Are You Ready for the Capacity Crisis? Oh, It’s Here
Funny thing, predictions. We gravitate toward them, some of us armed with a dollop of healthy skepticism. But when respected analyst John Larkin announced in 2010 that the trucking industry was facing the "mother of all capacity shortages," people listened.
We haven't quite reached the "mother" level yet, but the evidence says it's not far off.
The 2008 recession forced shippers to make difficult decisions about their transportation assets. The resulting capacity shortage became an ongoing challenge, requiring shippers to learn how to successfully manage unexpected ups and downs. No matter the cause, shipping products will always be characterized by uncertainty.
What Analysts are Saying
The future doesn't look too bright for shippers. "Look for capacity to tighten again as the fall surge picks up," warns Freight Transportation Research (FTR). The cloudy forecast continues, fueling concerns that strong demand will cause miniature capacity crises every time a peak season or event swells demand.
The trucking marketplace continues to experience strong spot market rate pressure, according to FTR, yet capacity trends hold at about 98 percent—just below the threshold of serious truck shortages. Although strong carrier demand encourages growth, new regulations and conservative management have capacity at a record tightness.
Meanwhile, the truckload (TL) industry continues to lack sufficient drivers to meet demand. Carriers continue to experience driver recruitment and retention difficulties, and regulation-driven productivity losses, "with public TL carriers noting unused truck percentages are increasingly elevated," says William Greene, a managing director and senior transportation analyst at Morgan Stanley.
If carriers don't expand capacity, shippers and receivers can't meet production and distribution needs; and for the supply chain to function, those two components need to be in sync.
The more than two percent annual year-on-year GDP improvement should keep the freight market in "slow growth," Larkin says. His other observations:
- Drivers remain scarce. Many proposed rules and regulations "either reduce the size of the driver pool or the productivity of drivers," he says.
- Railroads "have managed through the worst of the grain and coal downturns," Larkin notes.
- Hours-of-Service rules have shippers waiting to see if carrier prices will increase. "We will have to wait at least another year for supply/demand conditions that are supportive of rate increases to finally materialize," Larkin stated in September 2013.
3PLs Provide Capacity
Now, analysts' views are proving correct as shippers find it harder to cover freight with limited resources. They have to call dozens of carriers to get rates. Load coverage dropped from 90 percent last year, to about 50 percent.
Third-party logistics (3PL) companies can aggregate capacity; streamline processes; leverage buying power in the market; and provide seamless transactions that enable tracking, billing, contracting; compliance, safety, and accountability management; and carrier qualifications and insurance all under one roof. This means 3PLs can develop transportation strategies that help shippers meet customer needs in spite of dire predictions.
The capacity crisis is real, and it's here. Make sure you're ready.