It is rare that things in the supply chain and logistics industry ever stay stagnant, and with that constant change comes the emergence of new and different issues that pose challenges for those in the industry. The first half of 2018 has been a trying time for supply chain management, and the uncertainty of the future is something weighing heavily on industry insiders. From the repercussions of the recently implemented ELD mandate, to the shortage of truck drivers causing a ripple effect across entire supply chains, the market is currently very sensitive. It is important for logistics professionals to stay nimble and be willing to change alongside the ever-fluid, and sometimes unstable, industry.
Right now, there are a plethora of issues that companies are dealing with that are directly related to the recent full-enforcement of the U.S. electronic logging device (ELD) mandate. One of the main issues from a sales standpoint is the fact that customers are only sticking with incumbents, because it is the devil they know, and those that are bound to change are really beating the bushes looking for the lowest rates. The truth is that there are just not enough drivers to pick up the capacity drain that the ELD mandate has caused. We don’t expect that things will level out or “go back to normal” until at least mid-2019.
Another issue that has been top of mind for many in the supply chain industry is the shortage of truck drivers. While there are some stories being published that make the shortage seem like an issue of the past, or something that is not currently causing problems, we feel it is all about perspective. Certain areas of the supply chain industry may have leveled out or obtained a new normal with a certain number of truck drivers, but it is still a very real issue that the vast majority of the industry is struggling with. The tight capacity, which was exacerbated by the ELD mandate, has caused across-the-board price increases. The radiated effect of these issues in the trucking industry has also already drastically impacted other areas of the supply chain.
We have seen impacts from the trucking situation spill over into both rail and ocean transportation. There are fewer rail cars at inland ports, and ocean carriers have doubled their inland rates to the ports. Many ocean carriers are also still refusing to add a door delivery to their contracts. Another factor at play in this issue was the weather that the entire country dealt with at the end of 2017. With three back-to-back hurricanes and an unusually harsh winter, many supply chains were majorly impaired.
Just recently, at the beginning of April, we saw a price increase in dry van truck rates, which seems to be a direct result of the reduction of capacity and the fact that there are not enough drivers. While there may be enough business to fill trucks, those trucks cannot drive as long, and are unable to do as many turns as they did prior to the ELD mandate. Some have attributed the rate hikes and tight capacity to a strong spring economy for retail and produce, but it seems as though this is a direct result of both the ELD mandate impacts and the shortage of truck drivers. Rate hikes seem to be a common trend in 2018, and people in the industry are being forced to adjust both their sales plans and internal budgets.
In an industry that is all about saving time and money, the pressure to reduce spend for clients has never been greater. While it is easy for decision makers to fall back on the “I need a lower rate and I don’t care how I get it” mentality, it is vital for people to take a step back and look at their entire supply chain as a whole, instead of just one transactional price. One reason why this is happening is that many people in the industry today are unwilling to have a value conversation and they are strictly buying based on price. This industry-wide shift that focuses more on transactional traditional pricing, and not the value provided or the supply chain as a whole, has caused a lot of pressure.
Lowest Price Isn’t Always the Answer
We have also found that many of the decision-makers in organizations have filters, or “gatekeepers,” who act as a barrier between them and the sales community. As the gatekeepers are often told to find the lowest price, no matter what, they are not interested in learning about the value a logistics firm can provide to them. For these individual, it is all about the price.
While a price cut in one area of a supply chain may relieve an immediate budget concern, it is not always the ultimate fix. Companies should work with a seasoned logistics partner that is able to analyze their supply chain on a global level and determine what is the most efficient plan of attack, not necessarily the one that provides the absolute lowest price possible.
When companies are choosing logistics partners based off of bottom of the barrel pricing, some will come out bruised on the other end after realizing that a firm who offers a drastically lower price than competitors will more than likely not have the income to adequately support their supply chain efforts. The lowest price is not always the answer. People need to remember that value buying is important and that what you are getting for your dollar truly does matter.
Given that we’re only at the mid-year point but we’ve seen many companies that have already blown through a lot of their 2018 budgets, it is obvious there has been a shift in our industry. We would advise decision-makers to do the hard thing, and take a look at the supply chain overall and not strictly just transactional pricing. In a time when the pressure for low prices is so huge, remember to keep in mind the value of your dollar and what you are actually getting from a partner.
Greg Scheevel is director of global development at TOC Logistics International Inc., a logistics management organization.