Riverside Logistics

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So, you found the right warehouse location, did you look at the transportation cost that goes with it?

More often than you would think, warehouse siting decisions are made without considering the transportation part of the equation. Transportation costs usually are at least 3 times as much as warehousing costs. In some cases, transportation can be one of your largest expenses in your supply chain. Why this is the case, is beyond me, but don’t be one of those companies that finds the perfect spot for your warehouse, only to discover after-the fact, that you can’t get capacity to service it, or that the rates to haul freight into and out of it are higher than you expected, or both.

Typically, warehouse site selections hinge upon three or four basic categories:

  1. Availability of structures suited to your needs in the locale your entering
  2. Labor costs and availability in the area you are looking to locate to.
  3. Inventory costs such as taxes in the locale and state, think California vs Nevada here.
  4. So, what did you miss? Transportation. Is the location highly accessible by truckload, intermodal, and LTL modes? Can they service it daily? Will there be enough capacity available to your facility to handle your outbound shipping volumes? This is especially critical if you are a high volume FTL shipper. How far away are you from key markets you want to service, one day, two days, longer? How much does this matter, a lot or a little? From a transportation standpoint, is this going to make your life difficult? For example, in the winter, are you in a snowbelt location that could disrupt your ability to ship because carriers cannot get into your location.

Now let’s shift the key question set over to transportation costs. In transportation there are head haul and back haul markets. A good example is the northeast market. You pay a lot to run freight into the northeast because drivers don’t want to go there because its congested and hard to get around, and  there are also many toll roads. On top of that, and more importantly, there aren’t as many loads going out from the northeast as there are coming into the northeast. So, if you have a location shipping to the northeast a lot, then your freight rates will be higher than if you have a location in the northeast that you are shipping out from.

Seasonal concerns are an issue. If you site in the deep south, you will have to contend with what is known as “produce season”. This is when every truck wants to go south to pick up produce going north. Rates into the deep south go way down (during this time frame) but capacity is hard (sometimes impossible) to find coming out from this area. Same holds true for “lawnmower” season in TN/Ohio market. There are examples of when seasonality works for or against you. Being cognizant of this is extremely important to your warehouse siting decisions. You could end up putting yourself in a more/less competitive position by making the right or wrong warehouse location decision.

As you can see from the above discussion, transportation cost and service levels should play a big role in your warehouse location decision. The impact of a bad decision could have a large negative impact on your ability to be competitive and to service your customer base the way that they need to be serviced.

 

Jim Durfee – Vice President Business Transformation

If you would like more information on our consulting services please call at 804- 474-7700 Option #4

 

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Do you use Logistics contracts, or do you buy on the spot market? If you spot buy, I’ll bet that’s been painful lately.

The current commercial transportation market is a “mess” right now. “Mess” is a technical term; it means everything is going in the wrong direction. Capacity is hard to find. Rates are going up by leaps and bounds. Service levels are dropping like a stone. Carrier relationships are becoming frayed. It’s just a “mess” out there in the logistics space.

If you have annual contracts in place with your transportation providers, then you are somewhat insulated from the vagaries of the marketplace for right now. Eventually as the environment persists, and it will, this will catch up with you too. Regardless of your contracts, you may still be seeing carte blanche service embargoes from the LTL segment. These have hit a broad base of shippers and 3PL’s, no matter their size and scale. Depending on your location the pain could be severe as you scramble to change carriers (if that’s an option) to get capacity to handle your freight.

If you buy on the spot market, good luck and God bless! First off, you must find a truck to haul your products. Then you must live with the price of the truck. Truck rates have gone thru the roof, with no end in sight right now. It’s a trickle-down effect. As the truckload segment gets maxed out, the freight shifts down to more expensive modes like LTL (less than truckload). As LTL gets overwhelmed the same thing happens to parcel. Networks get out of balance; rates continue their march skyward and good service levels become a thing of the past.

How did this happen? In a macro sense, it’s a simple equation. More freight, less drivers, and workers to handle it. Carriers furloughed drivers anticipating that the Covid pandemic would persist, and freight volumes would reduce for quite some time. The opposite happened. Freight volumes dipped, then came roaring back. Carriers could not adjust their pools of labor, drivers, dock workers, etc., fast enough to compensate and the network became overloaded.

When is it going to change back to the “good old days”? Not sure about the when, but if I were you, I would plan for the long haul well into late 2022.

What can you do about the spot market if that’s where you live? Tap into a reliable 3PL who already has contracts in place and can provide you with consistent rates for FTL, LTL, Parcel, and Intermodal (if you use it). 3PL’s typically negotiate their rates in annual contracts. Because of this they can provide you with rate stability. The biggest problem in business is dealing with the unknown. If you cannot predict your costs, then you cannot predict your future. A 3PL solution to the current mess is a step in the right direction to controlling your logistics costs.

 

Jim Durfee – Vice President Business Transformation

If you would like more information on our consulting services please call at 804- 474-7700 Option #4

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Why is my Less Than Truckload (LTL) freight pricing going up and my service level going down?

As it stands right now, the LTL (Less-than-Truckload) market is best described as “STRESSED”. This is probably an understatement. All carriers, regional and nation-wide, are saying the same thing. It’s a tough environment out there. Terminals are over-loaded, service levels have deteriorated, embargoes are in place in select markets and pricing is under extreme pressure.

The first question should be “how did we get here”? In one word = PANDEMIC. Carriers anticipated that volumes would dry up due to the pandemic lockdowns. They furloughed and retired staff and drivers only to be left without enough help when the volumes not only returned but increased from pre-pandemic levels.

Now as we fast-forward to today, we are seeing multiple carriers, especially the nationals, shutting down flows into and out of specific terminals to reduce terminal congestion from excess supply. These “embargoes” are causing further stresses to the system. As one carrier shuts off capacity, another gets overloaded, and on and on and on. It’s a domino type effect that is not dissipating quickly.

So, let’s turn to service levels. They are lower, in some cases much lower. Your freight is sitting in the pipeline longer and delaying delivery to your customer. You identify the problem, push for better delivery, but it back-fires on you by causing more delays. The driver shortage is making it very tough for carriers to get the job done.

Finally, the pricing is going up. If you have contracts in place good for you. If you don’t, we would suggest you either get them in place or deal with a 3PL who has solid contractual commitments that won’t rise with the tide.

It’s not all doom and gloom. Carriers are slowly recovering, and capacities are adjusting to volumes. As supply improves, demand subsides, and capacity levels out, the service, pricing and overall market conditions will improve. How fast? Not fast enough. I would anticipate the network balancing in late 2021 or early 2022. Until then, make sure you align with the right partners who can help steer you successfully through this current environment.

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