The news for the week was Tesla, but isn’t it always? This time the discussion was around Elon Musk’s comments about being in “logistics hell” and his company’s inability to get the now finished electric automobiles delivered on time. On Wednesday, September 19th our VP of Enterprise Sales, Randy Ofiara was invited to speak on WGN Radio in Chicago. He shared his expertise on why Tesla and other freight shippers are having difficulties meeting shipment deadlines due to the capacity crunch we are witnessing currently. Driver shortages, tariffs and government mandates are impacting shippers like never before.
Click HERE to listen to the podcast on the WGN website. The logistics discussion starts at the 7:30 mark. Take some time to listen to why the experts at BlueGrace are on top of the industry for you, helping you simplify your shipping everyday.
Even with the capacity crunch in full swing for all types of industries, there is still pressure to curb costs, but there is no reason to fold under the pressure. There are plenty of opportunities to save on costs waiting to be revealed. All it takes is a hard look at your business model. To speak to one of our freight experts, call us at 800.MYSHIPPING or fill out the form below.
Carriers in the trucking industry are still adjusting to the growing pains of the federally mandated electronic logging devices (ELDs) following implementation deadlines earlier this year. For many carriers, even with deadlines in the rearview mirror, there is still confusion around the details of the mandate. Even those who are fully intent on cooperating may not be confident that they are in full compliance, or which specific aspects of their operations even need to be in compliance.
The fines, which went into effect in April, state that under Title 49, section 521, any driver or carrier who does not keep a Record of Duty Status (RODS) is subject to being pulled off the road and face a civil penalty of $1,000 to $10,000 for each offense. Even still, one-third of U.S. truck drivers still use paper logs to track hours of service, despite the federal mandate, says a new survey with 2,400 respondents from software-as-a-service (SaaS) company Teletrac Navman that provides GPS fleet tracking.
But contrary to popular belief, fines are regularly being issued to carriers.
While there has been an industry narrative developing since news of the mandate emerged that the potential to face fines is more of a “boogeyman” scare-tactic than a real concern, the evidence tells a different story. But contrary to popular belief, fines are regularly being issued to carriers. Almost $32 million worth of fines had been racked up as of Feb. 28 and another $142 million as of Aug. 22, totaling at $174 million.
BlueGrace’s Brian Blalock, Senior Manager of Sourcing Strategy, and Raddy Velkov, Director of Trucking Operations, explain these fines’ effect on the nation’s trucking capacity, the lanes that are the most affected, and how to use mode optimization to respond to the situation in their webinar,“Response to the ELD Mandate”.
Blalock says that with trucks being taken off the road, shippers are experiencing a constriction of capacity, “which means things are becoming more and more difficult for us as shippers to be able to create good business plans, make good decisions and make sure our freight arrives on time and in full.”
First, Blalock lays down how the ELD mandate affects different routes, i.e. local, short haul, tweener, and long haul.
What Does the ELD Mandate Mean: Transit times, Capacity, and Rates
Local (less than 100 miles): Runs that are under 100 air miles are considered not subject to the ELD mandate, so the segment of small carriers that operate entirely on a regional basis have been unaffected.
Short Haul (100-450 miles) “As the mileage grows… there is more of an adjustment period due to the longer length of haul.” But if you drive beyond the 100-mile radius or take more than 12 hours to return to your home base, you are required to maintain a RODS.
Tweener (450 – 800 miles) This category is the most affected by the ELD mandate, Blalock and Velkov explain. Smaller carriers that were running one- and two-day points illegally were able to charge shippers less because they were recording use of the equipment for one day, whereas the larger size carriers who were in compliance had to pay the true, higher amount.
Once you’re inspected and ticketed by the DOT you are more likely to get ticketed or inspected again.
“Larger carriers… were compliant to run these two-day points,” Velkov explained. “Some of these larger carriers were already compliant for a lot of years, just due to the sheer size of their fleet.”Velkov added, “Once you’re inspected and ticketed by the DOT you are more likely to get ticketed or inspected again, so the carriers with larger fleets were getting inspected more than the owner-ops. with one or two trucks, so they wanted to adjust the playing field in this market space and be price competitive.”
Long Haul (over 800 miles) The long haul runs are also affected by the ELD mandate, of course, but many carriers operating these runs were already in compliance.
With the ELD-mandate changing business dynamics many carriers have made it their goal to minimize cost in order to reduce rates to stay competitive, but that’s only one piece of the puzzle.
Analysis with BlueGrace
If all of the conversations you’re having internally are about rates, you’re having the wrong conversation.
“If all of the conversations you’re having internally are about rates, you’re having the wrong conversation,” Blalock said, “because more of the cost can be driven out by better decisions than by any decisions that can be made to rates.”Velkov and Blalock explain how businesses can use data to optimize their business models, using the metrics and analysis available with Bluegrace’s services. The process starts by looking at a full picture of the supply chain to understand the network and cost distribution.
Shippers should internally ask questions like, which vendors are costing more money than they’re worth? Can I negotiate better dollar per pound rate with them? Are we losing money with this a specific vendor?Once you have a strong understanding of your current network and the costs associated with your vendors, you can begin to dig deeper by looking at various analysis offered by BlueGrace, such as the ship weight analysis, explained below.
Ship Weight Analysis Report: This measure allows shippers to look at month-to-month based on average weights cost per pound per month to determine if there are any outliers. For instance, were there any particular times your company did better than others?
There is a tendency to steer away from FTL because of cost, to shift to multiple LTLs, but this may not always be the best option.
“You’re not always looking for mistakes, but instances in which things were done considerably better,” Blalock commented. You want to understand the exact cost per unit, or as Blalock says, the cost to put each widget on the shelf. This will help you make smarter business decisions, for instance, whether or not to book full truckload (FTL) or less than truckload (LTL.)“There is a tendency to steer away from FTL because of cost, to shift to multiple LTLs, but this may not always be the best option,” Blalock said. You may be making the mistake of booking LTL thinking it is saving you excess cost, but if sixteen LTL booking costs you $200 each, versus paying for one $1000 FTL, you’ve just paid in excess of $2,200.
How BlueGrace Can Help
With the ELD-mandate in effect and a capacity crunch in full swing, there is an industry-wide pressure to curb costs, but there is no reason to fold under the pressure. There are plenty of opportunities to save on costs waiting to be revealed. All it takes is a hard look at your business model. To speak to one of our freight experts, call us at 800.MYSHIPPING or fill out the form below.
The e-commerce boom has no doubt stimulated economies internationally, driving demand for consumer goods and creating jobs in its wake. Logistics companies and carriers have celebrated the phenomenon. After all, growth in consumer demand means growth in demand for transportation services and invariably juicier bottom lines. Right?
Actually, the story doesn’t quite follow the Economy 101 text book’s narrative of what happens when an uptick in demand occurs. Real world factors have made the equation more complicated. The trucking sector of the logistics industry experienced this boom firsthand — ground carriers seeing massive growth in demand for the transportation of smaller loads, characteristic of e-commerce cargo. So, what is the downside?
While ground carriers should be reporting their best quarters on record, they are instead coming face to face with a serious problem: meeting the demands of their customers.
The trucking capacity shortage. There is simply not enough capacity to go around. While ground carriers should be reporting their best quarters on record, they are instead coming face to face with a serious problem: meeting the demands of their customers. As a result, shippers are forced to be more competitive about reserving trucking capacity, and the price of that capacity has risen substantially. This economic situation is the reverse of what was happening in recent years when carriers were scaling down their fleets, holding off and making any orders of new trucks in the face of overabundant capacity. Now, carriers are putting in orders all at once due to an uptick in demand experienced in both land and air freight, that commenced during the first half of 2017.
