Market Update: April 18, 2018

The van load-to-truck ratio fell 11% last week to 6.6 loads per truck. This dip is consistent with seasonal trends, however capacity remains at historically low levels. Cass reported in March that their TL Linehaul Index has not only been positive now for twelve months in a row, but pricing for trucking continues to gain momentum.

National Van Demand & Capacity

Source: Dat.com

Scalability Is More Manageable With a True Logistics Partner

Scalability has been a corporate focus for the better part of a decade. Businesses that want to consistently hit new benchmarks with minimum strain on their human, financial, and operational resources cannot do it by themselves, though. They must develop mutually beneficial relationships with experienced partners.

Without this expertise, corporations that hit capacity ceilings will be unable to reach the next level of efficiency. They will be tapped out, struggling to address unfilled orders, ineffective communications, and personnel conundrums.

If your team is interested in scaling, it’s vital to begin planning for long-term success early in the process. Nowhere is this more important than in your supply chain, which is one of the top considerations for companies that want to scale their business to meet growing needs. Whether you’re procuring raw materials for production, transporting goods between distribution centers, or delivering products to customers, a business will struggle to increase efficiencies or drive savings without an airtight logistics strategy in place. It also will lack any sort of capital to inject back into operations.

Yes, economies and demand will vary according to a variety of factors. Nevertheless, logistical preparation will be the difference between a business that barely maintains the status quo and one that is able to kick things up a few notches.

 

Breaking Down the Complexities of Scaling

To illustrate the challenges inherent to scaling, let’s consider a hypothetical situation that is increasingly common in business.

ABC Company’s volume has skyrocketed, much to the delight of its stakeholders. Of course, this positive development has produced a potential downside. Management realizes ABC’s facility and payroll have outgrown the capability of in-house shipping and logistics personnel. If management doesn’t intervene now, ABC might lose its fantastic momentum. It’s a pivotal moment for the company in terms of growth.

The management team has a few options. ABC can keep its logistics operation in-house and hope that the strain doesn’t create worker problems — a definite gamble. ABC could instead work with a service provider to tender its freight to one or two carriers or brokers. At first glance, having a single broker providing all truckload services may seem like a relief, but it costs ABC the ability to negotiate competitive rates and could cause it to pay exceedingly high premiums.

Instead of sticking to these options — neither of which feels like a perfect fit — ABC Company might want to bring in a third-party logistics (3PL) provider. Applying a blend of technology and industry expertise, a 3PL can show ABC the best solution that meets a defined strategy. Not only will the 3PL have accountability for defined deliverables, but it will provide visibility regarding market conditions. Consequently, the amount ABC Company pays to a 3PL will align with its goals to ensure a judicial and value-based allocation of resources.

In this scenario, ABC Company carefully considered how to navigate the complex world of scaling. Not only did it lean on a 3PL to help it painlessly traverse supply chain trends and opportunities, but it likely also increased its profit margins by outsourcing.

Whether you’re new to the logistics marketplace or recently realized your ambitious goals no longer mesh with “the old way” of doing things, you owe it to your business to investigate potential 3PLs before you hit a ceiling that could make scalability a strain.

 

Reaching Greater Heights With Assistance

The obvious benefit of working with a 3PL with a strong reputation is the provider’s ability to develop an engagement plan based on your unique business model and goals. Based on your circumstances, a 3PL is able to align its resources accordingly.

As with any business relationship, it requires a foundation of open communication to be successful. You need to be transparent regarding your forecasting and promotional activity plans, or the 3PL will be unable to provide the help you need. In return, a good 3PL will offer constructive feedback and suggestions regarding ways you can improve your business.

These open lines of communications will do great things for your company. The increased flow of statistics and suggestions often ends up boosting your customer service. One piece of research notes that seven out of 10 companies that partnered with 3PLs managed to improve their client relations.

Is it any wonder, then, that 86 percent of Fortune 500 companies from the U.S. trust 3PLs for their logistics needs? Satisfied customers lead to more sales and referrals, which naturally help companies achieve scaling targets.

Another benefit of choosing an experienced 3PL is the opportunity to discover evolving and emergent inventory management platforms. Expert 3PLs streamline their systems by investing in tools, including cloud-based proprietary systems. Having real-time fulfillment and information transfer removes common logistics hiccups while increasing efficiencies across the entire supply chain.

