Supply Chain Commentary: Managing the Coming ELD Capacity Crisis
A capacity crunch, caused by the Electronic Logging Device (ELD) mandate effective Dec. 18, 2017, is predicted by experts in logistics management, 3PLs, and truckers themselves. Only the magnitude of the shortage is challenged among experts. Some say it will be manageable, but at what cost?
facts to remember
- Larger fleets adopting ELDs had a 10-percent reduction in logged miles
- Fleets with 20 and fewer trucks did not have to adopt ELDs until December 18, 2017
- 190,000 U.S. trucking firms have fewer than 20 trucks
- We have a current driver shortage
- Drivers are moving into other fields such as construction
- GDP is rising faster than it has been in the past 10 years
- A capacity reduction in small fleets will spill over to larger fleets
- Some small fleets will fail
- Intermodal cannot fill all of the gaps as they quickly saturate
- It will take more trucks to handle the current volume
- Lanes in the 400- to 600-mile range will suffer the largest impact
- We have a truck parking shortage and trucks will now have to park more often
Having contracts with your carriers does not mean your carriers will give you capacity. Experts have predicted a 10- to 20-percent possible increase in rates due to demand pressures. This will be especially true in tight lanes.
The United States last saw a major truck shortage after Hurricane Katrina in 2005 but that was over by Christmas 2005. We saw another capacity problem with the severe winter of 2014 and it took until early summer to clear the backlog.
We are seeing extreme spikes throughout Texas in the aftermath of Harvey; in fact, it is difficult to even get fuel in some parts of Texas. With Irma hitting Florida this is a twofold disaster that will act like a giant sucking force for fleet capacity. This is bad enough but when the ELD mandate takes effect, the shortage will gain permanence.
When truckload carriers run out of capacity, shippers turn to more LTL shipments and they too will get overwhelmed and prices will increase. Already, LTL trucking firms are looking for more frequent price increases. LTL fleets cannot find enough drivers either and are getting selective about what freight to haul. Intermodal will quickly swamp. Train capacity is the least elastic capacity as there is only so much track and so many locomotives.
Handling the Capacity Crisis
How do you manage through this upcoming and nearly upon us crisis? By embracing technology and being prepared to pay more.
Your competitors will be in the same boat and if they are better prepared, they will win. To succeed, your TMS must have the ability to manage as many carriers as you can qualify.
What do you do when your preferred carriers in total can only cover 80 percent of your needs in a given week? How do you cover the remaining 20 percent? The answer obviously is to reach deeper into your carrier pool.
To do that, you need a deeper bench of carriers. Then a TMS, using optimization, can select a carrier for a given lane and begin a sequential tendering process. You don’t necessarily want to use the cheapest carrier in lane A only to get gouged in lane Y. So, the sequence of tendering in tight capacity conditions is different than in a free-flowing capacity market.
The operative question to your transportation providers now goes from strictly rates to: How many power units can you commit to me this week? Once you know those values and plug it into your TMS, you can distribute your loads for maximum overall cost savings rather than the lowest rate in a given lane. When you run out of committed capacity is when you reach for the open market. You can’t just tender the worst lanes to the open market and expect not to get gouged.
The consequences of not being able to move your shipments or suffering significant rate increases is frightful. With the coming capacity crunch not having technology could make it impossible to manage. Now is the time for action. If you wait until the capacity crunch is upon the nation, you will have to bear an immense burden as a full-fledged TMS takes time to implement and finetune.