How are shippers being affected?
Shippers are experiencing the shortage of capacity in raised shipping rates. The script has flipped on them; instead of being able to shop around for the best package deal on their ground transportation needs, they are instead experiencing limited options for their needs at higher prices. The Wall Street Journal recently wrote about the effect of the trucking capacity shortage on shippers, referencing that last year, transportation costs rose 7% for U.S. businesses, a substantial increase compared to the 4% average over the last five years ended in 2017. This data was originally reported by the Council of Supply Chain Management Professionals’ annual State of Logistics Report. The rise in costs are not likely to be temporary.This means shippers will have to adjust to new tighter margins, allocating more of their budget to transportation costs. For some, this difference could mean being nudged out of the market, especially considering that the shortage is only forecasted to increase.
What is causing the shortage?
Growth in demand is one half of the coin that is the shortage in truck capacity. The other half is the shortage of truck drivers, which is a multi-faceted issue in itself. Until innovations like drones and autonomous vehicles become real-world technologies, which are still a long ways from hitting the market, there is no getting around the fact that truck drivers are crucial to the supply chain. The driver shortage is not a cyclical issue that will decrease or stabilize anytime soon, according to experts. The U.S. saw a shortage of 51,000 truck drivers at the end of 2017, according to the Washington Post’s sources, up from a shortage of 36,000 the year before, and according to NASDAQ: CNBC, the shortage is actually going to triple in the next decade if nothing changes. The acquisition of a trucking license takes only a few weeks. Even though drivers are now being offered upwards of $80,000 yearly salaries, and some in the six-figure range, low barriers to entry and high salaries are not enough to attract enough drivers for a combination of reasons.So, why can’t ground carriers find enough manpower to keep up with demand?
Electronic logging devices
The electronic logging device (ELD) mandate has caused some controversy in the industry. Truck drivers and CEOs alike have opinions on both side of the fence, as to whether or not the federal requirement of the implementation of ELDs is a good idea.
While it’s true that truck driving deaths have increased over the last decade, the drivers themselves don’t necessarily appreciate the new, digitized version of hour logging.
The mandate was established to hold drivers more accountable for accurately recording their hours in hopes that fewer accidents and fatalities would occur as a result of fatigue from overworking. While it’s true that truck driving deaths have increased over the last decade, the drivers themselves don’t necessarily appreciate the new, digitized version of hour logging. Executives are also apprehensive about the mandate because of the high cost of implementation, the associated learning curve and the hiccups that come along with it.Many believe that the ELD mandate has been a major cause in deterring truck drivers from continuing their careers in the field, due to a perceived distrust or disrespect of privacy.
Public perception & lifestyle
Outside of the ELD mandate, experts also think that a low public perception of truck driving is causing a low rate of entry to the career. As the older generation of drivers begins to retire, they are not being replaced with a younger generation as quickly as demand for capacity needs. The lifestyle associated with being a driver includes sleeping on the road, long hours, and many nights spent away from family.
With the younger generation pursuing higher education at higher rates than ever before and unemployment being at a low right now, the workforce is not gravitating toward trucking, despite the appeal of high pay.
While the wages seem like they should be attractive to younger generations entering the workforce, it seems that lifestyle may be another deterrent. With the younger generation pursuing higher education at higher rates than ever before and unemployment being at a low right now, the workforce is not gravitating toward trucking, despite the appeal of high pay.
What can shippers do to stay competitive?
As industry leaders work to find solutions to attract more truck drivers, many companies are rethinking their supply chains in order to prepare for a continued more expensive freight market. This means optimizing inefficiencies wherever possible in order to compensate for the greater expense by minimizing costs where you can.Shippers can implement strategies like defining business rules around factors like weight, volume, time constraints, and cargo sensitivity of their shipments in order to gain a strong understanding of what their actual costs are and where there is an opportunity to minimize them.
Investing in software that will allow you to purchase capacity and plan your shipments can be the make-or-break factor in a highly competitive environment.
Investing in software that will allow you to purchase capacity and plan your shipments can be the make-or-break factor in a highly competitive environment. BlueGrace’s proprietary technology is designed to put the power of easy supply chain management and optimization back in your hands. BlueShip® offers cutting-edge tools for strong reliability and quick performance. To speak to one of our experts and find out more about BlueGrace and how we can help provide you with the solution to your supply chain needs, fill out the form below or contact us at 800.MYSHIPPING.
The ongoing driver shortage is nothing new in the U.S. freight industry. As more and more drivers approach the age of retirement, younger generations are less inclined to take up truck driving as a profession. As the driver shortage increases, so too does the cost of freight which is putting the squeeze on a number of industries.
One of the biggest industries to be hit by the shortage? Food, perhaps the most important of all consumer items. Everything from restaurants and fast food chains, to grocery stores and even wineries, are going to start feeling the pain of the higher transportation costs.
Shortage By the Numbers
According to statistics from the American Trucking Associates, 2017 saw one of the most significant driver shortages in history, approximately 50,000 drivers. That number could continue to grow to 174,000 unfilled positions by 2026.
It’s not just shippers that are being hit with the higher costs.
“In addition to the sheer lack of drivers, fleets are also suffering from a lack of qualified drivers, which amplifies the effects of the shortage on carriers,” ATA Chief Economist Bob Costello said. “This means that even as the shortage numbers fluctuate, it remains a serious concern for our industry, for the supply chain and for the economy at large.” Cass Information Systems shows that U.S. trucking and rail freight spending have increased by 17 percent over May this year, versus last year, and that figure continues to grow. And it’s not just shippers that are being hit with the higher costs. Shippers, Carriers, and brokers alike all expect trucking costs to increase by about 6.4 percent this year according to a poll conducted by Morgan Stanley.
Shortage Hits the Shelves
Consumer packaged goods companies, agricultural consortiums, and vintners are already feeling the pressure of the shortage. Kellogg Co. has commented that freight is causing its most “acute cost pressures”. Restaurants are starting to feel the issue, but it’s their suppliers that are being hit the hardest. Tyson Foods’ CEO notes that higher freight costs have had a net impact of approximately 14 cents per share. “While we were climbing the hill, the grade steepened and now we are estimating the full-year impact to be roughly $250 million,” Tyson Foods’ CEO Thomas Hayes said, adding that the company “cannot subsidize the increased freight.”Given how closely most restaurants work with Tyson Foods, that price increase will more than likely be passed on to the consumers who frequent such restaurants.
The industry is struggling to get good, qualified drivers.
“It is a crisis and there has been a perfect storm of consequences that has led us to where we are now. The industry is struggling to get good, qualified drivers. The industry only appeals to half the workforce to start – women account for only about 6% of drivers. Recently, the economy has picked up, so demand is higher than it’s been in a decade and that adds pressure on the supply side. And we have a regulation where 21 is the age limit to drive, but by the time someone turns 21, they’re likely involved in some other profession,” Jim Murabito, executive VP of supply chain at Michigan-based Hungry Howie’s Pizza, said he sees the freight-cost issue getting worse before it gets better.Murabito goes on to say that they’ve been seeing somewhere between a 10 to 20 percent increase from all of their suppliers over this course of this year to help cover the higher freight costs.
