Costs to make and ship products are going up. In our world, that means that paper prices are increasing. But that is not the only cost that impacts our products.
Transportation costs are going up. Way up.
From 2017 to today it is estimated that freight rates have increased on average over 8-15% in the US. To make matters worse, the number of available truck drivers is down. The combination of these freight rate increases and lack of available drivers has put American companies in a tough position. We wanted to find out exactly how companies are dealing with these issues.
To get these answers, we went right to the logistical managers and even talked to people here at Smith Corona to see how they are handling this.
The companies that we talked to each had a different outlook on how companies should handle this increase and why this increase is happening.
Bill Cassidy
Bill Cassidy, a senior editor at JOC.com has been covering this issue head on. He has attended several conferences, which have dealt with the increasing transportation costs.
Here are some insights he has provided.
As you know, freight rates have increased significantly over the past six months. What changes, if any, should a company make to handle these increases? What are trucking companies doing to prepare their customers for these increases?
Answer: Freight rates have increased significantly over the past six months, and as the year goes on they are going to continue to rise. Shippers should look for ways to work more closely with their carriers. This collaboration can help reduce costs to your organization and make the carriers job easier too.
Additionally, companies should start to examine their networks more closely when shipping freight. They should start looking at transit times to plan accordingly, as transit times are now longer than what they used to be. By planning ahead shippers can tell carriers when they are needed, which would help carriers find trucks for the deliveries. Planning ahead is key because truck availability is so low.
Lack of adequate drivers has given freight companies that power to re-price their services. Consequently, shippers now have to accept their price increases because they have nowhere else to go. Before this increase, shippers would have had a variety of lower prices to choose from, but now pricing has increased, and availability has decreased, so there are limited choices.
In addition to price increases, there is a national shortage of available truck drivers. If the shortage impacts a company’s raw material, how can a company manage their raw material inventory? What should be done to combat this?
Answer: Companies should start to explore their sourcing options to help increase their potential raw material suppliers. They should be looking at multiple companies to source their materials from. If a company is sourcing from two or three companies, they should start sourcing from five or six different companies. They can also look at different ways to have raw materials shipped for example shipping LTL (less than truckload) instead of FTL (full truckload).
Should companies pass on the freight price increases to their customers? Or should they eat the increase?
Answer: No one in the industry was prepared for this spike. Budgets have been blown because of how unprepared companies were. The last thing companies want to do is raise prices on their products. So companies have been trying to eat the costs as much as they can. Transportation costs have increased so drastically that they cannot take the repercussions anymore.
Bill Cassidy
Senior Editor who covers trucking at The Journal of Commerce
JOC.com
Polly Gordon, Christine Manda & Leah Palnik
Polly, Christine, and Leah all work for PartnerShip. PartnerShip is a company that works with companies to help them with shipping and logistics. PartnerShip works with its companies to make shipping simple and affordable. Here is what they had to say about the increasing freight rates.
As you know, freight rates have increased significantly over the past six months. What changes, if any, should a company make to handle these increases?
Answer: Companies should start by evaluating their shipping needs. They need to be flexible with their delivery dates and warehouse hours. If shipments can be broken down into multiple loads companies can try shipping as LTL instead of FTL. Or sometimes companies should wait for a full truckload before shipping their products; companies need to evaluate options to see what is the most cost-effective to them.
In addition to price increases, there is a national shortage of available truck drivers. If the shortage impacts a company’s raw material, how should a company manage it? What should be done to combat this?
Answer: Companies should work with a quality freight broker in order to get quick access to capacity. Brokers typically work with a vast network of carriers and have the expertise needed to find a truck in a pinch. Inventory management is also extremely important right now. Companies should look at past raw materials orders and forecast what will be needed in the future. That way, they aren’t waiting until the last minute to order a new shipment.
What is causing the price of transportation to increase and the shortage of truckers? Is it because demand is high?
Answer: Many factors contribute to why transportation costs have been increasing. The shipping industry is experiencing a tight capacity market, which means there is strong freight demand, but a low supply of drivers and carriers.
An important factor is the driver shortage. Long haul truck driving is not an attractive job. A driver is alone for long periods of time, and they are away from their families, which can be hard. We are seeing that drivers who are currently working for these carriers are beginning to retire because baby boomers made up most of the industry. New drivers aren’t entering the market at the same rate to replace those that have retired. For those young adults who are not attending college, interstate truck driving is not an option for them until they are 21; by this time those young adults would have started work in a different field. Truck driving also struggles to recruit women, who make up a large portion of the workforce.
Powerful and damaging weather can also cause freight rates to spike. For example, the hurricanes this past fall took a toll on carriers’ networks due to massive road closures and hazardous conditions. In the aftermath, this weather tightened capacity further because trucks were being sent to the affected areas as part of the recovery efforts.
Lastly, the ELD (electronic logging device) mandate is affecting how long shipments are taking. If a shipment was taking one day now, it may be taking two days because drivers can only drive a certain amount of time and they can no longer manipulate their hours.
