How Will "Freight Embargoes" Impact Your Supply Chain in the Fourth Quarter?
Oct 1, 2020
For the past couple of weeks, we have been warning shippers that “Code Red” conditions in the transportation marketplace could cause disruptions in their supply chains or result in significant increases in freight costs. As we head into the fourth quarter and the busy holiday season, our predictions are coming true! Many shippers are on “high alert” and have either started to experience disruptions or seen their rates in the spot market go through the roof.
Last week I was talking to a CEO who shared that for his company, the costs of moving a container to the Port of Baltimore has risen from $2,100 per container to $4,000. I encouraged him to listen to our interview where an outstanding logistics executive, John Janson of SanMar, explained how blank sailings are affecting ocean rates.
And in the parcel sector, we heard from parcel expert Jerry Hempstead in a recent interview, who gave advice about how you can navigate a market where the inverse relationship of high volumes and low rates is falling apart and higher accessorial charges are a reality.
This week, we're encouraging shippers to consider how "freight embargoes" from LTL and truckload carriers could impact your supply chain in the fourth quarter. During the peak season, or times like now, where COVID is having an impact on carrier operations, some carriers are imposing freight embargoes. These impact the areas of the country they will and will not travel to, DIM factors and the types of loads they'll accept, and their service commitments.
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Many factors contribute to the embargoes.
First, carriers are experiencing a driver shortage. As one senior carrier executive explained, the pandemic caused freight volumes to plummet in April and May, so many drivers were furloughed. Companies have found it difficult to get drivers back as freight volumes have recovered. Compounding this issue are things like driver retirements hitting a new high, or the fact, as recently reported in a DC Velocity article, that “some truck drivers continue to stay out of the workplace amid COVID concerns and pandemic disruptions”.
Another problem is that some carriers are reporting that they are running out of equipment. For example, a senior carrier executive noted that some shippers have reduced their capacity of doors at their DCs or warehouses because of COVID, causing reductions in their labor force. As such, they are taking 1-2 days longer to unload carrier trailers, which in turn has resulted in a shortage of trailers.
All of this has shifted the leverage needle towards carriers. The DHL Supply Chain Pricing Power Index is at “80” which means that carriers have significant pricing power. This pricing power for carriers is also reflected in the FTR Shipper Condition Index (SCI). Add it all up and the carriers – especially truckload and intermodal carriers – are asking for and getting significant rate increases.
What should shippers do in this environment?
First, take advantage of TranzAct’s Carrier Network Feasibility Study and make sure you have a carrier network that is broad enough to offer you options without spreading your freight too thin. It is very important to understand how your freight fits into your carriers' networks.
Second, assess how your company’s operational areas impact your carriers' cost and profitability structures. A great tool that can help you get started is our Carrier Yield Test. Also, if you haven’t already done so, check out our interviews with carrier CEOs such as Derek Leathers (Werner), Rob Estes (Estes), Darren Hawkins (YRCW), or Dave Yeager (Hub Group) as they talk about how being a Shipper of Choice or preferred customer can help you to gain capacity in a constrained market.
Third, make sure you take a close look at and update your carrier contracts. If your current contracts have not been reviewed in a while, or they were written by attorneys who were not transportation experts, give us a call and we can share how TranzAct has been successful in helping shippers protect themselves in response to significant changes in the marketplace. For example, as noted in our parcel interview, one sentence in your parcel contracts with UPS and FedEx can protect you against changes in their accessorial charges.
Once again, if you’re interested in seeing how your rates compare to the marketplace, we encourage you to benchmark your rates.