In the past two years, manufacturers and retailers have been dealing with the effects of a general decline in demand for their products, which resulted in a lesser need for logistics services, specifically transportation and warehousing. Shipment size began to shrink, length of haul shortened and the number of pickups and deliveries declined. Warehouses, if they were needed at all, started becoming storage devices for inventory rather than throughput devices for sales.
But now, it’s mid-2010, and the pendulum has started swinging the other way. If the first quarter is any indicator, demand is on the rise. TransCore reports that demand for trucking in the “spot market” increased by double digits in the first three months of 2010 versus the last three months of 2009. While this in itself should be reason to celebrate, it comes at a time when capacity to move products is at its lowest level in years. The trucking industry experienced a record number of bankruptcies in 2008 and 2009, which has left fewer carriers to move the increase in freight volumes.
The impact of the decrease in freight-carrying capacity goes beyond the eventual increase in freight rates we should see later in the year. It will have an effect on productivity in other functional areas of the supply chain, such as warehousing and material handling.
Lost Time Is Lost Opportunity
Companies that operate warehouses will find it more difficult to hire carriers willing to do “live loads.” Instead, carriers will be more apt to want appointments—and have shippers adhere to them—to turn their equipment as quickly as possible. In a tight capacity market, time really is money. And lost time is lost opportunity.
A shift to more appointments and less live loading will likely cause warehouse operators to think further out in their scheduling of pickups and deliveries. Since it may take longer to find a truck to make a pickup, that will have a trickle effect on the rest of the warehouse operation.
Warehouses that are operating at near full capacity (because the number of warehouses has been reduced) may be severely constrained if inventory takes as little as an extra day to get moved. That will keep inventory in the pipeline longer and eventually affect warehouse layout and the productivity of people and material handling equipment. Warehouse operators may find themselves having to stage and restage product constantly if it takes longer to get the product picked up.
Third-party logistics providers (3PLs) and transportation intermediaries can help alleviate some of these potential problems. First off, they are better suited to deal with capacity shortages than most shippers because their network of motor carriers is much broader. A 3PL will have thousands of qualified carriers at its disposal and should be able to find a truck faster for a scheduled pickup or replace a truck quicker if it should fall off for any reason. In addition, 3PLs and intermediaries often have the technology and processes that will allow them to validate operating authority, insurance certification and safety record faster than a shipper who does not have those kinds of in-house capabilities.
The bottom line is that finding and keeping a carrier on an assigned pickup is the best way to alleviate any issues in the warehouse that may result from reduced capacity in the market. In this case, prevention is better than the cure.
Russ Dixon is director of corporate marketing and communications for Sunteck Transport Group, a non-asset-based transportation services company.