Polly Gordon
Truckload Broker Manager at PartnerShip
Christine Manda
Freight Brokerage Sales Manager at PartnerShip
Leah Palnik
Marketing Manager at PartnerShip
Matt Dziak
Matt Dziak works for FR8Star. FR8Star is a company that works with carriers directly to give them opportunities to expand their companies. By doing this, shippers can save time and money by booking freight with them. Matt has a lot of knowledge on the transportation business and has given us some insight on what he thinks about the freight rates.
What is causing the price of transportation to increase?
Answer: Factors that are affecting the freight rates are: “demand, locations (lanes), fuel costs, inflation, weather, and available truck capacity.”
Diesel prices have been increasing and are currently at their highest mark. “Over the last two years, the diesel prices have increased by about 66%, making it more costly to transport freight.”
With the new ELD (electronic logging device) regulations, they are restricting the number of hours a trucker can drive. Truckers can only drive a maximum of 10 hours a day. The ELD tracks these hours and they cannot be manipulated. With that being said, shippers should emphasize the importance to decrease wait times at shipping and receiving facilities.
Matt Dziak
Marketing Content Manager at FR8Star.
Adam Robinson
Adam Robinson works for Cerasis, which is a third party logistics company that manages the entire transportation management process for their companies. They provide shippers with technology and services that will create better transportation. Adam Robinson is the marketing manager who oversees Cerasis marketing strategy. Adam has written many articles dealing with the increase in freight rate.
As you know, freight rates have increased significantly over the past six months. What changes, if any, should a company make to handle these increases?
Answer: Due to this freight rate increase shippers should start to focus on optimizing the in-house processes of their transportation network – whether they optimize it through a transportation management system or hire a third party logistics company. Shippers should start to have conversations with their carriers when trying to plan and strategize. By having these conversations, it will help the shippers understand where their dollars are being spent and where they can reduce costs.
Additionally, have you passed on the freight price increases to your customers? Or have you eaten those increases?
Answer: Free shipping has become the mantra thanks to Amazon for creating such high expectations for companies. Deciding whether a company should eat the costs or pass it along to their customers depends on the relationship the company has with their customer. Options that will attract the customer will cost you when offering shipping free or low-cost shipping. When thinking about eating the cost shippers should look to see where they can budget or reduce costs to offset the shipping.
If the company has a great product and customers that are willing to pay anything for that product than having the customer pay for shipping is an option as long as the company is transparent about the cost.
In addition to price increases, there is a national shortage of available truck drivers. If the shortage impacts a company’s raw material, how should a company manage it? What should be done to combat this?
Answer: Due to the shortage of available truck drivers manufacturers are changing their management of inventory because of the capacity crunch. Shippers need to make sure they are utilizing different technologies that will help make sure their inventory is in stock. It is more difficult for companies to find truck drivers, meaning that shippers have to do more planning within their company.
Adam Robinson
Marketing Manager at Cerasis
Curt Barry
Curt Barry is the founder and chairman of F. Curtis Barry & Company. He works with marketers and retailers to improve order fulfillment, fulfillment center design and planning, customer service, forecasting and inventory management, merchandising and marketing systems. Through this work, he has gained a lot of knowledge when it comes to freight rates.
As you know, freight rates have increased significantly over the past six months. What changes, if any, should a company make to handle these increases?
Answer: When working with carriers, renegotiation is key. At any point, a shipper can renegotiate with their carriers. When you are a big enough company, you can also share parcels with different vendors to see if the competition helps when negotiating costs.
Shippers should start to look into what is called the enterprise shipping system. It is an automotive system that helps lower the overall shipping costs for companies.
Additionally, have you passed on the freight price increases to your customers? Or have you eaten those increases?
Answer: Unfortunately, Amazon is conditioning consumers that freight is free. In reality, they are losing money by making freight free. When deciding if your company should eat the costs or pass it along to their customers, they should probably pass it along – whether it be by increasing freight rates for the customers or increasing prices for their products.
In addition to price increases, there is a national shortage of available truck drivers. If the shortage impacts a company’s raw material, how should a company manage it? What should be done to combat this?
Answer: This is not a problem that I see right now, but thinking long terms the price increase and shortage will have a major impact when it comes to managing your company’s raw materials.
Curt Barry
Founder and Chairman of F. Curtis Barry & Company
fcbo.com
Conclusion
Here at Smith Corona, we are also dealing with increasing transportation costs. We are handling this increase by reviewing our relationships with our carriers to make sure that we have a strong relationship with them.
Having a better relationship with your carriers can help the company negotiate transportation costs or find a middle ground that would help both companies out.
We are electronically sending shipping info to our carriers throughout the day to help our carriers adequately time their routes and shipments.
In terms of managing our raw materials we collapsed down to a few brokers and we are giving them adequate lead times to work with. But overall, we have not increased our inventory due to the truck driver shortage.
Overall, we are constantly evaluating our transportation costs to maintain our industry low label prices.
