Shippers, truckers must look beyond current disruption to create capacity

Shippers, truckers must look beyond current disruption to create capacity

Shippers and truckers must simultaneously meet today’s demands and plan for a better tomorrow; that’s not an “either/or” proposition. Photo credit: Shutterstock.com.

The supply chain has become national news, as shippers, truckers, and intermediaries deal with unprecedented demand. It would be a mistake, however, to assume we’re in some sort of “new normal.” We’re in an exaggerated cyclical peak, and volumes will eventually fall back to earth.

As such, it’s time for shippers and carriers to look past the current peak and review our strategies — i.e., those that transcend market cycles. Let’s ask ourselves what we’ve learned from this end of the market cycle.

This is not to minimize the significant supply chain problems we are facing today. Every market cycle creates short-term challenges and opportunities. We must simultaneously meet today’s demands and plan for a better tomorrow; that’s not an “either/or” proposition.

For starters, shippers must treat their logistics needs as “board-level” strategic concern, rather than a purchasing function. Procurement activities must align with company supply chain policy. Purely procurement-driven shipping mindsets often yield low price and poor service. And what good are cheap rates if you can’t use them to get your product to market?

Shippers that issue blind requests for quotes (RFQs) with no vetting beforehand send the message to carriers that they view truckers as a commodity. Trucking operators are happy to participate in the RFQ process along with other similarly qualified carriers, and making the RFQ recipient list more exclusive and properly vetted respects high-performing carriers.

Further, shippers should rethink how often they issue RFQs. Shippers that generally issue RFQs on an annual basis, for example, should consider cutting them back to every other year or every third year for carriers that perform well.

At the outset of the COVID-19 pandemic, there was a flood of RFQs, some of which were issued outside of the normal cycle and for obvious reasons. The trucking market had crashed, and shippers wanted to gain the upper hand by locking in lower rates. That was a fool’s mission, however, as the early pandemic rates were never sustainable.

Now, with capacity tight and rates rising, some shippers have elected to defer RFQs because they lack the leverage to test the market.

That’s why it makes no sense for either shippers or truckers to take unfair advantage of a given phase of the market. Rate cycles come and go, but the fact remains that shippers who committed to long-term carrier relationships have felt less pricing pain than those that played the spot market. They’ve also fared better in securing valuable truck capacity. In other words, a “spot” market strategy is appropriate for short-term “spot” freight, not for ongoing shipping needs.

Collaborating to create capacity

There is no such thing as a single “truck market.” The industry is so fragmented that some market segments may have excess capacity while others are booked out for weeks at a time. Shippers must learn the dynamics of the trucking market segment that is most important to their business, as a slow — or robust — market in one niche such as retail goods may have little impact on other regions or types of freight such as energy-related cargo.

It’s important for truckers and shippers to have candid conversations about the fundamental economics of trucking. Some shippers might seek long-term fixed pricing, perhaps with periodic fuel adjustments, assuming all other trucker costs are static. But as wages, insurance, maintenance, and capital costs continue to rise, pricing discussions must allow for appropriate levels of communication and adjustment to account for those escalating costs.

When it comes to the current capacity crunch, shippers must be part of the solution, collaborating with trucking carriers to free up existing capacity by increasing the efficiency of loading and unloading operations. A well-organized shipper plans and is ready when a truck arrives. Last-minute demands are reserved for requirements that cannot be anticipated.

Extending terminal hours, for example, as the ports of Los Angeles and Long Beach did recently, can only help in relieving congestion if shippers similarly adjust their hours to receive the cargo. This challenge extends to the entire supply chain, not just the port drayage markets. Warehouses need to review their hours in collaboration with their core truckers to improve productivity throughout the system.

As a best practice, shippers should share business forecasts and performance measures with their core carriers, establishing key performance indicators (KPIs) and committing to relationships based on continuous improvement. The more truckers are aligned with anticipated client requirements, the more they can serve as part of the solution.

Attracting the ‘best of the best’

Even as the current exaggerated demand peak levels off, driver capacity issues will remain unsolved. In peak markets, everyone agrees that there’s a shortage of qualified truck drivers. During the “bust” cycles in which it’s easier to find capacity, however, pundits will say there is no driver shortage. Observations such as those are short-sighted and unhelpful.

Strategic shippers understand that the human component of trucking trumps everything else. The reality is that carriers are no longer in the “trucking” business; we are in the business of providing driver services. Although drivers enter and exit the market based on demand, the driver shortage is structural and transcends market cycles.

The current avalanche of demand would stress truck capacity even under the best of circumstances. Carriers face myriad challenges in hiring and retaining the “best of the best” professional drivers in nearly all market sectors. Although autonomous trucks will not eliminate professional big rig truck drivers for many decades — if ever — technology is positively changing the driver experience, and hopefully it will attract more people to the profession.

The driver will remain at the heart of trucking. Accordingly, those involved along the entire supply chain must make it a priority to help carriers attract drivers. Here are some ways to start down that road:

  • Trucking rates must enable carriers to attract and retain the best drivers. Shippers must understand the current wage environment and its impact on operational costs. It’s in the shipper’s interest to pay a little more for a stable, committed workforce.

  • Time is money, and trucking operators need help eliminating waste. For drivers, nothing is worse than being held up at an inefficient facility. Shippers must make productivity and faster turn times a priority and consider how properly deployed technology can help create that efficiency.

  • When drivers are in your “airspace,” shippers and consignees must treat them well. Drivers have choices about where they work. Strategic organizations have committed to being shippers of choice for drivers by creating a positive work environment for drivers at their facilities.

In addition, shippers should review their policies toward freight brokers. Many companies operate both asset-based trucking and freight brokerage businesses, but a declining number of shippers still adhere to a strict “no brokers” policy. That policy might stem from bad experiences with a broker or the highly specialized nature of certain cargo types, but shippers should consider that brokers know where to find capacity, often at optimal pricing. They can also offer load tracking and transparency that is on par with asset-based carriers, and best-in-class brokers carry cargo and liability insurance to protect their clients and have adopted stringent carrier vetting processes.

Opportunities are born from crises. It’s time for shippers, truckers, and intermediaries to take a short break from fighting today’s fires and ask ourselves what we’ve learned from the current capacity crunch. Working together, this is our chance to build a more resilient shipping strategy for our organizations.

Brian Fielkow is CEO of Houston-based Jetco Delivery and executive vice president of Montreal-based The GTI Group. He is co-author of “Leading People Safely; How to Win on the Business Battlefield.” Email him at Brian@brianfielkow.com.