“These are suppliers who haven’t had increases in three or four years. That underscores the issue this year,” he said. “There are some lanes that are seeing increases of 50 to 100%. (For example) We get supplies from Minnesota and there aren’t a lot of goods that come out of Minnesota so people don’t send their trucks there.”
In addition to the increase in freight costs, there’s also the increase in lead times for deliveries. The Electronic Logging Device mandate and the Hours of Service ruling are putting a hurt on a number of businesses, especially agricultural which has a more time sensitive delivery schedule than most companies. “Nationally, what used to take two days is now going to have two-and-a-half to three days to move product from one end of the country to the other,” Yvonne Sams, director of logistics at G3 Enterprises said.
The logistics industry as a whole is going to have to buckle down to find a solution.
With some major companies like Walmart and Target tightening the delivery window, shippers and carriers are having to become significantly more coordinated if they want to avoid the sting of chargebacks and penalties accrued by late or incomplete deliveries. As the driver shortage continues, the logistics industry as a whole is going to have to buckle down to find a solution. There’s a long road ahead of us, and it will likely get worse before it gets better.
How Can Your Business Adapt?
BlueGrace partners with an extensive list of carriers, providing you with the resources needed to ease the affects of the tight capacity crunch. If you would like more information on how BlueGrace can help simplify your supply chain and reduce transportation costs, fill out the form below or contact us at 800.MYSHIPPING to speak to one of our freight experts today!
It’s a good time to be a carrier. With markets running hot, carriers have ample opportunities to pick up freight and can be choosy about which ones they take. From the most profitable lanes to the highest price loads, carriers have been running the game and raking in some serious revenue, as much as high single or double-digit percentages. According to the latest earning reports from FTL carriers, shippers haven’t secured peak season capacity on notice. As it stands, there is no indication of freight demand slowing or contractual truck capacity lightening up any time soon. As a result, many carriers are noticing a markedly improved performance from that over previous years.
Reinvesting in the Fleet Can Have Downsides
Given the fact that many carriers are increasing their profits, they’re looking to reinvest in their company, replacing older trucks with newer, more efficient models. According to the Journal of Commerce, one such company, Covenant Transport, brought on 400 new trucks, while getting rid of 465. In total, the company plans on bringing in 880 new trucks while removing 940 aged trucks from the fleet.“Covenant’s truckload revenue increased by $16.1 million year-over-year in the quarter, a 17.4 percent gain attributed to a 14.2 percent increase in average freight revenue per truck. The carrier increased that revenue with fewer team drivers, fewer average team miles per truck, and an increase in the number of trucks that lacked drivers — 5.2 percent of its fleet,” says the JOC.
While more revenue is being generated from shippers being willing to pay for capacity, the overall capacity is being diminished.
The problem here is twofold. While more revenue is being generated from shippers being willing to pay for capacity, the overall capacity is being diminished. Conversely, the driver shortage is beginning to exacerbate the problem considerably. “From a capacity perspective, attracting and retaining highly qualified, over the road professional truck drivers remains our largest challenge,” Richard B. Cribbs, executive vice president, and chief financial officer, said in a statement Wednesday. “Low unemployment, alternative careers, and an aging driver population are creating an increasingly competitive environment.”Which means in order to fix the current problem, carriers are going to have to do something to draw in some fresh blood to take up the wheel and keep freight moving.
Raising the Pay Grade
So how much is enough of a pay incentive to bring in younger drivers? According to DCVelocity, the pay is going to have to increase to about $75,000 annually if there’s any hope of not only attracting but keeping qualified drivers on the roster for the long haul.Typically speaking, drivers get paid by the mile. However, when you factor in delays for shipping and receiving (miles not being driven) a lot of drivers are having a hard time making a solid living from hauling freight.
“As of May 2017, the median truckload driver wage was slightly more than $42,000 a year, according to the U.S. Bureau of Labor Statistics (BLS). The top 10 percent of earners pulled down more than $64,000, according to BLS data. Since then, an increasing number of fleets have substantially increased driver wages. Many salaries have risen by double-digit amounts during the past year or so,” according to the DCVelocity Team.
A Continuing Problem
According to Driver iQ, a company that produces background screening products and other services for the trucking industry, larger fleets are having a harder time keeping personnel than smaller companies. “While about two-thirds of recruiters at larger companies said their drivers were retiring at their expected times, about the same percentage of executives at smaller carriers indicated their drivers were staying longer,” according to the survey.
As for shippers, capacity is already tight, and it’s only going to get tighter as the driver shortage continues.
In their second-quarter forecast on driver recruitment and retention trends, Driver iQ predicted that approximately 45 percent of fleet recruiters are expecting a rise in driver turnover rates, even more so than the already high levels from the previous quarter. The turnover ratio is double what it was in the fourth quarter of 2017, meaning trucking companies are steadily losing more drivers. While carriers are making out well now given that they can cherry-pick freight due to the high demand, losing more of their driving force is going to put them in a tight spot down the road. As for shippers, capacity is already tight, and it’s only going to get tighter as the driver shortage continues.
Strengthen Your Supply Chain
BlueGrace partners with an extensive list of carriers, providing you with the resources needed to ease the affects of the tight capacity crunch. If you would like more information on how BlueGrace can help simplify your supply chain and reduce transportation costs, fill out the form below or contact us at 800.MYSHIPPING to speak to one of our freight experts today!
The potential trade war has been sparking considerable concern within the freight and logistics sector. With sanctioned countries threatening and even enacting their own forms of punitive retribution, many are wondering what the overall effects of the tariffs and trade restrictions will be on the industry as a whole.
The growing shortage in the trucking industry is also becoming a more significant problem.
Tariffs aren’t the only problem, however. The growing shortage in the trucking industry is also becoming a more significant problem. As a large portion of the trucking community is approaching retirement age, trucking companies are scrambling to find new bodies to take up the wheel. Despite these issues, the economy is enjoying a period of solid growth for the start of the third quarter, but according to a series of surveys conducted by the government, we might be looking at a hard cap on performance in the future.
“Responses from the Federal Reserve’s Beige Book and data from regional business surveys continue to point to an economy that is growing at a healthy pace, as a pickup in consumer spending and continued strength in business investment have sustained activity in the 2nd quarter. However, a, look at the details within the surveys suggest that demand in the economy is actually stronger, and the inability to find carriers to move the available freight has led to production delays and unfilled orders,” says FreightWaves.
Same Report from Around the Country
The upshot is that the Beige Book shows a continual, albeit modest, growth in the economy across the country. However, there are a number of regional business centers that have concerns about the new tariffs and the trucking shortage. The surveys highlight that each of the 12 major business districts is seeing higher levels of consumer spending through June and early July. This has created a talent shortage, leaving many companies scrambling to find qualified workers to fill the required positions to sustain the growth.
Among the top tariff concerns is the potential for escalation into an all-out trade war with China. The announcement of the tariffs and China’s response to them have increased the pressure for manufacturers over the past several weeks which are cutting into profit margins as companies have yet to start passing the bill to their customers. “Respondents in each district called attention to the tariffs, with one respondent from the Philadelphia district noting ‘that the effects of the steel tariffs have been chaotic to its supply chain—disrupting planned orders, increasing prices, and prompting some panic buying.’ Several districts noted that the tariffs had not had a material effect on demand or business activity, however, with respondents from Boston citing ‘concerns about tariffs but none cited trade issues as affecting demand or hiring and capital expenditure plans,’ FreightWaves explains.
