THE SKY IS FALLING
If you’ve been following the news about the problems impacting carriers, you may feel like the future is pretty bleak out there. From what we've read about this gloomy future, it sounds like the country will come to a grinding halt as we all look around for the drivers that have simply thrown up their hands and walked away from the profession.
Now, even though I often find these stories to be a little over-exaggerated, there really are serious ramifications associated with the shrinking driver pool and those problems impact us all. What I would like to accomplish here is to take a measured look at what’s causing the problem, and more importantly, what Shippers can do to minimize the impact of the driver shortage on their company.
WHY ARE DRIVER’S LEAVING THE INDUSTRY?
So, let’s start with what’s actually causing the driver exodus from the industry. The driver shortage is happening for several reasons, and in case you haven’t heard them, here are some of the big ones:
- A large part of the driving force is ready to exit the industry. The economy continues to grow, but much of the baby boomer generation of drivers is getting ready to retire, and they will be leaving faster than we can replace them
- Driving a truck is not a great lifestyle. This is especially true in OTR and some regional applications. As a result, many drivers have opted for jobs in LTL, or other industries like construction that can get them home on a daily basis
- Over the Road and Regional driving jobs do not pay well enough to offset the less than attractive lifestyle. Think about it…how much would you need to be paid to accept irregular work schedules, irregular sleep schedules, traffic congestion, living areas that are smaller than a storage shed, showering in truck stops, and extended time away from home?
- Electronic logging and GPS tracking means that drivers no longer feel the independence that once drew them to the profession. Whether it is true or not, drivers feel like big brother is watching them
- Government regulations continue to increase, and people are not flocking to join (or stay in) an industry that they feel is already over-regulated
- Interstate CDL’s are issued to people 21 and over. This creates an employment gap from the High School student at age 18 to the possible CDL holder at age 21. Somewhere in those 3 to 4 years between high school, and possibly obtaining a CDL, that potential driver candidate is finding work doing something else
Usually the discussion about the driver shortage is followed by how the shortage of drivers translates into a shortage of capacity. Whenever there is a capacity shortage, Shippers know they need to brace for bad service or higher rates (or sometimes both).
We’ve all been hearing this steady drumbeat of warnings around driver shortages and increased rates for the last few years. As the economy got better, the warnings got louder.
OK, WELL MAYBE THE SKY IS NOT REALLY FALLING…
Like I said before, these doom and gloom predictions are grounded in truth, but I’m still not a huge fan of those types of articles, and I’ll tell you why. The primary reason that I don’t care for them is that the more Shippers hear that the sky is falling (but nothing major happens), the more they may begin to tune out these warnings.
Sure, we all know that product is moving at a higher rate than before, and capacity isn’t as prevalent, but things are still moving. As a result, the general feeling may be that while the driver shortage is a problem, it’s nothing that can’t be handled. However, I would say to any Shipper taking the time to read this article that the worst thing you can do in reaction to the shifting conditions in the industry is “nothing.” The problems facing carriers are real and all of those things about why drivers aren’t coming into (or staying in) the industry continues to loom over the landscape.
However, the truth of the matter is that you won’t wake up one day and find that all the drivers have retired, or gone to work somewhere else. The reality of the situation is that the problem will slowly grow worse, and the driver count will continue to fail to keep up with the need. As a result, the basic laws of supply and demand will eventually take over. We all know that when the demand for a product outstrips the availability of a product, the cost of that product will rise. So yes, the unfortunate truth is that there is a driver shortage, it will get worse, capacity is an issue, and freight rates are rising.
However, instead of just throwing up our hands and saying “we better get ready to pay higher rates,” let’s try a different approach to this discussion. Let’s talk about some possible ways to lessen the impacts.
POSSIBLE APPROACHES TO MITIGATE HIGHER RATES
So, what can be done to help offset some of the capacity issues and rate increases that you may be facing? As a Shipper or Receiver of product, your strategy to mitigate these issues probably depends on what your background and experiences are. Believe me, there is another entire article about the things that carriers could do to attract and keep drivers in the industry, but for now I want to focus on Shippers and Receivers. So, I’ll lay out some strategies that I’ve seen customers implement over the course of the last couple of years. However, I would suggest that you don’t get stuck on just one approach, but use a combination of approaches to best position your company in the years to come.