Do you want to move beyond your current heights and scale your business to the next base camp? Just as climbers trust native guides to improve their chances of reaching a summit, companies in need of logistics aid can lean on 3PLs to serve as their Sherpas. Working together, you can map out a route that meets the expectations of both parties and seamlessly clears the way for fruitful outcomes.

 

Are you interested in learning more about how your company can get ahead of technological advances in the shipping industry? Contact us today.

Market Update: April 11, 2018

Spot market rates remain high as we enter April. Rates typically rise as we enter April and spring produce and home improvement seasons, but average spot rates remain 30 to 40 cents per mile higher than 2017. Truckload capacity continues to tighten, likely exacerbated by the first week of trucks being taken off the road for Electronic Logging Devices noncompliance violations.

Spot Market Trends

Carrier ELD Compliance by Range

4/2/2018 – CarrierLists.com

Source: CarrierLists

Worried About the Driver Shortage? Here’s What You Should Know.

Have you ever tried filling a bucket with water when there is a hole in the bottom?  No matter how much water you pour into the bucket, it will continue to drain until you plug the hole. The logistics industry faces a similar situation on a regular basis.  However, rather than water, the trucking world is struggling to keep the bucket full of a different resource: drivers. The current turnover rate for truck drivers is about 95 percent, and driver shortages are affecting supply chains across the country.

A report from the American Trucking Association revealed that over 70 percent of the goods consumed in the U.S. are moved around by trucks. To effectively meet this demand, the trucking industry needs to hire about 900,000 more drivers. No big deal, right?

Carriers are pulling out the stops to raise pay and intensify recruiting to keep pace with rising freight volumes. Despite these efforts, fewer drivers are entering the workforce than ever before. On top of that, existing drivers are hopping between companies to chase better opportunities or leaving the profession altogether.

Additionally, truck drivers are an aging group. According to estimates from the Bureau of Labor Statistics, the average age of commercial drivers is 55. The profession doesn’t seem to appeal to Millennial workers, which could be a major problem in the coming decades. Increased pay might be enough to tempt these young adults to explore trucking, but an investor report from Stifel Financial Corp. indicates that pay would need to increase by at least 50 percent to make a meaningful difference.

“Anything less is just playing the churn game,” the report concludes.

Ultimately, the high turnover rate is part of a larger issue that directly affects shippers. The ongoing driver shortage has created a capacity crunch in the logistics industry, complicating shipping operations and raising prices.

 

Shipping in an Age of Capacity Crunch

Most retailers are elated to be working in a booming economy, but more demand for products translates to more demand for shipping. Considering the lack of drivers, the supply of trucks can’t keep up with the demand of loads that need to be moved. This capacity crunch has severe repercussions.

Shippers must consider how this changes their shipping expenses, as well as new operations challenges that might arise. The capacity crunch will likely affect your business in the following ways:

  1. Spot Rates

The spot market for truckload transportation is highly reactive to any changes in supply and demand. When carriers know their capacity is in demand, they can increase pricing quickly. Industry statistics show that spot pricing is as much as 30 percent higher than one year ago.

  1. Contract Rates

Although they are not as quick to react as spot rates, contract carrier pricing increases more significantly when driver capacity is pinched. Carriers are paying more in driver wages and signing bonuses — not to mention losing money in turnover costs. Carriers naturally want to recover these costs when contract pricing is renewed. Even before renewal time, carriers will reduce their load tender acceptance compliance to allocate capacity to better-paying freight.

  1. Pickup or Delivery Failures

Carriers typically commit to load tenders even though they might not know which driver will be handling the load. When there’s a shortage, there’s a much greater chance that no driver will be available in time to meet service requirements. Carriers can respond by either handling the load and causing a service failure or declining the load after they’ve accepted it, which also typically causes a service failure.

  1. Poor Carrier Quality

Even if a shipment arrives on time, high levels of driver turnover often lead to poor customer experiences. Drivers who are unfamiliar with a shipper might not follow procedures or might not be prepared to handle the shipment as expected. Driver familiarity with the freight and facilities fosters high quality (and vice versa).