The Effect of Capacity on Performance
Half of the Federal Reserve districts have cited the shortage of trucking capacity. Specifically, the shortage of commercial drivers has caused a disruption in supply chains and business in the past few weeks.
Given how connected the supply chain is to all aspects of the commercial industry, the driver shortage is causing a cascade effect for a number of businesses.
Given how connected the supply chain is to all aspects of the commercial industry, the driver shortage is causing a cascade effect for a number of businesses. The Boston retail sector, for example, notes that due to their own labor shortages combined with higher freight costs caused a 10 percent increase in labor costs compared to the rates over the same time last year. “Results from all three districts also showed that manufacturers continue to struggle to fill orders in the sector. Data from the regional indexes showed that unfilled orders were rising in all three districts, with the Philadelphia district reporting almost a 14-point jump. This continues the recent trend of rising order backlogs and orders that cannot be processed and would suggest that growth in the economy would be even stronger if only companies could find the workers, supplies, and capacity to meet all of the existing demand,” FreightWaves concludes.
Demand for freight is high, and the economy is continuing to grow which means a potential opportunity for the industry as a whole, so long as the can overcome the challenges ahead.
Many firms in the trucking industry are looking for ways to help mitigate the hardships brought about by the driver shortage including higher wages for drivers. Until they can better tap into the younger generations for new drivers, the driver shortage will continue to grow as more drivers reach retirement age. As for the tariffs and the potential for a trade war with China, the best option is for manufacturers to begin sourcing other suppliers for materials or decide how best to negate the increased costs. While this all seems rather dire, there is a considerable upside to this. Demand for freight is high, and the economy is continuing to grow which means a potential opportunity for the industry as a whole, so long as it can overcome the challenges ahead.
Preparing For Upcoming Challenges
BlueGrace helps our customers navigate through the constant changes the industry brings. No matter the situation, we are here to simplify your freight needs. If you have any questions about how a 3PL like BlueGrace can assist, contact us at 800.MYSHIPPING or fill out the form below to speak with a representative today!
Logistics and supply chain management has become a very tight game, almost cutthroat in its harsh severity. Consumers want their product today, that means that retailers want it delivered, checked in, and on the shelf yesterday. With the ability to order just about anything a consumer could possibly want from the vast online marketplace, brick and mortar retailers have to run an even tighter ship than they have before if they have any hopes of competing. To that end, some retailers are upping the ante and doling out punishment for shippers who aren’t in compliance.
So what can you do to maintain retail compliance? What about improving your operations to make your company more efficient? We covered these and many more topics in a recent webinar including:
Weekly Product Planning
Proactively Managing Appointments
Planning Optimal Shipping Dates
Eliminate Reactive Shipping
Creating an Internal Scorecard
Learning to identify Real Issues and Actionable Items
Improving Communication and Cooperation among Multiple Departments
Daily Tracking Updates
Full Visibility on Actual Deliveries
Learning to Identify Preferred Carriers
Utilize Upgraded Carrier Service Levels
Here are some of the key highlights from our webinar that can really have an impact on your business. While this doesn’t cover everything, these elements are vital to running a successful business in today’s marketplace.
Visibility is a Must
One of the key points that the webinar focuses on is visibility. Keeping up with retail compliance is more than just making delivery deadlines. The amount of disruptive technologies and customer expectations hitting the field requires a level of visibility that was, until recently, unheard of.
Customers want to know where their product is during transit. They want to be able to track its progress, start to finish until the product is in their control. More than that, they want to know the status of the product itself during transit. While this might not matter quite so much for clothing and other domestic goods, it plays a huge role for sensitive goods such as electronics and food items.
Being caught out of compliance could result in more than just heavy fines, it could result in a total shutdown of business and operations, which is ruinous for smaller companies.
Earlier this year, the FDA passed the Food Safety Modernization (FSM) act which details the requirements for sanitation, cleanliness, and closely monitored temperature control. Being caught out of compliance could result in more than just heavy fines, it could result in a total shutdown of business and operations, which is ruinous for smaller companies. This is one of many reasons why visibility is so vital to companies in their day to day operations.
OTIF and MABD Requirements
Walmart, one of the biggest retailers in the United States, is just one of many companies that are tightening their expectations for their suppliers. Walmart’s On-Time In-Full (OTIF) policy has set a precedent that will actually fine shippers and suppliers if goods don’t arrive when they are supposed, whether that be early or late. This means that shippers and carriers need to work closely together to hit the designated delivery window.
Must Arrive By Date (MABD) and OTIF are crucial for the changing client expectations.
Must Arrive By Date (MABD) and OTIF are crucial for the changing client expectations. Given that Walmart is such a substantial customer for many suppliers in the United States, making deliveries on time and in full is the difference between making a tidy profit, or losing out on a major customer. Additionally, chargebacks could carry a heavy fine, especially for smaller companies. As it stands, Walmart will penalize shippers by 3 percent of the total PO for any late or incomplete shipments. It’s not just Walmart that’s stepping up the regulations either as more companies continue to tighten their delivery windows.
We covered the importance of having someone managing these new requirements as well as questions that need to be answered. Are shipping dates being planned into production times? If there’s a mistake resulting in a delayed shipment, will you be able to identify where the mistake happened? What plans are there in place to reduce potential chargebacks and improve vendor reliability?
Better Planning Means Better Compliance
Planning is a large part of logistics, and being able to enhance planning is another touchstone of what we covered in our Retail Compliance Webinar. For example, what do you do if a truck breaks down while en route to a delivery? Is your company able to catch it with enough time to make the deadline? What about finding carriers with an open capacity to move product? Is your company able to find space, even when capacity gets tight?
These are a few questions that logistics planners and decision makers need to be asking themselves on a regular basis. Reactive shipping, planning a shipment due to a shortcoming of the original agreement, is a risky practice. There’s a lot that can go wrong when you’re already trying to play catch up. Much like maintenance on a piece of machinery, waiting for something to break is always much worse than fixing something before the breakdown actually occurs.
While there are a considerable number of possibilities to consider when trying to be proactive rather than reactive, it’s becoming easier to be proactive with the advancements of visibility and supplemental technologies.
The supply chain is very much the same. It requires a good deal of forethought to keep it flowing smoothly. If, for example, you don’t have a dedicated carrier fleet, will you have the necessary capacity to keep freight moving in a timely fashion? While there are a considerable number of possibilities to consider when trying to be proactive rather than reactive, it’s becoming easier to be proactive with the advancements of visibility and supplemental technologies.
That level of planning is no longer a novelty or a nicety for customers. It’s becoming a requirement as well as a differentiator among suppliers. Companies who are playing it too conservatively will have a harder time meeting retail compliance than companies who are staying abreast of the changes as they occur.
Changes in transportation regulations, tightening capacity, new technology hitting the market, higher spot rates and higher levels of demand from customers and consumers. Any one of these can be hard to navigate by itself, but trying to deal with all of it at the same time can border on the impossible.
Ultimately, everything we covered in our webinar is about helping your company to stay compliant and perform better across the board. From internal operations to external executions. Everything is connected and we broke it down for you. Click HERE to watch our webinar about retail compliance and learn more about how you can be successful. Ready to speak to an expert? Fill out the form below or call us at 800.MYSHIPPING
Food items are something that will always be in demand. Consumers expect fresh produce and other food products year around. As such, FTR Transportation Intelligence expects 154.5 million truckloads of food and kindred products this year, up 5% from 2017. Moreover, truckloads of food are expected to rise by an additional 8% to 166.9 million by 2020. This, in turn, results in an increased demand for refrigerated and dry vans.
