There are a number of signs that shippers may come under pressure for freight rate increases this year. An economic recovery is under way. Robust retail sales in the latter part of 2010 may result in some inventory restocking in the first quarter of 2011. This may increase the demand side of the curve. If the recovery has legs, there may be higher shipping volumes during the historically stronger second quarter.
Transportation companies are facing a number of pressures on the supply side. New hours of service regulations and CSA 2010 could reduce an already depleted driver work force. Despite the high unemployment levels, driver recruitment remains a challenge.
Trucking companies that were faced with excess equipment during the recession are exhibiting more caution in buying new tractors and trailers. Major carriers such as Schneider National and Con-Way Truckload have already indicated that they do not plan to make truck acquisitions other than replacements until there are clearer signs of a sustained economic upturn. The result is an expected capacity shortfall of 3 to 4 percent by mid 2011.
Another wild card is fuel prices. While diesel fuel prices have slipped back the last few days and are well off the pre-recession peak of $147 a barrel, the trend line appears to be upwards. This will drive fuel surcharge increases in all sectors of transportation.
This leads to the obvious conclusion that shippers may face increases in freight rates and fuel surcharges and the likelihood of a more aggressive implementation of accessorial charges in 2011. This comes at a time when shippers are trying to rebuild their businesses. What can shippers do to mitigate these possible rate increases? Here are a few ideas.
One of the most overlooked opportunities to reduce freight costs is to take a look at packaging. As highlighted in one of my recent blogs, shippers with well defined Sustainability programs are searching out ways to lessen the cubic space occupied by their freight. Some are achieving significant success. This is an excellent way to limit freight costs.
Closely aligned with packaging is loading. Depending on a shipper’s pallet configurations, the use of logistics or high cube equipment may allow for additional capacity utilization.
Shippers should also extend their search for prospective carriers. In my work I often find that shippers limit their explorations to the “tried and tested” truckers they have used in the past. One of the keys to mitigating freight rate increases is to find particular carries that need additional head haul or back haul loads and can be more price competitive. This can take some time and effort but it can be very productive.
For many shippers, a load broker of freight management company may be the answer on some hard to fill lanes. There are tens of thousands of carriers in North America. A load broker may have an affiliation with some specific carriers that a shipper may simply not be aware of. They may be able help find capacity on some difficult lanes and should be part of any RFP exercise.
Last but not least are mode conversions. As the economy picks up, shippers should always be on the lookout for merging some LTL shipments and moving them on service days so they can turn a multi pallet shipment into a quarter, half or full load. If lead times can be extended, a conversion from truck to intermodal may also produce savings.
Rather than wait for carrier sales representatives to come knocking on the door, smart shippers should be looking at all aspects of their freight program and take action to minimize the impact of transportation rate increases that will likely be coming in 2011.
Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to investors, vendors to the trucking industry, transportation and logistics organizations. All posts by Dan Goodwill