Capacity crunch: Using a 3PL to help survive and thrive in a tight market
International shipments are very different in July 2021 than they were even six months ago. Container volumes have fully recovered from initial COVID-19 panic and are well over 2020 peak volumes in nearly every market. Shippers are more concerned with getting space on a vessel, resigned to the fact that higher ocean rates and paying spot pricing may be here to stay. Increased import volumes are causing congestion at the ports, which trickles down to domestic carriers, who have struggled to maintain service levels. While draymen in the US have significantly increased their base tariff rates, actual capacity to deliver a large volume of freight in a timely manner without extra charges has become a challenge. Carriers are struggling to keep up with the weekly volume commitments and maintain an adequate number of drivers. Many are asking for rate increases from customers just to fund driver pay increases and keep from experiencing driver attrition.
Navigating Today's Market
The shippers who find themselves on more solid ground today are the ones who have implemented strategies with a safety net to protect their drayage capacity.
Having multiple carriers involved in each market and leveraging key industry partners for drayage management can be the difference between barely keeping your head above water and thriving in today’s chaotic market.
Many shippers find it easier to assign a primary carrier to a single lane when awarding import or export drayage volumes. The concept of a Customer Named Trucker (CNT) has been a common strategy employed by shippers to help control costs and service, and it makes sense. If a single carrier can handle the entire volume, provides a quality service, and has competitive rates, why not give them all the business? That strategy has worked well for years. Today, however, some shippers have neglected to adapt to recent market conditions which have become a recipe for increased costs, service failures, and general chaos. Carriers are struggling to keep drivers, which means they are reducing committed weekly delivery volumes, despite the surge of freight. Many draymen are having to go back to BCOs for rate increases simply to maintain existing capacity.
Considering additional issues with the supply chain like equipment shortages, storage and per diem charges, and the extra time - costs add up quickly. Shippers are wondering how they can pull themselves out of the situation as their domestic carriers are consistently dealing with port congestion, delays, and unprofitable wait times. Many shippers are scrambling to find new carriers to handle some of the overflow. Shippers are even instructing their draymen to find additional capacity, allowing loads to be brokered just to work through a container backlog at the port and maintain service levels.
So, what is the answer?
There has been a rise in the last 24-30 months of large BCOs utilizing additional NVOCCs to gain capacity instead of depending solely on direct contracts with the Ocean carriers. Shippers would be wise to apply the same logic to their drayage network. The shippers who are better positioned to deal with these challenges are the ones that have recognized that a diversified strategy is the more prudent path. It is much easier to get two carriers to flex their capacity to each handle five more loads than it is to get a single carrier to flex up to 10. Also, as carriers have had to respond with rate increases for rising fuel and port congestion surcharges, a multi-carrier strategy can provide shippers the ability to benchmark rates on the fly, and potentially mitigate the rate increases that are happening today.
Contrary to what many shippers believe, single sourcing does not actually ensure the best price in the market. A well-designed and executed drayage bid strategy can deliver the same financial return for a multi-carrier strategy as a single source award. A best-in-class bid process includes the following 3 components:
- Accurate, actionable data. To get great pricing and committed capacity, shippers need to provide carriers with information about their business. Historical weekly volumes broken down by port and rail ramp allow carriers to properly price the business, as well as plan for volume fluctuations and spikes.
- Well-defined, transparent process. Shippers need to be transparent about the overall bid process, including criteria they plan to use to award business. This is challenging for shippers who perform bids merely to get their current carrier to maintain pricing without a real intent to get new carriers involved.
- Market intelligence. Many shippers are not close to the drayage portion of the supply chain and have no market intelligence outside of their own pricing and business. Having a good consulting partner to help manage your bid process can pay big dividends and put the leverage back in the shipper's hands.
Finally, having multiple carriers does not have to mean doubling or tripling the network complexity and workload for the shipper. There are several quality 3PLs in the drayage space that can provide a single source for load and carrier management for the shipper while also delivering the benefits of a diversified carrier base. The value of having a “one stop shop” to manage a drayage network can allow shippers to focus on being strategic about how their network operates and leaves the headaches of daily carrier management to a strong network partner.
Three things your 3PL partner should be doing:
- A good partner aligns on cost and service goals, provides strong execution, and is transparent about service issues and challenges.
- Has a deep carrier network to support the shipper's volumes and can easily scale their capacity on a week-in, week-out basis better than a shipper can by
- Can leverage their entire book of business to reduce costs by matching one shipper's import volume with another shipper’s export volumes, drawing cost synergies from their carrier base, and passing savings on to each shipper.
Many shippers who have outsourced the management of their drayage network have experienced more control, increased visibility, and reduced costs compared to managing their drayage network with their own resources.
If you are struggling with capacity issues in today’s drayage market, you should take comfort in knowing that you are not alone! As you think about new ways to build a better drayage mousetrap, consider implementing a multi-carrier strategy with an industry-leading drayage management provider. They can provide the support you need in a tight market like the one we are in today.
Did you know that CPG offers managed dray services?
Interested in a quo
Mike is Senior Vice President of Logistics Solutions for CPG, focused on providing unique first and final mile solutions to forward-thinking global shippers. Mike can be reached at firstname.lastname@example.org or connect with him on LinkedIn.