However, regulatory requirements including the recent Food Safety Modernization Act, which includes new rules covering shippers, receivers, loaders and carriers that transport food is having an impact on the industry. One part of the act on food transportation spells out requirements on issues, including adequate temperature controls for trucks, food contamination prevention, and vehicle cleanliness.
Additionally, individual food, beverage, and perishable suppliers are feeling the heat from rising transportation prices.
Additionally, individual food, beverage, and perishable suppliers are feeling the heat from rising transportation prices. During their most recent earnings calls, Kellogg Co. noted that freight is causing its most “acute” cost pressures, while General Mills Inc. issued a full-year profit warning due to increasing costs associated with the shortage of truck drivers. While Kellogg is looking towards its supply chain to achieve cost savings, other food companies such as Hormel Foods and Smithfield Foods, have started to build out their own private trucking fleets.
Produce Season Is a Busy Time
While holidays have a substantial effect on freight capacity, produce season can cause one of the biggest crunches of the year. This year, produce season is kicking off with a bang, which might cause some strain on both carriers and shippers. “US wholesalers and shippers stocking shelves with produce are grappling with steep truck rates up as high as 30 percent from last year — as prices out of California and Mexico surge with the produce season kicking into high gear after Memorial Day,” according to the Journal of Commerce.
“Refrigerated truck rates have followed the same industry-wide trend: spot market prices are up about 20 percent to 30 percent on a year-over-year basis. Load-to-truck ratios are elevated because there aren’t enough trucks capable of handling the demand, which gives the truckers leverage to prioritize shippers paying a higher rate.”
Truckers Feeling the Weight of The ELD
The Electronic Logging Device (ELD) mandate, which was passed last December, is starting to put some extra pressure on carriers. The mandate has effectively lowered productivity while increasing the transit times, as carriers have to contend with the mandatory rest period. According to the Cass Freight Index, shipments have risen upwards of 12 percent over the last month, meaning more trucks are needed to handle the same freight volume. This, of course, needs to happen before a carrier can consider taking on new freight.
Fortunately for the produce season, the Federal Motor Carrier Safety Administration (FMCSA) has made certain allowances for agricultural carriers. So long as the carrier is operating within 150 air-miles of the loading site, be it a farm, silo, or processing facility, they won’t have to start the clock. Leaving the radius would cause to the clock to resume, but the added flexibility is essential for agricultural businesses to survive the produce season.
Supply and Demand: A Double-Digit Rate Spike
Even with the added flexibility softening the blow from the ELD, market conditions remain largely unchanged. The rise in capacity demand for the season is resulting in some hefty transportation fees. According to data from the USDA, national refrigerated spot rates were up 28 percent (25 percent not counting diesel costs) over the same week last year. These rates are being seen fairly consistently, ranging from 22 to 29 percent on the U.S. west coast. “At one point this year, I paid $12,000 for a truck. Last year for the same load and same route, it would’ve cost me $9,000 [33 percent hike],” said Peter Pelosi, director of transportation for A&J Produce Corp.
Kurt Schuster of Texas’s Val Verde Vegetable Company told KRGV, “They tripled or even quadrupled. What would normally be a $2,000 ride turned into an $11,000 ride? One of the main drivers was actually in the big freeze that hit the U.S., but these freight rates aren’t helping at all.”
Roadcheck Week Had Carriers Scrambling
To further add to the complication, the month of June is when the Commercial Vehicle Safety Alliance conducts it’s Roadcheck Week. While it’s only a period of 72 hours, most carriers are scrambling to make sure their ducks are in a row. The focus for this year’s road check: Hours of Service Violations. “The Commercial Vehicle Safety Alliance’s (CVSA) International Roadcheck takes place June 5-7, 2018. Over that 72-hour period, commercial motor vehicle inspectors in jurisdictions throughout North America conducted inspections of commercial motor vehicles and drivers.
Thirty-two percent of drivers who were placed out of service during last year’s three-day International Roadcheck were removed from our roadways due to violations related to hours-of-service regulation.
This year’s focus was on hours-of-service compliance,” says the CVSA brief.“The top reason drivers were placed out of service during 2017 International Roadcheck was for hours-of-service violations,” said CVSA President Capt. Christopher Turner of the Kansas Highway Patrol. “Thirty-two percent of drivers who were placed out of service during last year’s three-day International Roadcheck were removed from our roadways due to violations related to hours-of-service regulations. It’s definitely an area that we needed to call attention to this year,” the CVSA added.
Work Smarter Not Harder
If the capacity crunch and rate hike proves anything, it’s the fact that shippers and carriers alike are going to have to work smarter if they want to operate at peak efficiency. The ELD mandate is slowing road freight down considerably.
A transportation management system can help make the most of a ripe transportation season while avoiding the pitfalls that come with higher transportation costs and reduced capacity.
This is one of the big reasons that shippers and carriers are looking to 3PLs to help bridge the gap. A transportation management system can help make the most of a ripe transportation season while avoiding the pitfalls that come with higher transportation costs and reduced capacity. BlueGrace partners with an extensive list of carriers, providing you with the resources needed to ease the affects of the tight capacity crunch. If you would like more information on how BlueGrace can help simplify your supply chain and reduce transportation costs, fill out the form below to speak to one of our experts today!
Chicago draws logistics business like Hollywood draws actors, or a lamp draws moths. The city’s importance as a logistics hub predates even Mrs. O’Leary’s cow, blamed, rightly or wrongly, for starting the fire of 1871.
As the United States and its people moved west, Chicago became the crux in America’s railroad backbone. Today, Chicago still is the most important rail center in North America, but it’s also a high-tech logistics hothouse.
“There’s just such a surplus of talent there, at a time when we’re looking for a lot of talent,” Bobby Harris, president and CEO of BlueGrace Logistics, said shortly after BlueGrace opened an office in downtown Chicago in May.
“The market we’re seeing now will be around for quite some time. We need to add a lot of capacity and a lot of professionals,” he said. Chicago “is a rich source of talent and resources, whether it’s truckload capacity or sales reps.”
Third-party logistics providers (3PLs) such as BlueGrace will need resources to guide shippers through the tightest, costliest freight market since the early 2000s. Harris’s advice to shippers: “Whatever you think you’re doing really well, think another step.”
At this point, “everyone knows capacity is tight,” Harris said in an interview. “The question is how long will it be this way? My belief is that it’s going to be a tight market, in truckload and less-than-truckload [LTL], into late 2019.”
Chicago — a booming logistics sector since mid-2000s
Since the mid-2000s, Chicago has experienced a logistics explosion, with non-asset, 3PL, and technology companies large and small opening shop and tapping a young, tech-savvy workforce.
Coyote Logistics, now part of UPS, and Echo Global Logistics were both founded in 2006 and now are billion-dollar-plus 3PLs. Along with several other Chicago 3PLs, they are the original third-party logistics “disruptors.”
Tampa-based BlueGrace is part of the tech-based logistics community that has grown rapidly over the past 10 years. The 3PL has been on the Inc. 5000 list of fastest-growing firms five times, including last year, ranked at 3,744.
Harris founded BlueGrace as a technology firm in 2007. Previously, he was a franchisee with freight forwarder United Shipping Solutions and worked at LTL trucking companies Southeastern Freight Lines and Yellow Transportation.
