THE 2017 CAPACITY CRISIS: LESSONS FROM THE PAST, ADVICE FOR THE HERE & NOW

Commentary: Jeff Tucker, CEO, Tucker Company Worldwide (tuckerco.com)

Trucks are harder to find and more expensive than ever before. We saw a glimpse of things to come during June and July of this year, but no one could be prepared for how September has progressed. Suddenly, rates that would once be considered ridiculous for the most straightforward lanes are to be expected. Options are limited: freight expeditors, who typically charge premiums over and above market price, are booked days in advance. Truckload carriers of any size, both temperature control and dry van, are equally hard to come by.  As a result, every carrier is prioritizing the customers it’s willing to serve, based on the return on investment. Case in point: one large shipper we know called a mandatory conference call for its primary carrier providers this month to discuss a large number of loads that were missed – and only a small handful of loyal providers attended the call!

Shippers are angry and frustrated, and we’re fielding calls from our customers asking whether things have settled down yet. The answer is a firm but disappointing “No.” The market for trucks is moving at light speed. As quickly as availability appears, it’s gone!

For those of us who have the benefit of tenure in this crazy business, market conditions are reminiscent of third quarter 2003, a crisis that didn’t let up until 2005. At that time, (2001-2) we were emerging from recession, and trucking was lackluster. Truck volume was up one quarter, down the next.  President George W. Bush and Congress passed a stimulus package in the 3^rd quarter of 2003, giving rise to an 8.2% GDP for that quarter.  That remarkable and historic increase in spending, coinciding with peak 3^rd quarter shipping overwhelmed the trucking industry overnight.  Shippers went from operating on autopilot, to vigorously competing with each other for trucks. Core providers disappeared. With capacity at crisis levels, January 2004 saw new hours of service (HOS) requirements, reducing the number of hours drivers could drive. As a result, capacity decreased again, at 3-4% at the worst possible moment. Truckload freight flooded LTL carriers and trains. Train speed suffered, forcing some freight back to truck. Capacity was impacted for about a year and a half before the market caught up.

The current conditions feel similar, with different variables. I’d argue that we’re looking at a worse situation, and I’ll explain why. Trucking isn’t nearly as loose as it was in 2003. We’ve experienced a sort of equilibrium between supply and demand in the market for the last several years, which makes us more susceptible to disruption.  A snowstorm in the West upends the nation’s supply chain for days- sometimes weeks. Today’s massive hurricanes in the Caribbean, in Texas and Florida have had a more adverse effect on the market than the Bush 2003 tax credit. Plus, we’re on the cusp of peak 3^rd quarter shipping once again, in the midst of a current capacity crisis, and to make matters worse – the ELD mandate is upon us.

Conservative estimates place the loss of hours, or productivity, that the marketplace will experience as a result of the ELD mandate at 3%-7%. That’s equal to, or more than, what we lost in 2004. And we had more supply in 2004. We’ve been warning our customers for two years about the ELD mandate, but we couldn’t have foreseen the impact of the recent hurricane season to disrupt the market even sooner.

There’s currently no end in sight, but there are a few recommendations I would implore shippers to consider. You’ll need to be limber in order to keep your business moving, as it’s going to be more competitive than ever. To start, I recommend reexamining budgets throughout your organization, from procurement, to finance, to planning, to customer service, your production facilities, vendors, customers, and please don’t forget about any distribution centers owned or leased. Trust me, you’re not the only company doing this, and some wise organizations are ahead of the curve. Second, your ability to be flexible will be your key to beating out the competition for capacity. Provide as much advance notice as possible, and keep your options open. You may have to push out pickup one day or more – but now is not the time to dismiss availability if you’re lucky enough to find it. The trucking market is as alive as the stock market. It’s far more stable and predictable, but it moves up and down, and nobody—not the largest shippers, the largest carriers, and the largest 3PLs combined, control it. It does what it wants. If you’re able to budget accordingly, incorporate flexibility, and strengthen partnerships with your loyal carrier and broker friends, you’ll be able to weather this crisis, while beating your competitors to the trucks and to the shelves.

Rest assured that Tucker is supporting you. Our management team led our customers through the first major crisis in 2003-5, and has been working internally for two years to prepare for 2017-2018. Contact jeff.tucker@tuckerco.com with any questions or concerns.