May 2015 | Commentary | Viewpoint

Five Ways to Mitigate a Truckload Capacity Crunch

Tags: Trucking, Supply Chain Management, Transportation, Logistics

Kevin Zweier is Vice President of Transportation, Chainalytics, 770-450-6581

Many factors have led to increased costs for truckload services, and created challenges to the freight pricing status quo for shippers. In the wake of the disruptions caused by the current capacity crunch, many are asking: "Am I overpaying? And if I am, what can I do about it?"

To avoid paying too much for truckload services during periods of tight capacity, consider the following tactics to help you maintain your firm's long-term equilibrium:

1. Know if you are overpaying and where opportunities exist in your network. Some shippers pay above market for truckload capacity; others pay below. Those who lack visibility into actual truckload market rates become likely targets for carrier overcharges, and often don't recognize carriers that provide great value at a great price.

Industry benchmarks and services are available to help you understand the nuances on each of your lanes, and model market rates based on actual carrier rate data from hundreds of the world's most active shippers. Developing a competency in the transportation market allows shippers to develop successful procurement strategies that can outlast a capacity crunch.

 

2. Conduct regular truckload capacity procurement events. Shippers often end up overpaying for truckload capacity simply by accepting annual rate increases from incumbent carriers over a number of years. Both shipper and carrier networks change from year to year. Holding a well-timed procurement event each year should be part of a shipper's transportation spend strategy.

3. Make your freight attractive to truckload carriers. When capacity tightens, truckload carriers become more selective about the shippers they choose. Become a carrier-friendly shipper by driving efficiency and helping the carrier keep its trucks and drivers moving and making money. Carriers need to turn freight quickly, so shippers with drop-and-hook programs gain preference over those using live unload freight. In addition, carriers view shippers who provide driver perks that improve carrier productivity in a favorable light.

4. Institute reasonable truckload carrier payment terms. Many shippers push payments to carriers far beyond the typical 30-day payment term policy. But the primary costs carriers incur are driver salaries and fuel charges—costs that can't wait 60 or 90 days to be paid. As a result, carriers often find themselves strapped for liquid cash. Reducing payment times goes a long way toward fostering goodwill, and shippers who pay their bills the fastest often receive preferential treatment from carriers when capacity tightens.

5. Expand your truckload carrier base or reconsider your modal options. There are more than 100,000 North American truckload carriers. Modern transportation management systems are designed to help manage a large pool of carriers, so most shippers are equipped to effectively deal with a diverse base. Shippers who have not secured required truckload capacity from their incumbent carriers should waste no time in expanding their carrier pool.

For shippers with enough freight volume on competitive lanes, a private fleet can also be a viable alternative. Reconsidering your modal mix may also prove beneficial. Intermodal transportation has become an appealing force on many lanes, and is worth exploring.

In the end, passivity is a shipper's worst enemy. A proactive transportation strategy pays dividends in all markets, but especially when capacity is tight.