Capacity Issues? Collaborate! Aggregate! Don't Stagnate!
Capacity Issues - Discussion Points - January 31, 2006 - Toronto
Today's capacity crisis is a perfect storm of volume limitations spanning three major modes of transportation: truck, rail, and ocean.
Driver pay and work/life balance are key issues affecting capacity in the trucking industry. The industry is losing drivers to careers with higher pay and more attractive lifestyles. Carriers today are also more disciplined about adding capacity, hiring drivers only when they can ensure a good financial return.
In the rail sector, the labor fallout from early retirements has restricted train crews, while track and speed constraints limit the ability to run additional capacity across existing rail networks. Because the United States and Canada have not built a significant amount of new rails, capacity can only be added by increasing train speeds and running more trains over the current, relatively fixed network.
The long cycle required to build ships will strain ocean capacity until roughly 2007-2008. In addition, rapid growth in Asian imports to the United States has caused massive port congestion. The lack of collaboration in the transportation sector exacerbates this capacity crisis -- and affects a cross-section of industries.
NOTE: I think this point is a bit of a stretch...from my perspective, we are very close to huge over-capacity in the major trade lanes. Hey shippers...your rates are about to drop!
Retailers are forced to add inventory into their supply chains, facing increased obsolescence and markdowns, or miss sales because merchandise is out of stock. Consumers pay the price when goods don't move efficiently to store shelves.
Shippers absorb higher costs because of delays, a continued lack of capacity, and increased spending on expedited transportation to meet consumer demand. And carriers have difficulty handling the demand, which strains service levels and relationships.
To face this crisis, shippers and carriers must work together to develop smart, creative ways to maintain levels of service, find capacity, and grow business.
Here are five suggestions:
1. Improve pay and overall compensation packages for truck drivers, and work to meet their lifestyle needs. This will help the industry attract drivers, adding capacity back into the system. Shippers and carriers can partner to improve driver lifestyle by creating dedicated driving opportunities, for example.
2. Improve forecasting and define Centers of Gravity. Use capacity as a factor when creating import strategies and locating distribution centers. Ignoring capacity when determining port and distribution center locations leads to ineffective networks and poor customer service. Capacity must drive these decisions to promote greater flexibility and efficiencies. Dont' wait, don't hope, don't stick your head in the sand...be proactive!
3. Expand your contractual agreements - Outsource! Consider including transportation brokerage firms as core carriers. Core carrier programs provide access to the capacity necessary to remain viable in the market. Using limited trading partners is still a good strategy, but a transportation broker might be part of that plan. Mix and match per your need, but contract with too many small/regional firms which will dilute your market position.
4. Aggregate your vendors, segment your supply chain. As is the previous point, define and reduce your vendors and outsource to gain buying power (aggregate). Orchestrate smart freight/bid processes and level out shipping loads. Segmenting the country -- instead of delivering to all regions every day -- has helped many companies level out their daily shipping requirements. In the contracting process, shippers and carriers must be more precise about the capacity supplied for agreed-upon prices.
5. Collaborate across business and government sectors. Engage and lobby government officials to build awareness of the capacity crisis and ensure new rules, regulations, and spending don't exacerbate the problem. With greater collaboration among shippers, carriers, and the government, challenges resulting from new regulations, such as the hours-of-service rules, can be reduced or prevented.
The capacity crisis is forcing key players in the industry to work together to create unique solutions. With proper planning, better strategies, and constant attention to capacity's impact, shippers and carriers can successfully maintain superior service, find ways to meet capacity commitments, and continue to grow their businesses and the economy.
Collaboration and building awareness NOW are tantamount to to long-term success!