3 Lessons The Transportation Industry Learned in 2020
The pandemic has placed the supply chain in a purgatory of complex unknowns for the majority of this historic year. Through it all, freight has kept moving, and will keep moving, despite pricing wars, tight capacity and quarantine mandates. As 2020 comes to a close and most proceed with cautious optimism through Q4, there are some key takeaways that transportation leaders should bring with them into the boardroom - or Zoom meeting - as they plan for 2021.
Here are 3 unmistakable lessons transportation providers learned in 2020
1. While pricing ebbs and flows based on demand and capacity, never underestimate how high – or how low - rates can land
It’s estimated that freight rates have increased on average over 8-15% in the US since 2017, and the recent Logistics Manager’s Index Report shows that transportation prices have jumped by 30.5% since March. What’s more, many freight experts predict continued tighter capacity and higher shipping rates, and some even suggest volume increases anywhere from 50% to 2.5 times the norm.
Many factors contribute to why transportation costs have been increasing, but the primary reason is simply that the shipping industry is experiencing strong freight demand and a low supply of drivers and capacity - and these low supply levels aren't predicted to change with any significance in the near future .
With this massive shift in rates – experts recommend that now is the time for transportation businesses to level up their service and shipper relations. They also advise auditing the expenses they can redline in order to offer more competitive pricing with consistency and maintain sustainable margins. “Even if post-holiday spending in Q1 is low, we predict e-commerce demand for goods to maintain at high levels as consumers’ preferences to shop online solidify as habitual,” noted Art Zipkin, President and Chief Commercial Officer at DDC.
While rates are currently high, it’s important to remain mindful that the freight industry is dynamic, and conditions can, and will change. According to a new carrier outlook* report, conditions can be exacerbated by the U.S. economy for better or worse as it’s on a delicate trajectory and heavily dependent on the continued progress against COVID-19, a vaccine, the state of the U.S. economy and another round of stimulus checks.
*For more data points and Q4'20 /Q1'21 projections, you can download the full and complimentary 2020 Q4 Carrier Outlook Report now.
2. Despite the transportation industry’s image emerging as resilient and essential in the public domain – drivers will continue to remain scarce for the foreseeable future
Transportation professionals were finally regarded as essential during COVID-19, allowing them not only to pass through borders to deliver essential goods despite travel restrictions, but strengthening the position of the sector on the national and global stage. The logistics ecosystem has always been critical to the economy remaining afloat, but the industry itself is now being recognized for it.
Throughout the pandemic, truck drivers have been deemed 'unsung heroes' , the 'always responders' and even the 'thin gold line' - "Gold symbolizes the highway center line, but is also the most malleable element and doesn’t rust or tarnish. Gold is recognized for its universal symbolic value and represents number one or the top spot," said Craig Fuller, FreightWaves CEO.
Truckers have been praised for their efforts of going in and out of hot zones risking their own health and safety and sacrificing time with family. Many corporate, nonprofit and individual citizen efforts have rallied around the driver community with meal programs, appreciation events and PPE donations - like the one DDC provided- to keep them safe.
Now, trucking is expected to play a pivotal role in safe and timely vaccine distribution, however the driver shortage remains an issue. The American Transportation Research Institute (ATRI) has acknowledged that a shortage of drivers topped the Critical Issues in the Trucking Industry survey for the fourth consecutive year.
In addition, a recent study identifies that 80% of carriers are having difficulty recruiting drivers, and nearly 22% of the country's driver training schools are closed (either temporarily or permanently), and of those that remain open – more than 80% have experienced capacity issues.
Another noteworthy contributing factor to the driver shortage is that approximately 26,000 truckers failed drug testing mandated by the Federal Motor Carrier Safety Administration Drug and Alcohol Clearinghouse and have yet to apply for reinstatement.
While the lack of adequate drivers has given freight companies the power to re-price their services, industry leaders are left troubleshooting to keep drivers in seats and freight moving on the highways.
3. 'Trimming the fat' isn't just for cost-cutting. A leaner, healthier operation is required to achieve the level of athleticism your company needs to compete.
The increase in demand is fueling an overhaul in inventory management and logistics network design, and experts are emphasizing that carriers need to stay agile in order to keep freight moving in accordance with customer needs.
Providers who make moves now to cut unnecessary overhead will not only lessen the blow of current and future events on their shippers, but they will also highlight their reliability as a service provider, improve customer retention, and benefit from a more sustainable business model. As the industry works towards securing necessary solutions that will achieve full visibility and enhance productivity between stakeholders across the supply chain, individual decision-makers must let their overarching goals guide them for their own company success.
With over three-fourths (76.4%) of supply chain executives reporting significant shifts to their budgets due to the pandemic, some of the most impacted areas are operations and staffing/recruitment. As businesses seek to manage the non-variable fixed costs of assets, common strategies being used to improve financial performance include improving efficiency and reducing payroll/human resources costs. For more information on these findings, download Adapting To A Pandemic: Freight Market Budget & Priority Shifts now.
“As a result of the pandemic, many companies are pursuing operational efficiency with vigor, and are looking for ways to increase connectivity and communication with external resources, ” noted Donna Kintop, SVP of Client Experience at DDC.
Many companies are also re-evaluating vendor contracts to confirm robust business continuity plans. For example, DDC's multiple facilities ensure that there are always at minimum two teams working with the same skillset in separate locations at the same time. This allows for industry leaders to leverage the best talent, regardless of location, and have staff on-demand for when they’re needed most (which also helps prevent the need for dismissals once volumes stabilize).
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