Origin and Destination Issues: A great thing to do to make your freight more attractive to carriers is to limit dwell time as trucks get loaded and unloaded. You may have heard about this topic from a lot of carriers, and I have seen many Shippers and Receivers try to improve in this respect. Hours of Service regulations coupled with electronic logging make it more important for carriers to get into and out of a facility as quickly as possible. Believe me, carriers know if you or your customers take a long time to get them into and out of the docks. As a result, the rate the carriers charge to move your freight will be based accordingly. You might be able to get a cheaper rate for a while (before a carrier starts to realize that you or your customers have a chronic delay problem), but it won’t last long.
In addition to mitigating delays, you may also try to offer more facilities for the drivers. Use of a break room is great, but unfortunately it’s not very common, and some customers won’t even allow drivers to use their rest rooms. That denial of restrooms can be pretty offensive to a driver. It’s like saying, “I know I’ve trusted you to handle tens of thousands of dollars (or more) in cargo for the last day or two, but I really don’t trust you in my receiving area, or trust you to keep my bathroom clean.” In addition to the use of facilities, I’ve heard plenty of anecdotal stories of drivers who do everything they can to get to their appointment on time, but are then told to leave the yard immediately after delivery. A lot of Receivers may not understand that this driver has just spent every hour available to make the delivery, only to be told that they can’t stay in the yard to take their break. This forces the driver into a stressful situation where they know that they have to leave even though driving to the nearest rest area will put them in violation of their Hours of Service. Sometimes there are valid reasons for these rules at customer sites, but sometimes these rules just exist because “that’s the way it’s always been done.”
Whether you realize it or not, drivers remember how they are treated by certain customers and certain locations, and they talk about it. They talk to other drivers about you, and they talk to their Fleet Managers about you. Fleet Managers talk to Customer Service Managers, Load Planners and Salespeople, and the next thing you know your company starts to get a reputation. Whether it’s a good reputation or a bad reputation is completely in your hands. You might not care immediately, but with more freight available than trucks, carriers can be quick to pass up on a load to a customer notorious for delays or poor treatment.
Purchasing: During the last recession, it seemed like lane rates were going out to bid every year. It was like every Shipper was trying to see if they could ever find the bottom of the Truckload market, and for a while there, it looked like there might not be a bottom when it came to rates. Every purchasing group and every 3PL was hailed as a genius because so much money was being saved on the transportation budget. One-way capacity was plentiful, and rates were in a free fall. However, the landscape has changed, and things are different now. In a market where the rates are rising and capacity shrinking, your purchasing group should be looking to adopt a different strategy.
Now is the time to source longer term commitments from carriers, and attempt to lock in rates and capacity for the long haul. Purchasing groups also need to be open to looking at bundling certain lanes together in order to get an overall lower rate for those lanes. I can’t tell you how many “lane by lane” RFP’s I see, where I know that if I could just get these ten lanes bundled together, I could provide a lower price and move it cheaper than if I priced each of those lanes individually. If only I could explain that to the automated on-line auction tool, or to the consultant paid to run the on-line auction tool, I’d be a lot happier. Unfortunately, even when I do talk to an actual transportation person at the shipping company, they are operating using the ground rules given to them by their higher ups or the purchasing department, and they often can’t divert from the script.
Another tip on the RFP side is that you shouldn’t build silos around your Inbound and Outbound freight offerings. Almost every carrier will price in a certain amount of “deadhead” into your shipping rates. They are planning their exit strategy to some hypothetical Shipper or market even before delivering to your facility. However, if you could provide that carrier with a load out of your facility with zero deadhead, you might be surprised at how much your inbound rates could go down. Unfortunately, a lot of companies don’t take full advantage of their freight network, and they break up the IB and OB freight into separate freight offerings.
You should also be as specific as possible in your RFP’s. Asking for freight quotes on State to State lanes is just too vague, so carriers will always price in the worst case scenario (i.e. the longest length of haul). Along those same lines, carriers can be a suspicious group. So, if you’re asking for Zip Code to Zip Code quotes (but you’re leaving the actual Receivers anonymous), the carrier will again assume the worst case scenario. For example, if you’re shipping grocery products to a zip code that contains a Receiver that is notorious for delaying trucks, the carrier is going to assume that you’re sending them to that “worst case scenario” Receiver. Now, if you are not shipping to that problem Receiver, then by all means, shout it from the roof top and cash in on that cheaper rate. However, if you are shipping to that undesirable Receiver, than just get the truth out there and take the hit. Trying to hide the fact will only work temporarily, and you’ll just end up with a carrier who either asks for a rate increase, or just stops taking it. Inevitably you end up working your way down the routing guide until you get to a carrier that priced it as if they were going to the undesirable location in the first place.
