This isn’t yesteryear’s capacity crunch. It won’t be solved with yesteryear’s solutions.
Bending and morphing, and maybe cracking in some places, but not quite breaking. That so far has been the theme of the 2021 trucking capacity crunch and market imbalance, in which the amount of freight that needs to be moved seemingly is well outpacing available trucks and drivers.
Tender rejections remain at near all-time highs. Per-mile trucking rates on average are about 50% higher than a year ago, and the three major truckload sectors hit record-highs for June. Transportation concerns and costs have become a C-suite-level topic for most shippers, while carriers are riding the wave of the robust rates market.
Trucking capacity has always existed in this state of ebb and flow within a highly cyclical market. Economic drags and gains spur carriers to buy equipment and try to scale up to meet demand — or leave them with excess capacity that causes rates to sag or tumble once the market slows. So while carriers can seize on strong rates environments, such as the one we’re in now, often they’re left overexposed on the backside when the market turns.
This feast and famine cycle has played out time and time again.
Will it be the case again with the current capacity crunch? It’s hard to predict anything in today’s market, but as it stands, and likely for the foreseeable future, carriers will be limited in their ability to ramp up capacity much at all.
New trucks and trailers face severe backlogs due to manufacturing slowdowns, parts shortages, and high demand. Even if carriers were to take hold of some of that new equipment, they face an even broader challenge trying to find drivers to run it.
The pressure on capacity is only growing, absent carriers’ ability to scale up the way they always have — by physically adding more trucks, trailers, and drivers.
We as a logistics and transportation industry have finally reached the point where we can’t expect yesterday’s solutions to work in today’s market and with today’s — and tomorrow’s challenges.
Modern commerce requires more dynamic solutions than the boomerang effect of too little, whoops too much capacity:
Smarter use of existing capacity
Today’s platforms can allow carriers to effectively scale their capacity up and down in economic cycles and to meet shippers’ demands without the need to acquire new trucks and drivers.
Carriers can leverage systems like cloud-based fleet management platforms, integrations with freight providers like Loadsmart, optimized routing, and workflow apps that streamline drivers’ and dispatchers’ tasks.
For example, with a fleet management platform for which both drivers and in-office staff have a portal, integrations with loadboard and freight platforms can enable carriers visibility into nearby loads, reduce unloaded miles, and work the lanes they want — making the most efficient use of their capacity based on when and where freight opportunities are.
Reimagining freight contracts
We saw traditional freight contracts nearly become obsolete over the past 18 months, with shippers and carriers opting for shorter-term tie-ups, mini-bids, lane-by-lane agreements, and other tactics. However, traditional routing guides were already falling apart even before that trend began, because they’re antiquated mechanisms for shippers to secure capacity and for carriers to secure freight.
Freight contracts should take advantage of shippers’ actual historical and real-time data and market events, rather than simply based off of an industry-wide benchmark with an added margin. Contracts should allow greater flexibility for shippers and for carriers, rather than locking both parties into rigid agreements despite what happens in the market.
Smarter contracts can enable capacity to be more dexterous relative to actual market demand — while mitigating the swings that punish both shippers and carriers in cyclical markets.
Acquisitions and diversifying modes
Like Knight-Swift’s recent multi-billion-dollar acquisition of LTL provider AAA Cooper shows, there’s an appetite by carriers toward diversifying and expanding their service offerings through partnerships and mergers and acquisitions. Previous lines between the various freight modes will become blurred, as will the lines between carriers who specialize in one mode or another. LTL freight, for example, allows for multi-stop, smaller load configurations, more terminals, and mode optimization relative to shipper demands — and truckload carriers recognize the need to integrate LTL into their business model.
Acquisitions will no longer be simply to add raw capacity or company valuations. Instead, they’ll be more focused on mode optimization, finding synergy with existing services, and adapting to shippers’ needs. Look for these types of creative solutions to accelerate.DISCOVER YOUR LOADS
We are industry veterans and data-scientists using innovative technology to fearlessly reinvent the future of freight. As the ‘nerds of logistics’, we seek intelligence in data to solve deep-rooted inefficiencies in the industry. We give shippers, brokers and carriers access to our data connections (linking supply and demand) and suite of award-winning solutions to strike the perfect balance of cost and service. We’re creating a more efficient and environmentally responsible way to move more with less. For more information, please visit: https://loadsmart.com