Between the effects and protocols related to Covid-19 and the overall lack of capacity in the trucking market, the carriers are struggling to pick up, move and deliver freight. Over the last 6 weeks we have seen an escalation of this problem, with every week growing successively worse. Now, LTL carriers are either selectively quoting volume moves or have abandoned volume quotes altogether. They are doing this in the “short term” because their pipelines are over capacity and they simply cannot handle any more freight.
So, what does “short term” mean? Could be a couple of weeks, a couple of months, or possibly even longer. This current situation of tight capacity has come about, it appears, due to several factors that have all combined at the same time to exacerbate the situation.
Covid 19 caused a lot of carriers to retire early, furlough and or layoff drivers, not knowing how severe or how long the lockdowns would last. This drained some immediate driver capacity, which is hard to replace in a short amount of time when staffing needs now require more (new) personnel. Shutting down then re-igniting the driver recruitment process takes time. Probably a full quarter or more. In addition, when a terminal in the LTL network has a Covid case or two, or three, or a relative of the workers is in contact with Covid infected individuals, based on protocols, it takes those people out of circulation for at least 2 weeks. This too, strains the labor force and makes it that much harder to operate a terminal and a network. Some carriers have had to embargo certain nodes in their networks to play “catch-up”. When these embargoes (they do not call them that but that is what they amount to) happen, it effectively shuts off the flow of freight in and out of region for a period of time. This has the net effect of straining the capacity of other carriers operating in the same area and or delaying or stopping freight from moving as it normally would. The net impact is more stress on the supply chain.
When the network gets backed up, these backups tend to cascade down thru the various modes of transport. When intermodal rail backs up, then over-the-road trucking backs up, then LTL backs up. Costs rise, sometimes precipitously, and service levels usually go the other way and fall off. The infra-structure simply cannot handle the volume and delays happen. LTL carriers not only pickup and deliver freight they also “line-haul” it. With driver recruitment on hold, carriers are going outside their own networks and “brokering” trucks to handle the line hauls between nodes. Naturally, this takes brokered capacity out of the system, thus making it harder for pure brokers to find trucks to fill clients needs. You can see from this example, that it becomes a “Domino Effect”, where changes in one mode affect others and so on and so on. Everybody pays with lower service levels and higher costs.
The net effect right now is that freight costs are going up in the short term until the capacity equation (supply and demand) returns to an acceptable level. Service levels, which equate to days in transit are also going to lengthen in the short term. Shippers are not going to react favorably to this environment. Budgets will be broken, customer service will degrade, and the norms for conducting business will be altered. All of these “effects” will hopefully last only for a short period of time rather than an extended period. So back to the question ‘ how long will it last”? Good question, which unfortunately has no good answers to go with it. The market will eventually return to some semblance of “normal”, it always does.
The big question is how long it will take to get there and what can a Third-Party Logistics (3PL) do to help? A 3PL normally has multiple client-related contracts with multiple carriers. They (3PL’s) usually can flex modes up or down across multiple partners, to get you, the client, the best mix of desired service levels and cost. Riverside deals with many clients and uses many carriers. This means we have a lot of experience determining who does what better than the other guy. In a pinch, we have very close and effective working relationships with the carriers and can usually make thing happen, when a client can’t. So the bottom line is that Riverside can provide “workable” options to a client to help them navigate the current freight environment and provide a service and cost equation that meets their needs.