The trucking industry came out of a recession in 2016 and entered a historic boom in 2017 that continued in 2018. In 2019 shippers and truckers can find balance.
It would be a mistake to categorize the tepid start to 2019 as the beginning of a trucking recession. Even if the economy slows, as some are predicting, we will continue to see truck rates stay flat or increase modestly in 2019. Trucking prices are based on supply and demand. The driver shortage is showing no signs of getting better. In fact, it’s getting worse. So even if demand drops, it may be that driver supply drops faster. Also consider that many trucking companies increased driver wages substantially over the past two years and dropping those wages back to 2016 levels is not going to happen.
While there is nothing inherently wrong with taking advantage of spot opportunities, it is a poor substitute for a long-term supply chain strategy. It’s time to stop thinking in terms of whether the shipper or trucker has the upper hand in a given phase of the market. Instead, think and plan long term.
Many shippers understand that there is no such thing as a single “truck market.” The industry is so fragmented that some niches may be slow while others are booming. It’s important to know the dynamics of the niche that’s most important to your business. A slow (or robust) spot market may have little impact on certain regions or types of freight.
We are in an era marked by tremendous geopolitical uncertainty. However, this is the context of an otherwise strong economy. With that in mind, shippers and truckers should collaborate now to control costs—regardless of market conditions. The rate is less important than optimizing the supply chain. Squeezing waste out of the system will yield great upside. Even if rates rise, shippers have the power to lower overall trucking costs. Consider the following ideas to create win-win cost savings:
• Treat your core trucking companies as partners. Trucking companies place high value on consistent relationships. The resulting visibility allows the trucker to offer more competitive pricing. It’s about making commitments to your carriers and receiving commitments in return. You need to distinguish between “spot” or transactional needs, compared with ongoing, dedicated requirements, however. Spot needs lend themselves to impersonal actions, such as posting loads and sending the request to a blind copy email list. There is a time and place for spot transactions. But with ongoing, dedicated requirements, you are likely to receive greater capacity commitment and a better level of service and pricing by offering visibility.
• Pay faster—it should yield better rates. Stretching payables to trucking companies has no value. Most trucker expenses are paid in real time (i.e., driver wages and fuel). Prompt payers will receive better capacity allocation and pricing. Many truckers factor in the time value of money when it comes to pricing shippers who stretch their payables. Moreover, faster payment should yield better rates. This is a good time to negotiate quick-pay discounts.
• Be ready when the truck arrives. Trucking companies and drivers earn their livings based on production. Drivers can work and drive only a limited number of hours per day. If your warehouse is taking hours to load, you are hindering productivity. Trucking companies must be productive to be profitable and will reward shippers whose operations support productivity. If your operation consistently detains trucks, prepare to pay rising detention costs.
• Think long term. Like any industry, truck availability ebbs and flows with demand. I advise neither the shipper nor the trucker to take unfair advantage of a given phase of the market. Everything cycles around. In my company, shippers who stood by our side during the difficult times had the first shot at capacity as truck availability constricted. As part of long-term thinking, share forecasts and business projections with core carriers. The more truckers are aligned with the challenges and opportunities that their customers encounter, the more they can be a part of the solution.
Truck pricing will vary with market conditions, but shippers can use the strategies above to help optimize cost regardless of short-term trends. Proactive truckers and shippers to have the opportunity to create balance and build operating models that withstand all market conditions.
Jetco Delivery was named a “Top Workplace” by the Houston Chronicle, was highlighted on the Inc. 5000 list, and received the Gold Safety Award by the DOW Chemical Company. Brian Fielkow holds his J.D. from Northwestern, he previously served as COO of The Peltz Group (the nation’s largest privately held recycling company, over $700 million in operations) and was the Executive V.P. of Recycle America Alliance, a subsidiary of Waste Management (the largest environmental solutions provider in North America).