. Here鈥檚 why.
Trucking is much tighter than it was in 2003, when we were emerging from a recession. Today鈥檚 economic expansion is the third-longest in U.S. history. Add to that FTR Intel鈥檚 recent estimate that trucking is at 95% of capacity. That鈥檚 tight. The 2017 hurricanes and fires are impacting the market as much as, or worse, than the Bush 2003 tax credit. Plus, we鈥檙e in peak fourth-quarter shipping. And, don鈥檛 forget the FMCSA鈥檚 ELD mandate is about six weeks away!
Conservative estimates expect the ELD mandate to reduce trucking鈥檚 productivity by 3% to 7%. That鈥檚 equal to, or double, what we lost in a more forgiving 2004. Tucker has been warning our customers for two years about the mandate, but we didn鈥檛 foresee the disruption caused by the hurricanes months before ELDs. Shippers must be limber to keep their products moving. They also must be competitive with other shippers who are busy making their operations more attractive than yours to woo drivers and carriers.
I recommend shippers reexamine budgets throughout their organization, from procurement, to finance, to planning, to customer service, to production facilities, vendors and customers. And don鈥檛 forget about any distribution centers owned or leased. You鈥檙e not the only company doing this, and some wise organizations are ahead of the curve.
In addition, shippers鈥 ability to flex will be a key to beating the competition for capacity. Provide as much advance notice as possible, and keep your options open. Don鈥檛 dismiss availability if you鈥檙e lucky enough to have it.
Finally, don鈥檛 use your broker friends as safety nets. Incorporate a handful of your most reliable brokers into your program as a 鈥渟houlder-to-shoulder鈥 peer to your core carriers. Handling excess demand will be easier for everyone.
The trucking market is as alive as the stock market. It鈥檚 far more predictable, but it moves up and down. And nobody鈥攏ot the largest shippers, carriers, 3PLs combined鈥攃ontrols it. It does what it wants. If you鈥檙e able to budget accordingly, incorporate flexi- bility, and strengthen partnerships with your loyal carrier and broker friends, you鈥檒l be able to weather this crisis, and beat your competitors to the trucks and to the shelves.
Jeff Tucker is the CEO of Tucker Company Worldwide, the oldest privately held freight brokerage in the United States based in Haddonfield, N.J. Tucker is immediate past chairman of the board for the Transportation Intermediaries Association. He also is a member of the NITL board, the largest shipper organization, where he chairs its Highway Transportation Committee.
