Increasing freight demand vs capacity in recent months could continue given market conditions an executive with thirdparty logistics provider AFN speculates putting some pressure on 3PLs in terms of pricing while giving shippers more to think about regarding the carriers they choose Photo AFN

Increasing freight demand vs. capacity in recent months could continue given market conditions, an executive with third-party logistics provider AFN speculates, putting some pressure on 3PLs in terms of pricing while giving shippers more to think about regarding the carriers they choose. (Photo: AFN)

3PL: Shippers will need to look beyond lowest cost

Freight capacity and demand could be boon for the right carriers, a challenge for 3PLs and shippers

Market factors converging over the summer that have affected freight movement and pricing could continue and are putting some pressure on third-party logistics providers, one such company says, and shippers may need to be thinking more than just the lowest-cost carrier going forward.

"It's been a crazy last couple of months," said Rachal Snider, vice president of customer supply chain at freight brokerage and third-party logistics (3PL) company AFN. "As an industry, we had some record highs in terms of truck utilization and spot rates."

"We're definitely seeing some upward trends where the market has been kind of low in the last couple of years," she told Fleet Owner. While there had been an excess of freight capacity for some time, that's now turning around.

Snider said she sees that situation happening due to a variety of factors. There's the usual seasonal freight uptick with produce over the summer, but she noted it's more than that alone.

"I think we had some tough years in terms of crop yields," she said, and this year has seen improvements in that regard. Over the longer term in addition to seasonal produce, the U.S. Dept. of Agriculture has tracked a mix of outcomes over the year ranging from cotton yield and production up about 20% vs. 2016 to wheat production down about 25% compared with last year.

Crude oil — and the resulting prices of gasoline and diesel fuel — also have been up a bit this year and remained more stable since a downward price skid that hit a trough in early 2016. That's had an impact in the nation's south region, Snider pointed out, and more oil is being trucked from there.

Still, those things are part of the bigger picture. "I think it's a booming economy, a growing economy," Snider said. "All of it together really significantly impacts truckload capacity and the spot rates we've seen in the last few months."

"The tightening of the market in Q2 and the beginning of Q3, is that any indication of what things could look like moving forward and into 2018, and then repeat for the 2018 produce season?" she speculated.

Helping add to the odds of that being the case — that freight demand will outstrip capacity — is the upcoming mandate for commercial truck drivers to be using electronic logging devices, or ELDs, by Dec. 18. Snider said she'd be "hard-pressed" to think of a shipper or broker that's using carriers that have all implemented ELDs at this point.

"If ELDs do come into play in December the way they're supposed to, it's only going to impact capacity even more," she noted. With roughly four months left till go-time on ELDs, Snider cautioned, "I think it could be a difficult market if you eliminate some of the drivers on the road from implementation of ELDs and what that means to overall load capacity and rates — and it may be even more" than just owner-operators or very small carriers, as a number of analysts have suggested.

Pressure on 3PLs. With that as a backdrop, Snider said 3PLs face challenges with contracted rates. "With pricing, spot rates are up, but contracted rates are stagnant. There's been some margin compression in the 3PL space," she pointed out. "It's been tough to ensure that 3PLs are operating in a 'solid green' or 'solid black' area — and on all lanes — due to the fact that contracted rates with customers may be relatively weak compared to where the market is at."

Logistics more important. Snider noted that businesses of all kinds need to be thinking logistics as a core competency, since that can help in terms of product speed-to-customer, lowering prices or offering more flexible direct-to-consumer shipping — a segment retailers and others have been innovating. "No longer is logistics solely just a part of your bottom line or an operating cost that you're using to tweak your overall cost of goods," she said.

Lowest-cost carriers may not be best choice. Given the current market and forces at play, Snider said shippers must look for more than just the lowest price when it comes to carriers with whom they contract. Key in that regard are service and on-time delivery, she added, noting Walmart recently announced a 3% fee assessed on shipments that don't arrive within a specific — and narrow — time window.

"They [suppliers and shippers] are going to start going with carrier partners that have proven they have a higher level of service and on-time delivery percentage," Snider said. "Those carriers may have a higher price point, but sometimes you get what you pay for."

Tech-savvy carriers will likely get ahead. As logistics and service become more critical, and with an eye to the coming ELD mandate, the carriers poised to gain will be the ones adept at using technologies like telematics, flexible routing and driver connectivity and management tools.

"If you're a carrier that's consistently underperforming or consistently has failures on lanes — or has poor communication in staying up-to-date with us on status — and if there are any issues in terms of on-time delivery, those are going to significantly impact their ability to book freight," Snider contended.

 

TAGS: Economics
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