Trends in Logistics: Solutions for Actively Managing Capacity Challenges
One challenge in the transportation sector at the moment is the issue of capacity. According to FTR’s latest findings, active truck utilization is already at 96%; as the economy grows, businesses require additional transportation solutions, requiring more trucks and drivers to move the products needed for consumers. Yet, this increase in demand doesn’t necessarily mean the supply of trucks and more importantly, drivers are available to meet the needs of businesses.
As the year progresses, capacity will tighten with businesses fully utilizing their available transportation services. As additional volume needs increase, the driver shortage will become even more strained. When demand is greater than supply, rising prices add to the challenge for businesses charged with maintaining profits and controlling tight margins.
What can businesses do to proactively manage their capacity issues?
Driver shortage and regulations impact capacity
A first step is to understand exactly what obstacles exist which inhibit the ability to effectively and efficiently manage capacity.
Driver shortage problem
The statistics regarding the current and worsening driver shortage are clear, and those in the transportation industry are feeling the crunch. According to the American Trucking Association (ATA) if current trends hold, the driver shortage will balloon to more than 170,000 by 2024. In addition, carriers are experiencing a quality versus quantity issue, especially in the chemical hauling business. The ATA’s report states, “…carriers are finding few eligible candidates, which is a quality issue. The report also noted that 88% of fleets said that most applicants were simply not qualified.”
In addition, drivers that may be the best candidates are gravitating toward higher paying, local jobs in areas such as the construction business. Potential drivers entering the employment pool are less willing to dedicate long hours on the road away from family and friends.
This amplified demand for drivers is the biggest challenge facing logistics and supply chain management professionals. The need for drivers severely tightens capacity and in turn increases costs and inefficiencies for both shippers and manufacturers.
Adding to the driver shortage problem is an increase in government regulations negatively affecting capacity management. The current atmosphere surrounding regulations within the logistics industry is and will continue to have a serious effect on capacity. The Electronic Logging Device (ELD) requirement alone (effective 2017), will create the need for thousands of drivers (source: FTR) in 2017 and 2018.
Increases in regulations means changing how and when drivers move product for customers. Any change in regulation negatively affects the productivity of the supply chain, adding stress to an already strained transportation system.
Solutions for managing capacity
Increased demand, the continued driver shortage and ensuing regulatory changes pose challenges for the logistics industry, however solutions do exist to combat rising costs and inefficiencies in transporting product. As you work with your logistics partner to develop an efficient and cost effective capacity solution, take the following points into consideration.
- Confirm your drivers’ pay and benefits are appropriate – as you work to assemble the best, most qualified pool of drivers to meet capacity needs, ensure their pay and benefits will keep them satisfied with your organization. Competitive compensation, more at-home time and a reduction in distance traveled can keep drivers satisfied, resulting in increased productivity and efficiency in moving freight.
- Ensure your logistics partner is providing the best capacity solution to meet demand. Depending on the needs of your business, your logistics partner should be providing resources to increase productivity and efficiencies, reduce costs and continually improve your logistics supply chain. Following are a number of potential options to consider.
In a dedicated capacity relationship, shippers negotiate with a carrier for a specific amount of delivery capacity; there are a finite number of assets or resources that are deployed. This relationship is contractual, but there are usually no minimums, no specific requirements and no penalties. In a dedicated capacity situation, the logistics company agrees to provide a certain amount of trucks at a certain price.
Dedicated contract carriage
The dedicated contract carriage option is a more formal contractual relationship. In this instance, the logistics company deploys both employees (drivers) and assets (equipment) for the exclusive use of the shipper for a specific period of time. This relationship is typical when there are specialized needs or requirements of the shipper that cannot be met in the open “you call-we haul” market. In addition, the shipper must promise a certain amount for freight. These requirements of both shipper and logistics company cannot be satisfied by a dedicated capacity relationship; therefore, the dedicated contract carrier is the best option.
Dedicated contract carriage is an option that was successfully implemented by one of Dupre’s customers to manage capacity challenges. A leading provider of water treatment chemicals in North America, worked with Dupré to develop a particular piece of equipment, engineered specifically to the needs of their transportation system. The resulting lightweight trailer allowed for more product to be hauled, thereby decreasing the number of actual loads on the streets. The result? More than 80 loads per year were eliminated, at the same time reducing the need for additional drivers. Through this dedicated partnership, Dupre’s customer efficiently managed their capacity and in turn saved thousands of dollars.
At times, the spot market, or “you call, we haul” option is used to manage capacity. The cost for this transportation service can be higher than the dedicated capacity or dedicated contract carriage plan, especially when capacity is tight. But your logistics partner’s brokerage division can typically help to secure better pricing.
Success in managing capacity requires working closely with a forward-thinking, professional logistics partner who can develop creative, efficient solutions. Navigating through capacity issues while challenging, can improve your business’ overall transportation efficiencies and reduce costs.
What successes and/or struggles have you had in managing capacity? To learn tips to ensure the effectiveness of your supply chain view our free webinar below.