Guest commentary by Adam Gray, JBF Consulting – as provided for the July 2020 Freight Market Index report
Almost every day it seems our plans are changing. Whatever we assumed were next steps yesterday often get migrated to the back burner as new challenges come forward today – in ways and at speeds that are unprecedented. More than ever, in our lives and work, we have to become more and more flexible to deal with all the demands and changes that are accompanying our “new normal.”
In terms of transportation, COVID-19 imposed its will on the supply and demand side of the marketplace almost instantly during the first series of shutdowns. Freight volumes initially spiked, then dropped significantly. Coupled with “stay at home orders,” the lack of shipping over the road saw fuel prices and consumption plummet. Rates dropped across the board in the short term, but particularly for the spot buy market.
As social restrictions eased in late May and early June, coupled with produce season, rates and volumes began to recover. Carrier rates, transportation supply and demand initially appeared to be stabilizing toward seasonal norms. Fast-forward a few weeks and we appear to be right back into a capacity shortage as numerous industry sources are confirming that spot buy rates have steeply increased. Retail season looms in the coming weeks and months, which we can only anticipate will further strain a marketplace that is already struggling for capacity.
Every day, news stories are thick with a theme of one step forward, two steps back. Will schools resume on-site in the fall? Will sports make it through their preseason quarantine “bubbles” and return to play? Will brick and mortar offices reopen soon? What type of restrictions will there be, what are the contingencies if we have another series of setbacks?
Small Adjustments Make a Difference
There are obviously larger stakes at hand with all of the volatility we are experiencing, but what can we do as shippers and transportation service providers to help insulate ourselves and prepare? Fortunately, we still have the ability to manage some basic factors that can help reduce the premiums and service disruptions that are sure to come as capacity continues to shrink in the short to medium term.
While classical forecasting is potentially more complicated than ever, managing short-term variables like lead time can help offset transportation premiums with just a little bit of extra emphasis. Historically, shipments scheduled for same-day pickups have always incurred a significant, additional, “premium” cost exposure. While scheduling truckload moves a week or two in advance is often impractical, even an additional single-day notice to allow providers some flexibility in how to address your shipping needs can help offset premium rate exposure.
Lead time has a sweet spot, particularly in the spot buy market. Too short and there’s a premium. Too long in an industry where immediate response and visibility are the standard, often the concerns of next week are left as battles to be fought another day. In the spot market, carriers are perpetually working to balance the efficiencies of their fleets a couple of days in advance. Their needs for tomorrow are based on the freight of today. As a result, targeting lead times for bookings for just a day or two in advance typically have the largest impact in helping to offset costs. That advanced visibility gives carriers the ability to help shrink the distance between A to B, from one load to the next, while working to help manage their individual drivers needs and availability.
The more shippers can work together and offer flexibility to their carriers by giving them a little extra lead time, the more flexible and efficient carriers can be in balancing their assets, naturally becoming more profitable. In today’s market, success and competitiveness are not limited to the quality manufacturing of products; meeting customers’ needs may also mean placing a greater emphasis on managing proactively to help make your carriers’ job easier.
Forward-thinking carriers and 3PLs are creating metrics for shipping location-specific “user reviews.” Think of applications like “Yelp” or Amazon reviews, but for shippers. Dwell time, extended payment terms, even the friendliness and flexibility of shipping and receiving staff are quickly becoming factors in how attractive your freight is to carriers and drivers. The information is being collected and more openly accessible than ever to the people and companies you want to accept your freight.
We can expect the winds of change to keep blowing, but there is still work that can be done to help increase profitability and decrease the excess cost exposure we are experiencing in these times of uncertainty and volatility. Being collaborative and working closely with your vendors and customers is more essential than ever to protecting future and short-term sales and profitability. The companies that do this well will be best positioned to surge forward and grow when the flood gates open again, and we recover.
Adam Gray is Senior Engagement Manager at JBF Consulting, a unique supply chain execution consultancy of TMS experts. Sign up here to receive the JBF Freight Transportation Bulletin, published monthly: http://bit.ly/JBFbulletin2020.
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