  1. Carriers Playing Favorites

In this setting, customers might have to compete for carrier capacity in a number of ways. They must efficiently load trucks, provide adequate driver facilities, and be flexible so they don’t detain drivers longer than necessary. Shippers who fail to provide a good experience for drivers will have a more difficult time acquiring capacity during times of scarcity, as drivers will gravitate toward their favorite customers.

 

Finding Solutions

The best way for shippers to tackle these issues is by choosing reliable carriers. A third-party logistics (3PL) provider that knows the market can help you find the best carrier for your business and the ideal balance between saving money and maximizing efficiency. However, don’t partner with just any 3PL.

Make sure the firm has a solid grasp of your business model right off the bat. It should understand and share your values and be knowledgeable about your industry and its challenges. Any trustworthy firm is also transparent about its rates, including initial and continuing fees.

Dismiss any company that tries to be subtle and “hands off.” Results only come from direct involvement in your operations, including learning everything possible about your supply chain. A 3PL cannot improve something it knows nothing about.

The shipping industry is likely to continue growing in complexity and uncertainty, and you want a partner you can trust. Whatever the coming years bring, a high-quality 3PL can help shippers navigate current and future challenges to improve operations and reach ambitious objectives.

 

If you’d like to learn more about how the ongoing capacity crunch might affect your business — and troubleshoot solutions to any problems — contact the Sheer team today.

Market Update: April 4, 2018

Capacity remains tight in certain markets such as Georgia and South Texas. Most recent reports still show capacity remaining tight relative to demand for the foreseeable future. The driver pool continues to shrink due to more favorable employment alternatives.

Spot Market Trends

Carrier ELD Compliance by Fleet Type

Source: CarrierLists

Navigating the Increasingly Tangled Web of Supply Chain Laws

Compliance is a challenge in many industries, but it becomes particularly important — and more complex — when your company transports goods across state lines. Shippers that don’t prioritize compliance can discover too late that they’ve been breaking the law.

Whether it’s regulations on hazardous materials or guidelines on refrigerating perishables, the patchwork of state laws can quickly complicate even the most straightforward supply chain. For example, Michigan’s prominent agriculture industry means the state allows a maximum vehicle and freight collective weight considerably higher than its bordering states. While your gross vehicle weight can legally exceed 80,000 pounds on most Michigan roads, you cannot cross into Indiana or Ohio due to the lower maximum weight restrictions in those states.

Other laws that can be troublesome relate to load size, including restrictions regarding maximum trailer length and maximum payload. Certain states have more nuanced standards, with California posing unique challenges for logistics professionals. The Golden State historically is a lot stricter regarding emissions and agricultural inspections, though newer equipment is designed with these emissions standards in mind.

When shippers need to go one step further and deliver goods internationally to Canada or Mexico, requirements increase exponentially. Between customer paperwork, taxes, and border crossings, the various considerations can create significant delays. While this hodgepodge of regulations can feel overwhelming, a little knowledge goes a long way.

 

A Slow Push Toward Standardization

Despite these complications, the logistics world is slowly moving toward more nationwide standardization. Aside from a few outliers, most states are aligned regarding equipment size, gross weight, and emissions restrictions.

On the federal level, government regulations dictate legal driving hours — and electronic logging devices (ELDs) to ensure those guidelines are met — for anyone operating via a commercial driver’s license in the U.S. These devices are designed to automatically track driving time to provide more accurate hours of service for truck drivers.

The next big change coming down the pipeline is the Food Safety Modernization Act (FSMA), which aims to standardize food chain operations. As a response to outbreaks of listeria and salmonella caused by unsanitary freight transportation, the Food and Drug Administration has been empowered to enforce regulations designed to increase safety.

Large companies have already been affected by the FSMA, but the compliance deadline for small carriers that make up the majority of trucks on the road won’t take effect until September 17. Food safety is indeed crucial, but the FSMA presents a steep challenge for smaller companies with more limited resources. But a tech-focused approach can help companies of any size implement these changes smoothly.

There will always be some growing pains tied to massive shifts of this sort, but standardization ends up being a net gain for the shipping industry. While some rules are still in flux, there are a number of key regulations that should always be top of mind.

As mentioned before, ELD mandates are forcing carrier compliance as it relates to driving regulations. This will continue to affect shippers — particularly for 400- or 500-mile trips that once were considered same-day shipments.