In 2012, BlueGrace ranked 20th on the Inc. 5000 list, with a three-year growth rate exceeding 7,000 percent. Last year, Bluegrace grew at a three-year rate of 79 percent, with $188.1 million in revenue in 2016, according to Inc.
“We brought back virtually most of our franchises with the exception of a few,” Harris said. “We’re 95 percent direct-owned now.” In Chicago, BlueGrace’s new office is in the Chicago Board of Trade Building, a landmark skyscraper.
Eighty new hires will staff the office, which opens July 9. “We expect to make continuous investment [in the office] and we’re bullish on it. There’s a reason some of the biggest and most successful logistics firms are in Chicago.”
One reason is some of the biggest and most successful users of logistics services are there too. McDonald’s this Monday opened a new $250 million, 550,000-square-foot headquarters building in Chicago’s West Loop.
Online grocer Peapod on Tuesday opened its new headquarters at 300 S. Riverside Plaza in the West Loop, next to the Chicago River, relocating all of its corporate employees from the northern suburb of Skokie, Illinois.
Some 3PLs have made similar leaps. Several years ago, LoadDelivered Logistics relocated from North Grove, Illinois, to downtown Chicago. LoadDelivered founder Robert Nathan called the area “Silicon Prairie.”
Facebook and Google both plan to add more than 100,000 square feet to their Chicago offices and hundreds of workers, according to Built in Chicago, an online community for technology entrepreneurs, and the Chicago Tribune.
The tech giants compete with logistics companies for the same base of young, educated, technology workers. In Chicago, “We’ll have new hires out of college, and we’ll get supply chain professionals with experience,” said Harris.
They’ll need that experience, he suggested, in the year to come.
Harris foresees “continual tightening” of surface transportation capacity. “We’re entering produce season, we’re looking at hurricane season. We don’t see anything that’s going to relieve capacity in the next calendar year.”
He pointed to the Institute for Supply Management’s monthly indices, which showed the US economy expanding both in services and manufacturing in May. The good news is “we’re not finding the monster under the bed.”
“No one’s coming to save us,” he said. “We’re going to have to deal with this market for a long time. More drivers, that’s not going to happen, and automated trucks are way too far in the future in this time frame.”
Even so, for 3PLs and carriers, “there’s a lot of opportunity,” he said. “The very good firms will do exceptionally well, smaller firms with fewer resources not as much.” The question for shippers, he said, is “how to optimize what we do.”
Too many companies are experiencing transportation and freight expenses as one of their top three costs. Smaller companies feel the pinch the most. They typically incur greater logistics costs than medium and large sized companies, as do companies that sell lower product value goods. In a recent survey, 32% of online retailers expected logistics and delivery to be their biggest cost this year. The expense of moving products or assets to different destinations should not be the leading cost in any business, if possible. (SeeHow Does Freight and Transportation Fit into your Budget?
What’s behind the dramatic rise in transportation costs in nearly every sector?There are simply not enough drivers on the road to keep up with demand.
Truck Capacity Crunch
The first explanation for the rise in transportation costs is the truck capacity crunch.
The first explanation for the rise in transportation costs is the truck capacity crunch. See “Rising Costs and Lower Capacity in the Domestic Truckload Market.” There are simply not enough drivers on the road to keep up with demand. “Surging transportation demand is spurring trucking companies to charge as much as 30 percent more for long-distance routes compared with prices a year ago, and they’re hard pressed to add capacity because of a long-standing shortage of drivers,” explains Thomas Black, in Bloomberg’s “There Aren’t Enough Truckers, and That’s Pinching U.S. Profits.” Tyson Foods Inc anticipates paying$200 million more for freight in 2018 from the previous year. Kellogg Co’s logistics costs are expected to rise by nearly 10 percent.
Chief Executive Jim Snee of Hormel Foods, the maker of Skippy peanut butter and SPAM, says, “We don’t believe we’re going torecoup all of our freight cost increases for the balance of the year.” He informed Reuters that the company’s operating margin sank to 13.2 percent, from 15.6 percent due to rising costs – freight among them – in the most recent quarter.
Stringent Demands of the ELD Mandate
The second reason is the new ELD (Electronic Logging Devices) Mandate which entered into force on December 18, 2017. Drivers are now driving less, in keeping with the new regulations. Fewer drivers on the road at any given time due to the ELD Mandate is equivalent to taking 200 to 300,000 or so trucks off the market, according to a podcast episode by Freight Savings Tips.
Truck Driver Wage Increase
With fewer people getting licensed to become truck drivers, and older drivers retiring (see “Attracting the Next Generation of Truckers”), it will be inevitable that wages will need to go up to attract much-needed drivers. To cover the cost of truck driver wage increases, truckload rates will inevitably rise.
Fuel Price Hikes
The rise in fuel prices is especially hard-hitting for companies as fuel represents a significant portion of freight spends – often appearing as a surcharge on carrier invoices or embedded in line-haul rates. Fuel, according to the Harvard Business Review, is often the “largest inadequately monitored part of a company’s cost structure.”
Tom Kloza, global head of energy analysis for Oil Price Information Service calls this season “the most expensive driving season since 2014.”
Congestion In Cities
With increased traffic volumes and customer expectations on delivery times, the pressure to perform – quickly, and in congested parts of the city (i.e., tricky navigation) is very real. Consumer changes and complicated last-mile delivery obligations require money which must then be offset elsewhere.
The main solution – and greatest hope for companies engaged in shipping activity – is data analytics.
What To Do: It’s All about Data Analytics
The main solution – and greatest hope for companies engaged in shipping activity– is data analytics. Data analytics lessen the cost of bringing products to retailers or customers by uncovering new possibilities.
Transportation spending covers many dimensions. Therefore, there are many opportunities to control the spend. These solutions come in the form of reconsidering warehouse processes, leveraging IT systems, revising package and product designs to alleviate excess weight and increase shipment density, or “nearshoring” (reducing the number of miles shipments travel).
Bringing in the Experts
Companies who have relied on BlueGrace’s tried-and-true data analytics have recouped losses from mistakes they have made in the past. Consider the consumer packaged good company that underwent BlueGrace data analysis to determine what the “true cost” of its orders were (using information from historical orders) when freight cost was allocated.
The company executives were able to “drill down and allocate a freight cost to not only the customer level but the customer location, customer location type (Direct to Store or Distribution Center) and even down to the SKU level.
The company executives were able to “drill down and allocate a freight cost to not only the customer level but the customer location, customer location type (Direct to Store or Distribution Center) and even down to the SKU level. Since freight cost was not passed through to the client, this would either show a net margin loss on certain orders or opportunities to reduce the freight cost allocation on others to become more competitive. The result highlighted regions that were more costly to ship to, products that did not have enough margin potential to consider shipping unless they met a specific minimum requirement and insight into regions of the country that would benefit from an additional warehouse location.”
With BlueGrace’ specialized business intelligence, processes become clearer. Transportation costs are curbed relative to sales and overall budget. Ready to find your own clarity today? Feel savings relief by taking the first step. Watch the video on our proprietary game-changing data service here and talk to an expert today.Fill out the form below or call 800.MY.SHIPPING (697-4477) to be connected to a Transportation Management Expert.
Most shippers don’t spend much time worrying about who is driving the trucks carrying their goods, but choosing a 3PL with the right carrier network makes all the difference when your business is expanding. B2B and B2C networks are increasingly determined by where the customer is, rather than a companies’ geographical location. With more business moving to online, you need to be prepared to meet your customers where they are.