I’m sure you’ve given feedback to carriers about their performance, and some of it was positive and some of it was negative. You should also be open to listening to feedback from carriers about some of the hiccups that come from doing business with you. Nobody is perfect, and we all understand that, but maybe you aren’t even aware of areas for improvement. Perhaps if things were done a little differently, your rates could be better. Besides the point of origin and destination issues discussed in the previous section, there a number of administrative things that could help you lower rates from the way you transmit your orders, to the length of time it takes to pay your freight bills. You should be open to finding out the things you could be doing differently to help keep your rates low, and capacity plentiful.
Dedicated Contract Carriage: So, in the interest of full disclosure, this is the part of the article where the sales pitch starts, but I promise to keep it high level and fairly painless. If you’re looking to shore up capacity at rates that won’t fluctuate wildly, putting in a Dedicated fleet is a great solution.
The only problem is, you might be inclined to dismiss Dedicated fleets because you think your freight won’t work with it. The problem here is probably how you’re defining Dedicated Contract Carriage.
When I talk to potential clients about DCC, the most frequent objections that I hear are:
- “DCC won’t work for me because my freight doesn’t always go to the same place.” However, that is not a requirement for a Dedicated fleet. Dedicated does not require you to ship to the same customers on the same day, and you do not need to have “Dedicated” delivery days and times for a Dedicated fleet to work. It’s called Dedicated because the drivers, managers, trucks, and trailers are Dedicated specifically to your company, and serving your customers whenever and wherever you may need them. A good Dedicated carrier will analyze your freight patterns for a period of time and suggest a fleet size that can accommodate your needs regardless of where your freight goes, or how often it goes there.
- “DCC isn’t an option for me because I don’t have a private fleet.” While it is true that Dedicated fleets started as a way to outsource your private fleet, they have evolved greatly since then. Many customers have elected to ship local, regional and LTL freight by creating a Dedicated fleet. This is especially prevalent with multi-stop deliveries, deliveries requiring a lot of driver material handling, or deliveries requiring specialized equipment.
- “I’d love to give up the headache of running a private fleet, but the [owners, customers, drivers,--insert name of company stakeholder here] would never agree to it.” Outsourcing a private fleet is a long and delicate subject usually involving long term employees, and there is often a lot of company loyalty to those employees. Most respectable DCC providers will understand this sensitivity, and they will either propose a solution that supplements your private fleet instead of replacing it, or the carrier will lay out a very detailed transition plan to limit the impact to the existing drivers. Retaining most (if not all) of the existing drivers at comparable pay and benefits rates should be the goal of any Dedicated carrier looking to implement a seamless transition.
- “I already bought or leased the trucks and trailers, so we can’t make a switch.” What a lot of Shippers don’t realize is that most DCC providers will happily take over existing lease agreements or ownership obligations. I can reassure anyone using this as a reason for not looking at Dedicated that this is not an issue. I would happily walk into a situation where the equipment was already in place because it makes the transition so much easier.
- “My freight is too hard to outsource.” I’ve been in Dedicated Contract Carriage for almost 20 years at this point, and there isn’t much that I haven’t seen handled by a DCC fleet. I’ve seen DCC fleets deliver liquid nitrogen, chemicals, and other hazmat loads. There are other fleets that make a dozen stops a day; drivers that have to load their own trucks; drivers that unload with hand carts, rollers, forklifts or even moffets attached to the flatbed. I’ve seen DCC trucks deliver to landfills. I’ve seen other fleets deliver directly to the store floor, and then rotate the stock if that was what was asked of them. I guess what I’m trying to say here is that unless your freight is highly explosive or radioactive, you can probably find a Dedicated carrier who can handle your freight.
