The COVID-19 pandemic has impacted the transportation industry in various ways over the past nine months, forcing shippers and carriers into some challenging scenarios. And as we enter retail peak season, it doesn’t look like that’s going to change.
As you (and your customers) have likely realized by now, shipping rates have increased in recent weeks. An increase in demand has made it more difficult to find available trucks, which has created cost spikes we haven’t encountered since the onset of the 2018 U.S.-China trade war. Rates in California, for example, have risen roughly 200% year-over-year.
But why now? What’s changed since the beginning of the pandemic? And how long can we expect these capacity issues and ballooning rates to last?
Here’s what you need to know about what’s influencing the price of logistics and capacity so you can make the best decisions for your business during this crucial time.
Why Are Rates Rising?
Today, three trends are directly impacting capacity and rates.
Recovery From Pandemic Shut-Downs
In March, government-instituted stay-at-home mandates brought the global market to a halt. Then, as regions slowly lifted restrictions for manufacturing (especially in Asia and in Europe), the transportation industry was unable to move shipments quickly enough — which was only further compounded by a growing Driver shortage in the U.S.
Now, carriers are rushing to make up for lost time, doing their best to relieve congested ports and meet consumer demand as fast as possible. Demand for Drivers and trucks is reaching an all-time high, causing wait times to increase.
Uptick in Consumer Spending
Although the pandemic has negatively impacted many Americans’ incomes, the partially closed economy and travel restrictions left others with a surplus in spending money. Many individuals have more to spend because they're opting not to take vacations, eat at restaurants or engage in other activities outside the home that might otherwise consume their monthly budgets. This means more people started holiday shopping earlier, are redecorating their homes and purchasing more from retailers in general.
When consumer spending increases, more loads need to be shipped. And when there are more loads to ship than trucks available to ship them, it creates scarcity — which drives up rates. We usually see this affect dry van shipping first, and then flatbed and heavy haul shipping further downstream.
Increase in Just-in-Time (JIT) Demand
Fast market changes and increasing customer demands mean shippers are requesting carriers to fulfill orders only hours in advance, not days. These just-in-time (JIT) shipments require Drivers and trucks to be positioned as close as possible to drop-off locations and remain on standby until they're ready to be moved, demanding higher price tags. It also means fewer trucks and Drivers are available, creating even more scarcity in everything from dry van to over-dimensional shipping.
In other words, the more JIT shipments customers need, the fewer Drivers and trucks available for other projects. And the fewer Drivers and trucks available, the more costly it becomes.
What Proactive Measures Can Shippers Take to Overcome the Transit Capacity Shortage?
Much of what’s happening in the market is beyond your control as a shipper. Luckily, though, there are several proactive measures you can take to reduce negative impacts to your business:
- Focus on Carrier Relationships: One of the best things you can do right now is to strengthen or build relationships with a handful of carriers. Just like in any other industry, truckload carriers (or trucking companies) have a core base of consistent customers that they have established long-term relationships with. In a tight capacity market, those carriers will often reward these long-standing relationships by giving those partners priority access to their limited capacity.
- Give Advanced Notice: It’s crucial you give your carriers as much advance notice as possible. The earlier a carrier knows about when a load needs to go, the better chance you'll see success.
- Consider Locking in 12-month Rates: In some instances, committing to a carrier can earn you better rates. That’s because the more often a shipper and carrier work together, the better the carrier understands your needs, and the easier it is to ramp up on a project. (Once again, relationships are beneficial on both sides of the equation.)
- Examine Your Contracts: A lot has changed over the past few months. If you haven’t done so already, look at your carrier portfolio and examine contracts to ensure the carriers you’re using will still honor those agreements. And, if not, create new contracts.
If you work for a big enough organization to justify it, consider investing in dedicated services. In other words, ask a carrier to dedicate a certain number of trucks specifically to your needs.
- Prioritize Flexibility: This year’s retail peak season has started earlier than usual and is projected to last longer than previous years. That, combined with the Driver shortage and already significant demand, mean rates will likely continue to rise.
Now, more than ever, it’s crucial you focus on choosing carriers that can be flexible and have the experience, technologies, network and fleet size to accommodate your needs — even when it’s last minute or unexpected. Seek out carriers with company-owned trucks because they often have more control and agility. Additionally, be sure to prioritize flexibility within your own organization.
Work With an Experienced Carrier
Eventually, the market will stabilize, and supply and demand will level, bringing rates back to normal. But, until then, it’s essential you choose to work with carriers who understand the ebbs and flows during challenging times and can ensure the best possible experiences and coverage during peak demand times (and normal times, too).
For more than six decades, ATS has offered specialized transportation solutions worldwide. We’ve endured several global crises and know what it takes to find the right solutions for current needs — and we’re here to help get you through this unique peak season. Contact us today to earn more or reach out to request a quote.