Use Technology to Manage the Coming ELD Capacity Crisis
That a capacity crunch, caused by the Electronic Logging Device (ELD) mandate effective December 18th, 2017 is coming, is predicted by experts in logistics management, 3rd party logistics providers and truckers themselves. Only the magnitude of the shortage of capacity is challenged among experts. Some say it will be manageable, but at what cost? Being unprepared, using 1990’s techniques to manage your transportation capacity is playing with fire.
Facts about ELDs and Capacity:
- ELDs adoption has caused an approximate 5%-10% reduction in available driver miles
- Until December 18, 2017, fleets with 20 trucks and less were not required to have ELDs
- 190,000 US trucking firms have fewer than 20 trucks
- We have a current, modest driver shortage as measured by unseated capacity
- Drivers are moving into other fields such as construction due pay constraints in trucking
- Just because you have contracts with your carriers does not mean your carriers will give you capacity
- GDP is rising faster than it has been in the past 10 years creating more demand
Predictions about ELDs and Capacity:
- It will take more trucks to handle the current truckload volume
- As in any disruption some small fleets will fail
- With a capacity reduction happening in the small fleets it will spill over to larger fleets
- Intermodal cannot fill all of the gaps as they will quickly saturate and trains will slow down
- Lanes in the 400-600-mile range will suffer the largest impact
- We have a truck parking shortage now and trucks will have to park more often making it worse
Here is an article from trucks.com about the effect of ELDs https://www.trucks.com/2017/03/24/electronic-loggi…
A crisis in the making
This sounds like a crisis in the making. A slow-motion Hurricane Katrina without an end date. Disruptions are where fortunes are made and squandered. Where careers flourish or end. In 2005 in the wake of Hurricane Katrina, rates jumped 20% as capacity was idled both directly because fleets were affected and also for relief efforts.
Using more brokers only compounds the problem, let me explain why. When you tender a load from your plant to a destination multiple brokers, each will all post an iterance of that shipment on the open trading boards. That makes one load appear multiple times and the truckers will shop that load to the broker who pays the most. Over any kind of term that means a higher price to you the shipper. This is why you see exorbitant load to truck ratios. See this map from the largest load board https://www.dat.com/industry-trends/trendlines/van/demand-and-capacity
Experts have predicted a 10%-20% possible increase in rates due to supply and demand pressures. I believe that in near term after the mandate deadline, spot market rates could jump as much as 20%-30%. This will be especially true in tight lanes and at peak times. We are lucky this regulation is going in effect in a very slow time of year for trucking. Expect the magnitude to slowly build until peaking, probably in March or April of 2018.
The last big truck shortage
The United States last saw a major truck shortage after Hurricane Katrina in 2005 but that had a finite timeline and was over with by Christmas 2005. Prior to that, in 2004, due to a change in the hours of service regulations, we had a spike of nearly 10%-20% in spot market rates. We also saw a modest capacity problem with the severe winter of 2014 and it took until early summer for spot market rates return to normal. The upcoming shortage is permanent in as much as the miles driven per driver, are permanently reduced even though some miles can be regained as fleets adjust. The last sustained truck shortage was in 1999 and 2000, just before the dot.com collapse.
As the truckload carriers run out of capacity, shippers will turn to more LTL shipping and they too will get overwhelmed and prices will increase. Already, LTL trucking firms are looking for more frequent price increases. Will they have a capacity surcharge? These LTL fleets cannot find enough drivers either and are getting more selective about what freight they will haul. There is no quick fix to this conundrum.
Will Intermodal Save You?
In intermodal, significant shifts will quickly swamp the trains. Railroad congestion is one of the leading causes of slow trains and train capacity is the least elastic capacity, as there is only so much track and so many locomotives and so many cars. As tracks get congested trains slow down. When trains slow down it takes intermodal equipment out of the market simply because its stuck on a train for another day. Locomotives also take a long time to build and lay new track? Not hardly.