The simplest way I explain a Dedicated Fleet is that it is a group of drivers, managers, trucks and trailers who are Dedicated exclusively to your company, and they will deliver where you need them, when you need them, and do whatever you need them to do at the delivery point.
If you have a private fleet already, then you understand the Dedicated concept. You also understand the benefits of having the same drivers interacting with your employees and your customers on a regular basis. There is a bond that gets formed between the drivers and the shipping/receiving employees that just helps get the job done smoothly. Turnover is low (in my company it’s 1/5 the industry average). Dedicated drivers really feel a real sense of commitment and ownership to on-time service, and they act like an extension of your company. However, Dedicated service can be better than a private fleet because you no longer need to worry about investing capital in equipment, replacing driver turnover, keeping up with government regulations, worker’s compensation claims, vehicle accidents, litigation, and investment in transportation software.
Even if you’re committed to your private fleet for one reason or another, you may not be willing to grow it or expand it to a new DC or cross dock. This is where Dedicated Contract Carriage can also come into play, and help you get the same level of service that you get from your private fleet without increasing your exposure or adding to corporate overhead.
If you don’t have a private fleet already, it may not have occurred to you to create a Dedicated fleet to handle a portion of your deliveries, but in many cases it can be exactly what you need in an environment of rising rates and shrinking capacity. Dedicated fleets are usually long term in nature (three to five years), have a stable driving force with low turnover, and any rate increases are tied to broad economic indicators usually put in place to give your drivers annual wage increases. If you have a lot of local and regional freight, multi-stop freight, freight requiring a lot of driver labor/freight handling, freight requiring specialized trailing equipment, or if you just have freight going to places with higher rates or low capacity, then a Dedicated fleet might make sense for you.
Why make the change? Why not just “wait it out” until the cycle takes another turn, and the Shippers have the upper hand again? Keep in my mind, the carriers that survived the last great recession are here because they took a good, long, hard look at themselves, and they made changes to the way they operated their business. They got leaner in the way they operated, they got smarter about the business they took and the freight they pursued. Now, the time for self-analysis lies with the Shippers and Receivers.
While you may not be able to directly influence the broader socio-economic factors that contribute to the driver shortage, there are steps you can take to lessen their impact on your company. Making your freight more attractive to carriers by reducing wait time, and providing a more pleasant environment for drivers is a good first step. Also, another important tactic to consider is to think about directing your purchasing group to establish long term partnerships while leveraging your entire freight network. Don’t necessarily confine yourself to short term agreements or lane by lane analysis. What may have worked in the past, could be working against you now. Finally, installing a Dedicated fleet, or supplementing a private fleet, can be a huge step in securing capacity for a certain percentage of your outbound and inbound freight. Dedicated fleets also allow you to secure that capacity at a very stable rate level.
Until the economy takes a downward turn, the carriers can and will continue to take their pick of the available freight. So, making your freight more attractive to one- way carriers and securing capacity with a Dedicated fleet are great ways to proactively address the situation at your company.
About SalSon Logistics
Salson Logistics is a leading third party logistics company providing comprehensive supply chain management solutions that span the globe. Our supply chain management solutions are flexible, scalable, and offer visibility throughout the supply chain. We operate with honesty and integrity.
SalSon employs more than 1,200 associates and operates more than 1 million square feet of warehousing while providing a range of services. SalSon revenue exceeds $100 million annually. Salson has a fleet of 550 tractors, 1,500 trailers and our capabilities include dedicated contract carriage cross dock, regional and local truckload, intermodal, vendor consolidation and deconsolidation, pool distribution, and unattended store delivery -- all with online visibility.
SalSon is a Foreign Trade Zone operator and is U.S. Customs-bonded, Food & Drug Administration-certified, and C-TPAT compliant.
SalSon Logistics’ distribution services include inventory management, KPI development and implementation, case and piece pick, a proprietary warehouse management system, and an ecommerce/ direct to consumer program. SalSon provides value-added services like kitting, display builds, contract packaging, labeling, inserts, and repair, refurbish and replenishment programs.
SalSon earned a spot among the top 100 supply chain partners in the voice of the customer in the United States by Supply Chain Brain for 2014. SalSon Logistics also was named Carrier of the Year, recognized by several major retailers for excellence, was awarded the Green Port Appreciation Certificate by the Port Authority of New York and New Jersey and is a Swart- Way Carrier.