The carrier capacity crunch is real, and painful examples are everywhere. Here’s just one:
In June 2021, FedEx Freight announced it would suspend service for more than 1,400 of its shipper customers. This major, sudden disruption to shippers’ distribution channels left them scrambling to procure new transportation, and likely at a rate well above the rate they’d agreed to with FedEx.
FedEx’s reason isn’t surprising: Its capacity and network are maxed out, so they didn’t have a choice. The carrier has seen daily volumes climb by about 30% over the past year, and its fleet, terminals and docks can only handle so much.
FedEx is far from the only LTL carrier facing a capacity crunch and turning away freight and customers. The market is so tight it’s bordering on a crisis for the transportation network itself.
In addition to the surging and shifting demand we’ve seen in the market, carriers simply haven’t been able to grow their capacity. It’s expensive (tens of millions if not billions of dollars) to build out and operate a larger LTL network. And it can’t be done overnight or even in the course of a few months.
Also, many carriers simply don’t have the appetite to expand and potentially become over-leveraged in this volatile market. This is especially true regarding the cost of finding trucks and drivers to build their network with other capital investments in place.
LTL carriers are simply tired of the economic yo-yo effect they’re often navigating. And that’s long been how carriers have operated — scaling up when they need capacity, then suddenly finding themselves over-leveraged and overexposed when demand slips.
When a carrier is at capacity, it has to find a way to handle the volume it can manage. FedEx’s solution last month was to cut back on customers. That’s one way to do it. And it’s likely something we’ll see more and more of, unfortunately, given the ongoing capacity crunch.
These LTL capacity issues aren’t going anywhere soon. The only answer for shippers to manage their transportation is to turn to dynamic solutions and to lean on technology that is rapidly evolving to meet evolving supply chain and transportation network needs.
A few major shifts are likely on the horizon affecting how shippers, carriers and brokers interact, all predicated on the idea of dynamic transportation management systems (TMS) and integrations of those platforms by each party involved in a freight transaction.
Here are a few examples:
Like we’ve seen with surge pricing in ride pooling services like Uber and Lyft, we could see the same types of pricing systems come to the LTL market (and other trucking sectors), It will all be routed through integrated TMS platforms and based on current market dynamics of supply and demand.
In my opinion, carriers will view surge pricing as a necessity to regulate capacity. They don’t have a choice, since scaling up and down simply isn’t an option or a realistic solution given the capacity crunch. To maximize revenue, they will find other ways to accommodate shippers rather than turning them away.
The dynamic pricing model certainly needs to be on shippers’ radars as a likely looming shift.
Menu Options for Shippers
Shippers running a dynamic TMS system integrated with their carrier and broker networks can browse to find the right options for any given shipment, or have it do it for them. That doesn’t just mean finding the right price and per-mile rates. It means dynamically shopping each shipment for mode shifts (i.e., LTL to parcel or intermodal), rates and available capacity.
So, if your freight fell out of the FedEx network, for example, your TMS would simply select the next best option from your carrier pool, even if that means a necessary mode shift, a multi-truck approach or channeling it to a third-party logistics (3PL) provider.
Most carriers understand this trend as one of the paths forward, realizing the need to adopt platforms that can integrate with shippers via API. If the carrier has API connectivity, utilizing this type of dynamic mode, price and capacity shopping is simple as flipping a switch. If your carriers don’t have these types of capabilities yet, start bringing them on board.
A significant point of consideration is that TMS platforms no longer take months and months to implement. Historically, that’s long been a major headache and pain point for shippers, brokers and carriers. A modern TMS take weeks to set up and cloud-based systems mean pricing is based on usage and not exorbitant monthly fees.
Becoming a Broker or Setting Up Your Own Fleet
Having trouble hiring capacity in the market? Well, why not simply build your own dedicated capacity? That’s a trend we’ve seen return for many shippers who either lease a private fleet to supplement their for-hire program or set up a small fleet of their own.
This gives shippers the ability to become a broker. Why not leverage your TMS to broker out excess capacity when it’s available? Or on the flip side, you could use your brokerage to find capacity, even if you don’t have trucks.
Given the current state of the market, the only path forward is for all parties to become more dynamic and agile. How that ultimately evolves, no one can say truthfully. The one thing that should be clear is that we all need to be more flexible, agile and willing to find those dynamic solutions.