This June, during the DOT Safety Roadcheck, June 6-8, rates spiked almost 10% on the spot market and some loads sat as drivers stayed home. If a three-day event can have an affect like that, an ongoing event will spill over to contract carriage as well. You may have contract rates but what good are they if your provider doesn’t have equipment?
How do you manage through this?
How do you manage through this upcoming and nearly upon us crisis? By using technology and being prepared to pay more. Your competitors will be in the same boat but if they are better prepared than you, they’ll win. Adam Smith’s Wealth of Nations predicts that supply will meet demand at the proper incentive but supply always lags demand. Moderating this proper incentive may mean having more providers available to your company. Keeping track of and communicating better and faster with those providers is going to take a larger database of providers and better communication technology.
Your TMS must have the ability to manage as many carriers as you can qualify. Your TMS should monitor insurance, safety and compliance as well as provide visibility into their tracking systems even if today, some of your providers don’t have a tracking system. When qualifying carriers, make sure to look at their safety scores. Old equipment, poorly maintained is a sure sign of a financially unstable carrier. If you’re going to need a hand, now is the time to prepare. Failing to prepare is preparing to fail – Benjamin Franklin.
Carrier load assignment selection criteria will change
Every lane is going to have preferred carriers, typically due to rate in the lane. What do you do when your preferred carriers in total can only cover 80% of your needs in a given week? The answer obviously is to reach deeper into your carrier pool. To do that, you need a deeper bench of carriers. Then a TMS, using optimizing, can select a carrier for a given lane and begin a sequential tendering process. You don’t necessarily want to use the cheapest carrier in lane A only to get gouged in lane Y. So, the sequence of routing in tight capacity conditions is different than in a free-flowing capacity market. It can’t be understated that managing a tight capacity market is much, much different than managing in a loose market.
How many power units can you commit to me this week?
The operative question to your transportation providers now goes from strictly rate to a question of how many power units can you commit to me this week? Once you know those values and plug it into your capable TMS, you can distribute your loads for maximum overall dollar cost savings rather than the lowest rate in a given lane. When you run out of committed capacity is when you reach for the open market and you can’t just tender the worst lanes to the open market and expect not to get gouged. Multi Provider Lane Optimization or MPLO, needs to be available to minimize the impact of a capacity constrained market.
More evolutionary technology is available to help you bring the spot market in to help alleviate the upcoming crisis. There is a process to bring your shipping to the open market that doesn’t create fake artificial demand and push up your rates. If worked into your planning through your TMS, with minimal disruption, it can fill holes in committed capacity only when they happen and if they happen. That technology is Transportation Capacity Augmentation Process or TCAP. TCAP is proprietary to our TMS and requires a paradigm shift of thinking to implement. TCAP is an optional module for our TMS and we only release information about this proprietary process with the execution of a non-disclosure agreement (NDA).
Get the benefits of a mid-tier TMS
You can get the benefits of a mid-tier TMS, with or without TCAP, for a surprisingly modest investment. The system will pay for itself not only in hard dollar savings but in what we call soft dollar savings which is time. Time, you won’t have when things get tough. It also just may help you keep management at bay while you manage through the upcoming capacity shortfall. https://www.crowdreviews.com/blog/value-mid-market…
A TMS takes time to implement and fine tune
With your transportation spend, the cost of a TMS is miniscule. The consequences of not being able to move your shipments or suffering massive increases in cost is frightful. With the coming capacity crunch not having technology to manage could be way costlier or impossible to manage given your current staffing levels. Now is the time for action, if you wait until the capacity crunch is upon us, you will have to bear an immense burden as a TMS takes time to implement and fine tune.
Plan your 2018 budget
Many people are planning their 2018 budgets soon or they’ve already started. Plan for at least a 10% increase in freight costs but if you don’t have a capable TMS you might want to pad that to 20%. Better yet, get with the senior management now and show them this article. Try and get a TMS sourced soon so you’re ready and trained and smiling as the crisis hits. Research ELD and capacity constraints. Plan for the worst and improve your technology.