Hours of service (i.e., legal driving time) is a law that affects customers and carriers equally. Only 11 hours of consecutive driving is permitted within a 14-hour “on duty” period, after which drivers must take a mandatory break of 10 hours. While shippers might be aware of these regulations, they often overlook that a driver’s wait time during loading and unloading is considered “on duty” time.

These regulations might seem like a lot to keep in mind as you attempt to move products from point A to point B, but it’s important to remember that they’re in place to ensure the safety of drivers and everyone else on the road.

 

How an Outside Partner Can Lend a Hand

Whether you’re trying to move goods between states or countries, you’re going to grapple with a complex web of regulations. It takes intricate knowledge of this web to develop a shipping strategy that is both efficient and realistic.

A dedicated third-party logistics (3PL) firm should be familiar with numerous rules and regulations, including anything that varies by location. When a reliable 3PL engages with your freight program, it will typically complete the following steps:

  1. Define freight requirements.

    This includes determining the type of trailer, special shipping needs, and shipping and receiving hours of all participating facilities.

  2. Define transit times and routing of shipments.

    This involves securing carriers to complete each shipment. Carriers are qualified by geographical service area, special service offerings, and certifications (e.g., hazardous material endorsement, team driver service, etc.). The 3PL should match carriers that meet all state-specific and federal regulations with your particular freight.

  3. Execute freight shipments.

    At this point, the 3PL will monitor shipments, track progress, manage exceptions, and measure and report performance metrics and carrier compliance to shipping rules. While facilitating a customer’s freight program, a 3PL must tackle tricky situations such as working with multiple shipping locations or outside vendors.

Getting all parties fully engaged is one of the biggest obstacles at the outset of any partnership. A qualified 3PL should boast an implementation team of experts who can address these challenges and help set a positive tone for customers and other relevant participants. If you’re interested in partnering with a 3PL that can guarantee this level of service, contact the Sheer team today.

Market Update: March 29, 2018

Analysts project that the gap between 2017 and 2018 spot rates will narrow in the third and fourth quarters.  This does not signify a reduction for this year as much as it shows when rates began to skyrocket last year.  Continued tight capacity also means unanticipated network disruptions like major weather events won’t be easily absorbed.

Spot Market Trends

2018 Forecasted Spot Rates

3 Ways Autonomous Trucking Will Change the Logistics Industry

Self-driving cars are all the rage these days, with everyone from Hyundai to General Motors getting in on the action. The technology represents big business, with Intel and Strategy Analytics reporting that the autonomous vehicles could add $7 trillion to the global economy by 2050.

We’re still a few decades out from that vision, but autonomous vehicles have already started to infiltrate the shipping industry. Startups such as Embark are using autonomous trucks to ship refrigerators 650 miles between El Paso, Texas, and Palm Springs, California. The trucks are fully automated, though human passengers ride shotgun in case of an emergency. Tesla, meanwhile, is working with major companies such as Walmart to test fleets of autonomous trucks.

Despite these exciting steps forward, it will probably still be at least 10 years before fully autonomous vehicles are a widely used method of shipping freight on American roadways. Even with prototypes logging miles on the road today, it’s still a bit early to say exactly how the industry will change. The only certainty is that the logistics industry will never be the same again.

The Benefits of Autonomous Trucks

To examine the short- and long-term future of this technology, we must first differentiate between fully autonomous and semi-autonomous trucks. Semi-autonomous trucks, including the vehicles Embark and Tesla are using, require partial engagement from humans in the truck cabs. Fully autonomous trucks that would require no human operators whatsoever probably won’t be hitting the roads until there are dedicated lanes for trucks.

Even a slight degree of automation can create opportunities for cost savings in transportation. Platooning, one semi-autonomous technique, enables carriers to save up to 10 percent on diesel fuel costs. Trucks use advanced sensors surrounding the vehicle to stick together in close lines. This minimizes drag, reducing the work that the engines must perform. When one truck leaves the line or another vehicle disrupts the line, the other trucks in the platoon automatically adjust for the changes.

Automation has incredible potential in the shipping industry, but many business leaders naturally gravitate toward how it can boost their budgets. For instance, some Caterpillar mining trucks in Australia have helped save 500 hours of work annually by handling small shipments. Imagine the results if automated trucks were to handle the entirety of your freight needs.

