Understanding the Capacity Shortage
Anyone who regularly moves freight likely has realized that their brokerage is facing a major capacity shortage, along with a hike in prices to go with it. Industry experts predicted a shortage and rate increase a few months ago, but it is already underway. Unfortunately, it will likely get worse in the coming months, requiring preparation and awareness by anyone responsible for shipping and freight carrying. With a better understanding of why this capacity shortage occurred, planning becomes possible, keeping your business on top of the problem.
Carriers Knew It Would Happen, But Not When
For months on end, truckload carriers carefully analyzed data to see when the capacity shortage would arrive. During this time, the shortages that did arrive were short lived, quickly being overcome. Even so, most recognized this as a sign that a more long-term shortage was on its way. After all, for months, the spot market has shown that demand was greater than the capacity within the truckload market.
The real signs of an upcoming shortage and rate increase arrived in the middle of August when larger carriers could tell that contract rate increases were about to arrive. At that time, some were dealing with just 3 percent increases but warned that customers who didn’t pay that increase would end up dealing with an increase of between 8 and 10 percent in the near future. Of course, the larger carriers have a bigger influence, but as their rates rise, so do those of smaller fleets. With recent hurricanes in the Southeast, things got even worse.
Even before the recent capacity shortage, the capacity was already considered tight. The spot market had recovered and was showing rate increases that seemed like they would remain. That prediction proved true. In the last few weeks, the rates have either remained at these new higher ones or increased even more.
A Major Shortage of Drivers
To make matters worse, the capacity shortage is impacted by the tight labor market. Unfortunately, the driver force was at full employment before the increase in demand arrived. As such, there simply aren’t more drivers to bring in to accommodate the larger demand. Another factor at play is that this population is aging, meaning more workers are retiring.
Because of tighter regulations on things such as immigration, the labor pool for drivers is shrinking. As such, it is nearly impossible to find replacements for those who retire or move on to another job. It is even more of a challenge to increase the number of drivers currently working.
In addition, the entire market is experiencing an increase in construction demand. Other segments are also growing or in high demand, such as the oil sector. Even the fact that the economy is doing well overall increases freight demand, as companies need to bring items to new destinations.
Recent hurricanes, like Harvey and Irma, have only increased the demand on truckload capacity, as more supplies need to be delivered to the affected areas. Between rebuilding and resupplying, more truckloads are needed than there are drivers available. The initial efforts will focus on relief before rebuilding can truly begin. As such, the increase in demand in Texas and Florida from Harvey and Irma, respectively, should not go away anytime soon.
Stores and other businesses in these areas will also be working hard to replenish and replace their lost stock, which requires the assistance of truckloads. Between the thousands of stores in the states affected by recent disasters, the increased demand is a given. As always, any increase in demand allows the companies to increase their rates, which has led to the price hike.
As you can see, there are several factors contributing to the current capacity shortage and unfortunately we see this trend maintaining through the foreseeable future. However at C. L. Services, Inc., you can rest assured we are doing everything possible to build solid carrier relationships to ensure our freight is moved.