Increasing Truckload Lead Time Improves Cost, Capacity & Service
Lead time is an often overlooked factor in delivering freight on-time and on-budget, yet it can be the difference between a shipper riding on their contracted rates versus the elevated spot market for capacity.
The importance of managing lead times increases exponentially in a capacity constrained market, even if the shipper has a contract with the carrier base it utilizes. The reason is carriers build their routes based on coverage required for their capacity on committed shippers first, then work on a somewhat first come first serve that optimizes their assets for their rate contracted business ... while serving the greatest numbers of shipper requests. If spot market opportunities fit the route build for the day, then they will be worked into the plan. Some carriers will go to a no spot policy in a constrained market.
When more freight is available to move than fits the particular carrier's network, they use various methods of determining what makes sense to add to their committed capacity customers ... rates, carrier friendly docks, credit, lead time given. In a tight capacity market there is a lot to be said for being first in line because there is not much time to visit ... re-visit ... then revisit the drivers' routes, so the dispatcher books the freight for the day ... or in some cases for the week, then moves to handling the "normal" communications with their customers.
So, to improve your chances it is better to send in the tender sooner, rather than later or risk missing the opportunity to operate on contracted rates. The chances improve the longer the lead time given to the route planners, so one, two, ... or more days in advance significantly improves the availability of capacity.
To further the point on lead time, just think of the competition for the trucks. Shippers are not competing against those in their industry. Shippers are competing against every possible shipper needing capacity on a given day. To help scope out the scale of shippers on any given day consider:
- The US Census Data lists 6.0 million companies are in business today, although many do not ship product.
- JLL reported at the end of the second quarter of 2016 there was roughly 12.3 billion square feet of industrial space. Each of these locations would indeed need 53' capacity.
- The USDA reported in February 2017 there are 911 million acres of farm land in the US.
- Also think construction, infrastructure, drilling and mining, e-commerce, etc., etc., etc.
In other words, the list of competitors for trucking capacity is significant.
The below chart (from DAT Solutions) illustrates capacity needs in the 1st week of October of 2017. As the graphic illustrates, the majority of the US population is located within a state that has 5.5+ loads being posted to their board for every 1 truck posted looking for loads.
The same chart is for this week's capacity demand, which is quickly approaching the challenges of last year.
With the above information in mind, below are suggestions shippers can implement to improve lead times.
Improving Truckload Lead Time is a Team Effort
There is more to lead times than a company's warehousing and logistics group. Companies need to look further up the chain to find how to get information down to shipping quicker. Talk with with customer service, sales, purchasing and manufacturing. As part of the communication with the other groups, share with them how short lead times have a direct relationship to higher transportation costs that many times also leads to less service. They may not know the relationship with carriers and how contracted rates with a carrier does not require them to move a particular shipper's freight, unless there is a commitment on volume everyday, which is often not an option for shippers because of the characteristics of their freight.
More to be Done to Improve Tender Acceptance
The conversation of being a carrier friendly DC does have an impact:
- Flexible pick-up and drop-off windows.
- Drop-and-hook versus live load. If live loads are the only option, then when possible, provide a window for shipment pick-up and delivery. This provides more flexible to the your company's freight needs and utilizes a driver’s available hours of service more effectively.
- Do what you say you will do and if you do not, then communicate early and often. Carriers understand there will be issues, but communicating will help them proactively plan their routes versus parking at the dock and waiting for freight or canceling the truck during transit or on arrival.
- Load / unload quickly having damage prevention in mind.
- Be respectful to the drivers arriving and departing from the dock.
- Evaluate pricing and payment terms, as it relates to the market.
- Paying more does not necessarily mean better service, but lower rates may be putting your freight to the back of the planner's mind.
- Shortening up the payment terms can move your freight up to the front of the line with some carriers. Look at executing payments based on when the carrier receives the money, not on the age of an invoice on your company's open A/P report.
Understand Current Market Conditions and Plan Accordingly
The only consistency in the transportation market is its tendency to fluctuate. If you are able to stay up-to-date on market changes and openly communicate with your team and company leadership, you may be able to better anticipate potential impacts to your business and plan accordingly. Also, listen to your carrier base. Many of them tell the same story of "pain", but there are carriers that have tremendous insight to what is happening, or about to happen in the marketplace. Learn to trust your valued carriers have to say and you will be ahead of the curve on how to execute the most successful strategy.
To sum it up, there are always options. You just need to be open to the possibilities of what chance will bring to your organization. So, in your quest for capacity do not forget that roughly 90% of carriers have 1-5 trucks and carriers with 50 trucks or fewer control 57% of the for-hire class-8 tractors in the market. In the competition for capacity, it is not a bad thing to leveraging the largest 3PL's technology and network to tap into the deepest pool of carriers available.
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