The benefits of automation extend beyond just cost savings and efficiency, though. Autonomous vehicles obey safety protocols to the letter, and they can operate during the middle of the night, when the roads are relatively free of drivers. That means fewer tired truckers, faster shipments, and a likely reduction in accidents.

Some drivers understandably fear that these trucks will take their jobs, but autonomous trucking will redefine what it means to be a truck driver rather than replace the position entirely. New skills, like logistics management and repair specializations, will take priority both within the cab and outside of it. Human drivers will still be necessary to take trucks to their final destinations, refuel the vehicles, and load and unload shipments.

Major fleets might experiment with the technology sooner, but the high cost of early adoption means many owner-operators will be slower to switch over to fully autonomous trucks. Independent contractors will be able to sit back and assess the landscape as new regulations, safety protocols, and other factors take shape. Once the dust clears, experienced drivers will still have a seat at the table — though their responsibilities will change.

How Automation Will Forever Change Shipping

While it won’t happen tomorrow — or even next year — autonomous vehicles are going to spark a dramatic shift in logistics. The technology will set off major shockwaves in three key areas: driver employment, delivery times, and costs.

  • Evolving Job Duties
    The ongoing driver shortage will not disappear with autonomous vehicles. Companies still desperately need drivers, and that won’t change before the autonomous shift or during the transition period. The fewer drivers that are available, the longer and more difficult the transition process will be.

    President Donald Trump’s plan to allow some form of apprenticeship for new drivers could help, but technology will play a larger role than policy in this issue. Fully autonomous trucks won’t need drivers in the traditional sense, but they will need human logistics managers, maintenance professionals, and other skilled laborers to remain operational. The drivers of today will be able to gain new skills and embrace exciting opportunities.

  • Shortened Delivery Times
    Robots don’t have to obey laws related to hours of service. Computers don’t need to sleep, eat, or live their personal lives off the clock. They will need a tuneup every now and then, but robots are able to stay on the road much longer than their human counterparts.Existing HOS laws exist to protect everyone from sleep-deprived truckers hauling loads to meet tight deadlines. Robots are able to adhere to incredibly rigid schedules, which are reduced thanks to the elimination of eight hours of sleep every day. With this increased efficiency, logistics managers will have a field day optimizing schedules.
  • Reduced Costs
    Not paying drivers is cheaper than paying drivers, but the savings extend far beyond shippers and carriers. Provided that autonomous trucks are safer than humans, we can expect to see insurance costs drop over time. As these costs go down, shipping organizations will be able to pass on the savings to their clients — all the way to consumer products in stores.

 

At Sheer, we aggressively vet the carriers in our network and rate them based on their levels of service. When fully autonomous trucks become a reality, we will continue to measure carrier performance to track the effectiveness of autonomous trucks. Once autonomous vehicles prove their potential advantages, we’ll be ready to leverage the technology to benefit our services and our clients.

 

Interested in learning more about the evolution of shipping and logistics? Download our whitepaperto discover how your company can get ahead of technological advances in the shipping industry.

Market Update: March 21, 2018

We are seeing contractual rate increases still somewhat muted at 3% to 4%, but primary carrier acceptance has been low for this time of year. Carriers are still moving capacity to take advantage of the better paying spot market. The current concern is how many carriers may drop out of the industry after April 1, when trucks without ELDs could be fined or put out of service.

Spot Market Trends

Record High Rates

February spot flatbed rates were up ~5% sequentially and ~24% y/y; refrigerated spot rates were down ~17% sequentially, but up ~31% from the year-ago level. – KBCM Outlook

Market Update: March 14, 2018

After a brief lull, we are seeing capacity tighten again in the Southeast.  Winter storms recently reduced productivity in the Northeast.  Analysts are continuing to increase their contractual rate increase percentages each month – now looking for 8% to 12 % contract rate increases for 2018.

Spot Market Trends

Market Demand Index Through February

MDI averaged 38.8 loads per truck in February, up ~132% YOY, but down ~11% compared to 43.4 loads in January. … with the initial impact of electronic logs also likely accentuating industry-wide tightness. Looking ahead, seasonally strong trends are likely to persist given ongoing restocking tailwinds, with the actual enforcement of electronic logs in April potentially further restricting capacity.