Written by Steve Keppler, Co-Director, Scopelitis Transportation Consulting
One of the nation’s most pressing challenges of today is the condition of the supply chain. The pandemic has stretched its ability to serve the evolving needs of today’s global marketplace. This issue is front and center for government and private sector leaders alike and has become front page news. It also has come home to roost for many households as they cope with significant delays in purchasing products both online and in stores, where often there is limited inventory. While this is not new to those who work in the ever-volatile supply chain, it is particularly acute now.
Significant contributors to the situation have been the dramatic shift in consumer behavior and the changing environment of the workforce. When COVID-19 hit, almost overnight, the country shifted to remote work, to include major technology infrastructure changes to enable businesses to continue to operate. Due to store closures and substantial curtailing of business operating hours, consumers had no choice but to shift their purchasing decisions to e-commerce. This had a significant effect on the supply chain as they reacted to these changes, while keeping their workers safe.
As the economy continues to open up, we have seen that it has changed. E-commerce continues to boom with no end in sight, and many businesses have determined that workers can operate effectively in a remote or hybrid work environment. The supply chain, while resilient, has not yet adjusted to this proverbial new normal.
The effects of these changes on the supply chain have been dramatic. There are labor shortages in all modes of transport, but is arguably most pronounced in the trucking industry where drivers are hard to come by. However, equipment technicians, railroads, terminals and terminal equipment operators, warehouse and distribution center facilities, just to name a few, have all experienced shortages on the labor front. Many frontline workers have chosen to retire early or leave the industry entirely. Companies have struggled to hire qualified staff to backfill needed positions and are asking existing staff to perform multiple duties. Many companies have increased pay and incentives to help lure more employees into the workforce, but the supply is not meeting the demand, causing employers to reevaluate hiring criteria to get new workers in the door. In some cases, the increase in pay being offered to workers is being offset by a decrease in productivity as workers seek a better work-life balance.
Equipment availability and dislocations have also been problematic. Trailing equipment of all types, and in particular, intermodal chassis, have not been able to keep pace with the increased demand. Container supply is not keeping up either and in some cases are being used as storage facilities due to lack of available space at warehouses and distribution centers. Challenges acquiring needed parts and semi-conductors have slowed new equipment delivery and existing equipment repairs. This shortage is putting upward pressure on costs and order lead times and making it more difficult to have equipment properly repaired and maintained in a timely manner. This lack of supply has impacted the leasing market too as existing equipment is being held on to by some users longer than it was contracted for, leading to further shortages.
Port and terminal operators are being stretched to move freight as quickly as they can through terminals, but the labor and equipment shortages have hit them especially hard, which is leading to ships anchored at sea, or docked for weeks at a time offshore from marine ports, not being able to berth to offload import containers or to be loaded with exports. This is causing some operators, like the ports of LA and Long Beach, to adjust their operating hours to keep pace.
The result is upward pressure on freight prices, both on contract rates, but even more so on spot rates. Shippers are competing for capacity, and in some cases are barging freight to alternate ports or moving it by air. We are seeing the downstream effects, as prices are increasing for everything we buy, and inflation fears are real and growing.
Specific to trucking, the spot market continues to be overheated, with rates having increased 31.5% year-over-year. The price of equipment has gone up as well, with both new and used truck prices increasing significantly—with a 73% increase for used truck sales, and the cost for trailers having risen more than 20%. Diesel prices have increased $1.20, its highest since 2014. The last point, and arguably most important, is the truck driver shortage problem. The country is currently short 80,000 drivers, with that number expected to swell to 100,000 by 2023, and these are pre-pandemic numbers.
What we do know is the situation has the attention of world leaders, and the Biden Administration has several initiatives underway to help understand what is happening how government can help address some of the bottlenecks. The supply chain is a complex puzzle, and it has an intricate web of players who rely on each other to address the volatility and to manage the laws of supply and demand. For many years, this system has relied on major investments in equipment and people to make it work. What the pandemic has brought to bear is that this approach will not work in the new economy. Supply chain partners need to invest more in technology tools, information, and data—and to share it—to help leverage the existing work force and equipment to improve decision making and asset utilization. The survivors of these tumultuous times will be those who adopt innovative technologies to help adapt to emerging trends, improve efficiency, and get more out their assets and workforce. We can’t build or hire our way out of it anymore.
Many transportation businesses are leaning on outside help to address the problem. Telematics leader, Spireon, offers a Managed Services solution to optimize trailer management, allowing carriers to spend more time managing their customers, drivers and trucks while Spireon handles their trailer management. With Spireon’s added help, carriers can further reduce wasted detention time, optimize trailer utilization, identify idle trailers, and alert managers to maintenance needs. While reports like daily yard checks, high dwell locations, trailer utilization, and detention are already available through its FleetLocate product, this new service provides customers with a dedicated analyst that helps turn the reports into action and to increase revenue. Customers also receive a device health report with historical context so they can see areas for improvement, and how their device health has performed over time.
To learn more about Spireon Managed Services, click here.