It’s Time to Start Looking at the Future and Preparing for the Long Haul
The challenges of the current economy and the availability of capacity have driven truckload prices to their lowest point since 2005. While most shippers have seen great opportunities with the decline in pricing, the market is changing. As recent research from Noel Perry and FTR Associates indicates, market pricing bottomed out in the second quarter of 2009 and is beginning to rise. This means shippers have started turning to a different set of criteria to determine who will be moving their freight.
As we have seen in past cycles, dramatic pricing drops have forced smaller carriers out of the market. However, the issues in the banking industry, and an unwillingness to reclaim toxic assets (such as repossessing trucks with delinquent loans) has created a lingering imbalance between supply and demand. Currently, there is a large population of carriers who are keeping their small businesses running by paying taxes and licensing fees at the expense of making truck payments.
This trend has many shippers nervous, with the general feeling being the banks have simply put a longer fuse on a bigger bomb. There is also concern among shippers that no one knows how high prices will go once the capacity bubble bursts; especially now that we are starting to see some small signs of economic recovery. Thus, with the truckload prices starting to rise, more and more shippers are choosing stability over short-term cost advantages.
Third-party logistics providers become a smart choice for shippers.
By nature of normal historic supply/demand economics, the ratio between truckload capacity and truckload supply will balance itself out, allowing the carriers who remain to makes up losses from the difficult economy.
The good news is the truckload industry is a highly fragmented industry with 96 percent of trucking companies having 20 or fewer trucks. More importantly, a significant number of these carriers have become dependent on the aggregate freight volumes of third party logistics companies (3PLs) to keep their businesses running.
This offers two advantages for shippers. The first is the stability 3PLs offer. These non-asset providers have been the most successful in this economy and have been able to build a great deal of loyalty among carriers. Also, the average 3PL purchases $10 million to $100 million of transportation every year, giving them considerable leverage to negotiate better rates for the average shipper.
A 3PL like Schneider Logistics, who also offers a broad portfolio of services, can drive costs out of a business in many ways. As an example, Schneider Logistics has brokerage relationships with full truckload carriers, intermodal providers, temperature-controlled, flatbed, specialized and less-than-truckload carriers. This is an advantage to businesses that tend to move a majority of their freight in one mode. The occasional refrigerated load can be a time-consuming and costly endeavor for a shipper that utilizes dry vans most of the time. That shipper doesn’t have the relationships or the purchasing power to manage cost for that occasional load.
One of the largest advantages of working with a broad portfolio of services is that company can offer multiple options to manage costs. With transportation pricing on the rise, and shippers continuously feeling cost pressures, multi-mode brokers have the ability to look across all of its services, offering shippers the most cost-effective mode for delivery.
Beyond pricing advantages, a good 3PL offers convenience to small and medium-sizes shippers. Instead of managing multiple relationships with carriers, an ever-changing list of providers and multiple pricing and billing profiles, companies like Schneider Logistics offer a single point of contact and streamlined billing for busy shippers. This allows more time for individuals to focus on their core business.