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:
- 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.
- 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.
- 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.
- 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).
- 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.
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.