Several years ago, the transportation industry experienced abundant capacity, and carriers competed for a shipper’s network of freight. Although many shippers worked to maintain good working relationships with carriers, with this surplus capacity, many others overlooked this need. After a number of significant developments, such as tighter federal regulations and the driver shortage, carriers are now extremely selective in choosing shippers who can help ensure driver retention. This reality will only get worse, so the question is, are you doing what is necessary to ensure finding trucks when the industry faces even greater restraints?
Then vs. now
The transportation industry has certainly evolved over the course of 20 years. Some changes and regulations have benefited the industry, while others have resulted in unexpected burdens. After the deregulation of trucking in the early 80s, the job opportunities in commercial transportation skyrocketed. In the 1990s, the average truck driver salary stood at $26,000, with 75% of all consumer products being transported by truck. Today, The U.S. Bureau of Labor and Statistics reports that the average annual salary for truck drivers is $40,000. Although salaries have improved, what happens when a company loses a driver? According to TransForce, a truck driver staffing agency based in Alexandria, Va., carriers spend on average $5,000-$6,000 to recruit new drivers. To make matters worse, the American Trucking Association, Arlington, Va., predicts a driver deficit of at least 175,000 by 2024.
Many agree this deficit will greatly impact the transportation and supply chain industry, but according to John Larkin, managing director and head of transportation capital markets research for Stifel Financial Corp., St. Louis, this could have a much larger significance. In fact, we are headed toward a dramatic deficit that he calls, “the mother of all capacity shortages.” He predicts this shortage could have ramifications beyond the transportation industry; the U.S. economy will likely suffer if something is not done.
For food shippers, it is critical for them to acknowledge the severity of this situation and to make a conscious effort to become a “preferred shipper” if they wish to continue timely and economical delivery of their products to retailers.
The main problems constricting available capacity include:
· Driver shortage
· The new ELD (electronic logging devices) mandate
· Changes to the hours of service regulations
· Other FMCSA and FSMA regulations
Repercussions of not being a preferred shipper
The most common inquiry about preferred shippers is, “How will being a preferred shipper benefit me?”
As stated before, the transportation industry had an abundance of capacity 20 years ago. Today, with an increasing capacity shortage, food shippers must compete for carriers’ limited assets. Carriers are now mindful of which shippers they do business with because they are under pressure to comply with increased regulations, while retaining their valuable drivers. Not being a preferred shipper will result in higher costs and decreased capacity. Carriers will raise their line haul rates to remain profitable in light of regulation costs and to mitigate the risk of sending drivers to unproductive shippers. Additionally, shippers will experience decreased capacity because carriers will be less inclined to provide service to food manufacturers who expect great service without reciprocation. Very soon, the amount of freight needed to be moved will outnumber available drivers; therefore, carriers will send their trucks to shippers who value both the driver and the carrier.
Traits of a preferred shipper
Food shippers have one goal—to have product transported to customers professionally on time and at the least landed cost. With the dramatic decrease in capacity, carriers are more apprehensive to send drivers to shippers that do not respect their time or well-being. Without available capacity, food shippers will have a very difficult time securing transportation in the future.
In analyzing a significant number of third-party surveys of carriers, we see the same driver requests repeatedly. First, prompt loading is paramount to the success of carriers and drivers alike. Second, simple driver amenities such as free Internet access, free samples of manufactured product, accommodating driver lounges and efficient operations are common attributes in preferred shippers.
Economic value. Carriers seek a network of freight that will yield long-term profitability. This translates into prompt payment, which is typically within 30 days or earlier coupled with fair rates.
Driver treatment and productivity. Carriers prefer to send their drivers to shippers who acknowledge drivers as a key component and team member in the supply chain. Shippers who provide driver-friendly facilities with full bathroom access, available break rooms and local parking areas differentiate their facilities from others. Preferred shippers respect the driver’s time and promptly communicate delays and available options to the driver.
The power of relationships. Food shippers must recognize that future capacity is dependent on longevity and commitment. Carriers seek to work with food shippers who acknowledge and collaborate to find solutions to the challenges carriers face, conduct routine meetings focused on ways to improve operations, welcome the exchange of ideas and suggestions through surveys and reviews and seek opportunities that will benefit both shipper and carrier operations.
Due to the dramatic drop in suitable capacity (with the worse yet to come), the value of a driver has increased tremendously. Between more federal regulations and the increasing driver shortage, carriers seeking to ensure driver retention are extremely selective about which shippers they will work with. In turn, food shippers must now compete for suitable capacity for the sake of their product’s efficient transportation. If they choose to underestimate the current state of the industry, they will put themselves at risk of experiencing increased costs and decreased capacity. Chances are their competition will not run this same risk. Food shippers must recognize the severity of the current industry trends as well as what is coming. Through productive, respectful and collaborative operations with carriers and drivers, shippers can ensure prompt and committed carriers and drivers.