When your customers need change, you want to be able to say “yes.” But logistics is a complicated business and when you are examining your choices, there are some factors to consider.
The first step is to understand your internal requirements – consider what your specific needs are before looking for a 3PL. Questions to ask include, what modes of transportation and what services you will need? What volumes do you plan to ship and where? Do you have specific security or visibility requirements? Are your shipments time-sensitive? The list goes on…Despite their expertise, 3PLs are only as useful as their knowledge of your business and customer requirements.
The right 3PL will also have a network density that connects you with the right carrier, at the right location and with the right capacity and expertise.
Start with Carrier Partnerships
Whether you are shipping intra-warehouse or last-mile, it’s important that your 3PL has the capabilities to make it happen. Two considerations are technology and partnerships.
Shippers should look for a partner that allows them to quote, track and control invoicing for their LTL and FTL shipments, across a nationwide carrier network. Because your shipping partner is responsible for integrating different shipments, they are responsible for implementing technology that provides visibility to your shipment across their network of trucks and more.
The right 3PL will also have a network density that connects you with the right carrier, at the right location and with the right capacity and expertise. With capacity being tight these days, partnering with the right 3PL will increases the chances that your time-critical shipments will be delivered on time and at a competitive price. That means, if you have warehousing and delivery needs in Houston, your 3PL should have vehicles available to accommodate those needs, and quickly.
Door to Door deliveries
Not all trucking companies handle door-to-door deliveries and some don’t have to. What matters is that your 3PL is partnered with carriers that offer fleet capabilities that meet your needs. For your urban customers, the trucking company might need to deploy a fleet of smaller trucks or even vans. If your requirements are FTL B2B shipments, you need a trucking company with that sort of capacity. For many shippers, their requirements fall in-between, or into the ‘all-of-the-above category.’ In those cases, your 3PL needs to have a range of carriers available to facilitate your business.
Shippers should ask themselves if their 3PL understands their business and customer base. For example, a company shipping high-value electronics, will want to check with their 3PL about security protocols. Are trucks secured? Is there a system in place to alert management when drivers divert course? Proactive 3PLs will have systems in place so that your customers can rely on you in turn.
Shipping disruption is an unfortunate reality in the business, ranging from weather disruptions to dock strikes. The right 3PL will have a plan in place to make sure that you are taken care of.
Do the services match the requirements?
Some 3PLs specialize in specific modes of transportation, commodities, dealing with regulations and origin/destinations. Others are generalists. Make sure that you ask potential 3PLs if they have experience handling the cargo that your business will be shipping. The right partner for your business will be able to walk you through the different steps required, allowing all parties to agree on the correct protocols and procedures. Reviewing a 3PLs Case Study library can help you better understand their expertise.
How many modes?
There are four common modes – ocean road, air, and rail. Many 3PLs will offer “intermodal” services, but if they don’t have the size and experience to properly manage that freight in-transit, they are essentially handing off responsibility to another party.
To avoid this uncertainty, make sure your 3PL works with established rail and intermodal carriers. That way, you get the most options. Offering a variety of modes that let shippers choose slower transit times when possible, which lowers costs. On the flip side, if you need something shipped fast, having a 3PL with a dedicated expedite team will help to ensures that your shipment gets where it’s going, in the time it needs to be there.
How’s their customer service?
This might seem too obvious to print, but it’s important to distinguish between friendly phone conversations and 3PLs that can get you the information you need when you need it. If there’s a disruption or other events along the shipment chain, you need a 3PL that can reach out proactively to help you make the necessary adjustments on your end. There will always be disruptions, but that doesn’t mean they need to put you on your back heels.
Customer service is also about finding a 3PL that’s willing to take the time to help you set up the right solution. If your business is experiencing sudden growth, you might not have all the answers.
Is your 3PL BlueGrace?
At BlueGrace, our freight specialists work with you every step of the way to understand your requirements and set up a solution that’s tailored to your needs.BlueGrace provides scalability for growing companies to achieve their goals without labor or technology investments. With a fully built-out national network and global partners, BlueGrace makes it easier than ever to reach your markets in an efficient and cost-effective manner. Our expertise and processes provide clients with the bandwidth to operate efficiently and drive direct cost reduction, backed by procurement and dedicated management. For more information on how we can help you analyze your current freight issues and simplify your supply chain, contact us using the form below:
2018 is off to a strong start for the economy and manufacturing, but there is a shortage of available truckload capacity on the spot market. The Purchasing Managers Index has not dropped below 50 since August of 2016. This time frame almost exactly correlates with the last low point in the Dow Jones Industrial index. (October 2016, 18142.42) In August of 2016, the dry van spot market rate was roughly $1.65 per mile, today that number is $2.30 per mile. As already discussed, that number is coming along with a driver shortage and carriers not wanting to adhere to the ELD mandate.
More Freight, Less Capacity
Currently there are 5.5 available loads for every available truck in the United States. Carriers can pick and choose the freight they want, at the rate they want, going where they want.
On the heels of the new Tax Plan, businesses like Boeing, AT&T, AAON, AccuWeather, Southwest Airlines, American Airlines and many others have given out employee bonuses and increased charitable donations to show good faith in the plan. This leads many to believe economic growth is not slowing down in 2018 which then leads to more manufacturing and more freight shipments.
How Can BlueGrace Help?
Transportation Management providers like BlueGrace Logistics will consult with your business and provide a solution that can help insulate your company from the chaos in the spot market. Here’s how:
Current State Analysis, inefficacy identification
Future State Vision and growth plan
Benchmark Current Rates, identify lanes and current carrier mix
Load Planning and Consolidation Scope and Strategy
BlueGrace can start this process with an initial consultation and discovery call. Do not let the constraint and capacity of 2018 ruin your budget before it even gets started. Fill out the form below to schedule your free assessment today!
The transportation industry is no exception when it comes to government regulations. In the coming year, many regulations will be enforcing drastic changes in the transportation industry. These changes will impact the bottom line of truck drivers, carriers, shippers, consignees and even consumers. As regulations increase, trucking companies are forced to increase shipping costs, in turn, driving the cost of products in the market to rise. BG Investigates points out why it’s important to be aware of new industry laws and regulations.
Many transportation regulations are highly controversial in regard to their costs and effectiveness. Specifically, the CSA 2010 law was passed in December of 2010 and remains a top concern. According to the FMCSA, a part of the US Department of Transportation, the Compliance, Safety, Accountability (CSA) initiative is a regulation that is working to further reduce commercial motor vehicle crashes, fatalities and injuries on our nation’s highways. The trucking industry (including common carriers) feel the impact of this regulation as drivers are taken off the road due to safety concerns. Although this helps to increase safety, the loss of truck drivers due to CSA regulations has caused driver and capacity shortages.
“We are really starting to see the impact (of CSA 2010) in the industry right now. Every day we are seeing carriers that are being rated down to conditional and last week we saw five carriers shut down by the DOT for unsafe ratings. Obviously that increases the capacity constraints we have in the market by reducing the amount of drivers on the road and causes an increase in rates,” says Chris Reeves, Director of Specialized Services.
The debate continues on many other government policies. The Hours of Service regulations published in December 2011 were enforced to control the amount of hours a driver can be in operation. The HOS rules cause changes in the current transit times for shipments, as drivers are not able to travel as long. There are severe penalties for both the driver and carrier for violations. Industry groups argue that these regulations should change before they officially go into effect July 1, 2013.
