Many Carriers Barely Hanging on, while Low Rates Now Sowing Seeds of Future Capacity Issues
Last week, CSCMP launched its State of Logistics Report 2020, detailing all kinds of supply chain and logistics data or 2019. (See State of the Logistics Union 2020.)
The very real challenge: between the end of the past year and now, the coronavirus crisis has changed virtually everything.
The report does a nice job of integrating observations on the virus impact on the current and future state of logistics affairs with a review of the 2019 numbers.
For example, the report devotes several pages to how the virus has and will effect trucking for both carriers and shippers.
Carriers are already in trouble. The report cites data showing 640 carriers have gone out of business through May of this year, twice the level of all of 2019.
Indeed, the report says many carriers are just desperately trying to stay alive for now, hoping as other carriers fail supply will get better aligned with demand – though that process may take 6-18 months to play out, and many won’t have the cash to stay solvent.
As for shippers, the report notes many will benefit in the short term from lower rates – but also could be negatively impacted if some of their current carriers fail.
The report recommends shippers decrease such risks by “diversifying your [carrier] supply base, deepening your routing guide, and tracking the key financial metrics of your logistics providers.”
The report also says the current low rate environment will sow the seeds for future capacity challenges. Barely able to stay afloat, many carriers will in the short term be unable to invest in new equipment. That will ultimately lead to tight capacity and higher rates when the economy recovers.
The report says shippers should be thinking now about lessons learned in 2018, when capacity was also tight.
That includes becoming a shipper of choice by investing in your yards and docks and improving your loading processes.
The reports adds that “If you can help carriers reduce last minute orders and improve delivery velocity, they can plan and deploy their assets more efficiently, thus producing more profitable loads and ultimately providing you better service.”
If you are shipper lucky enough to be in a sector that has strong growth in the face of the virus outbreak, such as many consumer staple goods, the time is now to start planning for your future state. That should include identifying carriers that are willing to invest in a shipper’s network.
Any shipper should also probably look at signing contracts now in this period of very low rates to reduce short term logistics costs – although that won’t force a carrier to take the freight at that low contracted cost if rates should head upward again.
The report also recommends that shippers with private or dedicated fleets should investigate “share use networks,” sometimes referred to as collaborative transportation, where different shippers look for continuous move or backhaul opportunities across their shipping lanes.
No one know what’s really on the other side of the virus outbreak – and when and if autonomous trucking technology will make it to market and change everything.
If there is an economic recovery by year’s end, things may return to something like normal, though ecommerce growth seems almost certain to rise even faster than before the crisis. If the slowdown drags on much longer than that, the trucking industry is likely to see dramatic changes.