Imagine you and your family are riding in a taxi. You overhear on the radio that there is danger ahead. Just down the road, conditions are ripe for a landslide which could put at risk the life of everyone in the vehicle. You look at the taxi driver, who ignores the report and continues on ahead. What do you do?
A similar scenario is looming ahead for US shippers, particularly those who rely on the trucking industry to have their freight moved. Though on the surface it may not seem like much of an issue, in 2017 the Federal Motor Carrier Safety Administration (FMCSA) will begin mandating the use of electronic logging devices (ELDs) for all of the Nation’s carriers. This change is going to have a serious impact on trucking in the US, and those shippers who do not have a “detour” around it could suffer from product shortages and rapid inflation of shipping costs as a result.
Most at Risk
Companies that have fewer than 6 power units make up 90% of the trucking capacity in the US. Third party logistics companies (3pls) rely heavily on these smaller trucking outfits to bolster their capacity. This has allowed them, over the past several years to offer trucking capacity at manageable prices.
For a variety of reasons, many of these same small carriers are planning to leave the industry rather than make the transition to ELDs. As those most likely to first feel the pinch of reduced capacity, 3pls will have to dramatically increase their prices as it becomes harder and harder to find trucks to cover loads.
This spells bad news for shippers who rely heavily on 3pls. Not only will their shipping costs go up, but they will be paying more for less reliable service: late pickups and deliveries, production shutdowns, and broken promises.
So what do you do?
Some shippers might reason that if they re-negotiate rates now they can hold out for a few years and weather the storm. However, experts warn that over the next 6 years , irrespective of whether or not ELDs are mandated, the US truck market will continue to experience an ever-worsening driver shortage. Therefore, shippers would be wise to anticipate and prepare for a long period of reduced capacity and high shipping costs.
So what can shippers do to prepare? Perhaps the most simple and effective thing a company can do is begin forming new relationships with quality driven asset based carriers; particularly, those who are already compliant with the FMCSA guidelines for Electronic Logging. Solid partnerships with asset based carriers can protect against: wild price increases, excessive broker fees, last minute “fall-outs”, and missed or late shipments; all of which are typical in a tight trucking market. Given the improvement of efficiency and management of costs that comes from working with top-notch carriers, and considering the increase in scarcity, the time is ripe to form more of these partnerships.
Changes in the truck market are inevitable. Those companies who are willing to look for trouble down the road and adapt will continue to prosper.