Transportation Management: Weathering the Perfect Storm

With powerful market factors converging to negatively impact transportation costs, capacity-and the bottom line-shippers can apply effective strategies to weather the storm and begin to build a world-class, integrated transportation system.


  • Rising diesel fuel prices. In mid-2004, diesel fuel cost the industry $241 million more per week than at the same time in 2003. Faced with rising costs, carriers raise shipping costs or implement fuel surcharge agreements with their shippers. Shippers end up directly bearing the cost of increased fuel prices. Volatile fuel prices make it virtually impossible to plan strategically over the long term and, on a tactical basis, make it much more difficult to forecast transportation costs on a season-to-season or even month-to-month basis.

With fluctuating fuel prices, transportation planning becomes more complex. Keeping track of the various fuel surcharge schedules from each carrier, and which level is under affect at a give moment is a complex task. Seeking to manage costs, shippers must spend more time analyzing the relative cost of each carrier option given the now dynamic overall transportation cost, and trying to formulate viable trade-offs between cost, transit time and customer expectations. All of this leads to higher administrative costs and lower efficiency for all concerned.

  • Ongoing driver shortages. For surface transportation, the shortage of qualified drivers has never been so severe. According to the ATA, the driver turnover rate at large truckload carriers hit 116 percent on an annualized basis this year, and 94 percent for small truckload companies. Yet demand for capacity continues to grow to historic proportions. One analyst estimated that the industry could employ 80,000 new drivers immediately, and many more will be needed in the future if the freight volumes continue to grow.

It is estimated that the current capacity shortage has already driven up rates between three and eight percent. In previous favorable business cycles, carriers aggressively recruited drivers in order to expand capacity. In the currently increasing freight volume cycle, they are hiring just to maintain capacity and keep up with demand. As a result, both driver pay and carrier’s rates are going up.

The importance of keeping drivers happy is a major issue for carriers. This is having an affect on the loads that carriers are choosing to haul. The overall capacity shortage has allowed carriers to become more selective about the freight they accept. Given a choice, carriers will choose the freight that is more likely to make a driver happy. Carrier-friendly shippers are more likely to get a carrier’s capacity - often independent of the rate the shipper will pay. Carriers are doing everything they can to keep their drivers satisfied by negotiating with shippers on "softer" issues such as assignment and route optimization and they want to work with shippers who are sensitive to drivers' issues.

  • Increased security concerns. New and impending government regulations related to domestic border security, port and cargo security, and driver licensing background checks for transport of hazardous materials are all contributing to higher transportation costs and reduced capacity due to longer transit times. In all cases, industry and government regulations are now demanding more reporting and technology from carriers, which adds both costs and administrative time.

North American shippers face increased border checks that can tie up equipment and shipments. Although some security advances are now being made to streamline acceptance of goods at the Canadian border through the use of shipper certifications and the application of wireless (RFID) technologies, these strategies are more likely to be deployed by larger freight carriers than by small to midsize ones.

Since the Transportation Security Administration recently imposed hefty fees for conducting fingerprint-based background checks on drivers hauling hazardous materials, it is expected that implementation of the background screening program will almost certainly lead to a significant percentage of trucking firms and independent drivers dropping this option and their hazmat licensing because of financial considerations. This will reduce the pool of eligible drivers and will likely have a specific impact on the hazardous haulage sectors, leading to higher shipping costs.

To ensure optimum security and accountability of goods in transit, shippers need to ensure greater visibility from origin to destination. This has become increasingly difficult to achieve, given the proliferation of suppliers, manufacturing and distribution sites across the continent and, indeed, across the globe. Nonetheless, security concerns continue to loom large on the transportation landscape, and will continue to do so for the foreseeable future. For shippers and carriers alike, security is part of the new reality and must be considered in formulating long-term transportation strategies and in making near-term tactical decisions.

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