The laws and regulations of the transportation industry are constantly changing. Whether you are a truck driver, carrier, shipper, consignee or consumer, you should consistently be informed to be compliant and understand the effects it may have on your business model. BG Investigates will continue looking and reporting the status of new transportation laws and regulations that affect you, so keep an eye out for future articles. Contact one of our knowledgeable representatives at BlueGrace Logistics with any questions about industry regulations or call 800.MYSHIPPING.
If you follow our CEO Bobby Harris @BobbyBG_CEO on Twitter, you’ll see that he continually warns of capacity overload and driver shortages looming. I don’t understand why people that are stuck in “dead-end jobs” do not want to become truck drivers! According to Indeed.com the average salary of a truck driver in Florida is $53,000/year and the salary index is on an upward trend.
I believe that most people typically think of drivers as long haul and that is a huge misnomer. Many drivers that work for LTL carriers go in to their home terminal in the morning, help load their van, take deliveries out in the morning, enjoy lunch, do pickups in the afternoon, unload back at terminal and then go home. These routes are very structured and the pay tends to be as well. Independent owner operators that do the long haul driving across the country have more freedom to name their own price and make more money.
These modes, in addition to railroads, have been the backbone of this country for many years and it will remain as such. President Obama spoke about how manufacturing is experiencing an uptick in the United States, which means that more American-made products will need to get from point A to B.
Can you see yourself behind the wheel of a big rig? The opportunity is there to have a career for years to come. Your future is up to you!
– Dustin Snipes, Inbound Sales Supervisor
Follow me on Twitter: @DSnipesNole_BG
As many have noted, truckload capacity is a very interesting issue right now. The full truckload market is completely one-sided in favor of the driver and carrier. The economic downturn caused most trucking companies to cut down on their drivers and equipment with many even selling their trucks overseas. For those who like numbers, there is currently an average of 3.02 loads posted on DAT360 from Transcore for every one dry van truck available at any time. For flatbeds, the numbers get much worse with a current average of 23.95 loads posted for every one flatbed truck available.
As the economy has picked up, even though slightly, companies have started producing more. While this is great, it just adds to the existing capacity issues. The numbers above confirm the effect.These factors have caused truckload rates to reach all time highs. The increased demand combined with higher rates should incent companies to grow their fleets. According to a report from ACT Research, the orders for Class 8 commercial vehicles reached its highest point in June this year. Orders are up 93 percent over last year. “Early second quarter reports from publicly traded truckload carriers confirm the improving freight transportation environment, as revenues and profits are up significantly from 2009,” said Steve Tam, vice president with ACT. “Overall orders are still below normal replacement levels, but momentum is building as trucker profitability improves,” added Tam.
Basic economics says that increased supply will help bring prices down in the near future. This is just another step in the right direction for all those working with full truckloads. Those who have worked with BlueGrace Logistics on full truckloads have noticed that the pricing is at an all-time high and finding trucks has been extremely difficult. We have been working hard at finding trucks and developing relationships with many strong carriers, with nearly 100,000 trucks in our network. Through those relationships, we are starting to see that the capacity in a large group of our carrier network is opening up these past few weeks. Hopefully that trend will continue for our customers and us.
I am a pessimist by nature. When I am in a big pot in Poker I am convinced the river will make my opponents hand. I am also not very bullish on the economy. Over the last 2 years members of both parties have thrown trillions of public dollars at the economy and it appears to have only stopped the bleeding. That doesn’t portend too well now that most people agree we are out of money to throw around. So how does this apply to our industry? The last 6 months we have all heard about capacity issues in Truckload and LTL. Freight is piling up on docks and loads are going unfilled. Rates are going up as trucking companies struggle to meet demand. But what is missing in this picture?
Well as I remember from high school when demand goes up two things are supposed to happen. First, prices go up as the Laws of Scarcity go into effect. We have all seen the prices of LTL freight going up this year. Secondly, supply is supposed to increase to meet the demand. I have not seen this happen, have you? But why is this not happening and what does it tell us about the near future?
I think there are a few basic reasons supply is pretty static. Barriers to entry are huge. New companies cannot be formed to handle excess LTL freight. Terminals are needed; trucks, trailers and people are very expensive. The timeline to form, open and staff a new trucking company is years. It is just not going to happen. And let’s not forget about government regulations. Jay Thompson of the Gerson Lehrman Group covers that in great detail here. “When it comes to regulation, it’s like a confluence of issues that results in carriers being hesitant to invest in much of anything – smartly so.” The base of suppliers of LTL freight is not going to change any time in the near future. It might even contract with companies going out of business.
Cash is tight. LTL carriers have just suffered through a couple years of losses and are only now coming out of the doldrums. Even titans like FedEx are posting losses. YRC has seen it’s stock price fall to 15 cents. Other companies are also coming off bad years. They have retired older equipment without replacing. Drivers are let go or allowed to retire with no replacements hired. No one is buying new equipment. We have seen the unemployment numbers; no one is hiring new drivers. No new companies plus no new equipment is not a recipe for increased supply. For these reasons, Moody’s is predicting that rail will outpace trucking in the near future. “We expect railroad sales growth to outpace growth for truckers into the second half of 2010,” the report said. “U.S. truckers were devastated by the recession, which constrained their ability to invest in new fleet and infrastructure. Consequently, their fleets may be less able to accommodate spikes in demand,” the report said. Railroads, meanwhile, maintained capital spending during the downturn and will be able to handle increased demand without the bottlenecks that accompanied previous recoveries, Moody’s said.
Lastly, (and this is where my pessimism comes in) I just do not think that LTL companies believe the hype. There are a lot of very smart people making buying decisions for LTL companies. Like me, they just do not think the economy has really turned. They are pretty sure that when the spending stops that demand is going to fall and no one wants to be left with a bloated supply chain.
Those of us in the 3PL and logistics world need to recognize how this affects us. In the short term, we will be dealing with higher prices but SO ARE OUR CUSTOMERS. Carriers are not raising rates on our segment because of any change in philosophy. Rates are going up for simple economic reasons; there is no supply. If the economy continues to grow, then trucking companies will start to expand their fleets. New companies will take a shot at the multiyear horizon and start to open. Increased supply plus new competition will of course bring the prices down again. It is simple Economics 101. But what if the economy double dips or just stays stagnant? Well all of a sudden, carriers will be cutting back again and looking for help to fill their trucks. Of course, we will be poised and ready to assist. If these times seem hectic and confusing to those of us who are considered professionals in our industry, imagine what it’s like for the customer. This is our time to shine. Anyone can keep a customer happy when saving him or her 20% on their freight needs. But the true professional can keep the customer happy when his costs are going up by 20%. We need to be explaining what is happening in the industry and why. They need to understand why a load that cost $500 in March now costs $750. They need us now more than ever.
While I was looking through various news and updates in the industry, I found the new forecast for the transportation industry through 2021. The American Trucking Association produced the report and the outlook looks great for the transportation industry as a whole. Capacity however remains an issue that will escalate due to the new CSA 2010. One of the unintended consequences of the CSA 2010 is many drivers will not be able to comply with the new safety regulations and many carriers will not be able to afford the qualified drivers.
The forecast shows projections for all modes of freight transportation. Railroads are expected to have a small drop in tonnage while Air Cargo tonnage is expected to increase. The trucking industry is expected to show steady growth over the next 11 years with tonnage moving from 68% to just under 71%. Last year trucks captured 81% of the freight revenue. While the recession has hit trucking very hard the last 2 years, this year is starting off very strong and the future looks bright.