The logistics industry has developed a word, phrase or acronym for just about every situation and the one we are addressing in this article is peak.
Definition of Peak Freight Season
Peak shipping season is the time of the year when retailers push inventory into the channel for back-to-school and holiday season shoppers.
The peak surge impacts all freight modes starting with transpacific ocean shipments bound primarily to the Southern California ports of Los Angeles and Long Beach and to a lesser degree all western US ports. The import volumes wreak havoc on freight capacity as they move off the ports inland. The ripple effect tightens truckload and intermodal freight capacity for all SoCal outbound freight, but gradually impacts all US freight capacity depending on the length of the peak and the severity of the demand requirements.
The result is:
- Shippers find it difficult to find freight capacity.
- Service levels decrease.
- Freight pricing increases, as shippers have to tap into the volatile spot freight market to augment their shipping requirements.
When is Peak?
There have been times where peak has either started earlier or ended sooner, but typically shippers can expect and plan for peak to start in late July and run through the first week of December.
During the COVID19 pandemic and pandemic recovery, peak has been a constant. For more on the reasons, we recommend reading Reasons for Outbound Freight Capacity Shortages in SoCal - Los Angeles.
What Makes Peak Different than General Season Freight Patterns?
General freight seasonal patterns are consistent and their impact on the overall freight market is fairly well measured, while peak is variable in nature.
The variability in peak can be found in its duration, starting time, ending time, volume impact and scale. The severity of each of the previously listed factors drives its impact on freight capacity, service metrics, and pricing.
What Can Shippers Expect During Peak?
During peak season, demand for freight capacity outpaces supply.
The impact shippers can expect during peak are:
- Freight capacity tightens.
- Spot market pricing increases.
- Service levels decrease.
- GRI, general rate increases, are instituted by ocean carriers.
- Railroads call off various outbound markets, primarily SoCal and NorCal as constrained, which then brings intermodal box surcharges on every box over the agreed guaranteed capacity volume.
Keys to Successfully Manage Peak
Individuals that are new to peak or have not experienced several peak seasons often find themselves unprepared for the consequences.
Peak is variable in nature, so there is rarely one just like another, although there are themes to provide a crystal ball for planning.
Successfully managing peaks is far more important now than ever before because the peak seasons are more frequent and extreme.
For example, the 2018 economic boom brought on a peak season that many said was once in a lifetime. But then over 2020 and 2021, the pandemic peak was devastating to a company’s reputation, profitability, and viability because freight capacity is so difficult to find. And when freight capacity is difficult to find, the cost can be 2.5 to 5.0 times “normal” pricing.
With that in mind, the best defense against peak season is a great offensive plan that prepares a company for the worst and puts them in the position of hoping for the best.
With that in mind, let’s walk through what I have seen to work well in my 30 plus years in logistics:
Have a Plan
First off, you need to plan for the three peak scenarios:
- Non-Peak
- Typical Peak
- Severe Peak
You do not need three plans, but you do need a plan that is created from the top down with the first step for the mildest of peaks, and as you go deeper into the plan, it addresses the severity. Think of it as levels, much like the military uses the Defense Ready Conditional Levels DEFCON 5 through DEFCON 1.
Phases of Developing a Peak Surge Plan
Start Early
Starting early means assembling a plan and putting the specifics around it over the months of December of the prior year and into the end of February of the current year.
Explore Your Options
With the thought of three different peak scenarios, the next step is to begin to put specific actions that would be needed to make the plans a successful reality if and when called upon.
As the plans take shape, you’ll need to keep an open mind and listen well when exploring options when speaking with various asset motor carriers, intermodal providers (IMCs) and non-asset freight providers.
The biggest mistake often made during the discovery process is classifying freight as a commodity because, by definition, the only difference between one provider and another is price, which means there is no solution other than a cheaper price.
What I’ve learned in my 30-plus years in the freight and logistics business is that freight sales personnel have given the illusion that freight is a commodity, which for many logistics providers they may operate that way, but there are plenty that do not; so again, listen well and ask a lot of questions.
The key to finding companies that sell freight services and not freight as a commodity have the following qualities:
- Frequent publishers of content that are not about them, but about service and solution.
- Gross revenue between $50 and $150 million.
These mid-sized logistics companies often find capacity and value where others cannot. Quite often, you’ll be talking directly with the ownership versus first level sales people that are excited to just get a call, so you’ll get a higher level of engagement and expertise very early on in your discovery process.
I will add, do not get frustrated or put-off if these mid-sized companies choose not to engage with your company. It’s not that they don’t want to work with your team. It’s because they know they don’t have a solution for your company’s particular issue, so ask those that choose not to take on the opportunity who they would recommend.
Draw Upon Your History & The History of Others
As the saying goes, “Rome was not built in a day,” and well thought out peak season strategy will not either.
Draw upon what you’ve learned and engage other companies in your area and at leading industry conferences to hear what they have drawn on their experience and how they were successful navigating peak surge markets over their career.
Some examples of industry conferences to attend include:
- The TPM Conference put on by the JOC. This annual conference in Long Beach, California is probably the best around to address the big picture of freight moving from the Pacific Rim countries into the US.
- TIA's Capital Ideas Conference. The Transportation Intermediaries Association addresses the US domestic freight market.
- IANA's Intermodal EXPO. The Intermodal Association of North America is all about 40’ ISO and 53’ domestic intermodal freight.
Include a Budget
The goal of planning is to ensure your company has capacity, service, and the best pricing possible, but depending on the severity of the peak, so too does the costs. Meaning, the deeper you have to go into your peak season playbook, the deeper you’ll need to dig into the wallet.
The key point to understand around peak season is the budget for each peak season scenario will have a cost that is beyond what is seen during the first six months of the year, so plan for it in the budgeting process or you’ll find yourself more engaged with the finance team than addressing your operations and executing the plan.
Key Components of a Strong Peak Season Plan
Segment Products by Profitability & Reputation Impact
Know what items and areas of your business are critical and not critical in terms of customers, profitability, and market reputation.
There may be times you’ll need to use high priced freight capacity options, and to minimize costs it is a good practice to put the highest priorities on the expedited options and leave other products behind that are of lesser concern to your organization.
Then, when the less expensive freight capacity options become available, your operations team can move the less important product.
Segment Critical Shipments into Freight Mode & Speed
As part of the segmentation, you can also look at using different freight modes for the different products you need to ship. This too will help to keep costs down as your logistics team digs deeper into the playbook.
Utilize MCP Intermodal Pricing Capacity Guarantee Programs
Unlike truckload shipping options, 53’ domestic intermodal providers do offer a mutual commitment program (MCP) guaranteed capacity on shipping origin - destination lanes your company has volume.
The guaranteed intermodal capacity options are based on a 12- to 16-week rolling average usage on each lane that is under an MCP agreement.
The guaranteed MCP capacity program is not unlimited. Once a shipper moves more than the MCP volume on a given lane over a given week, the shipper will be required to pay a surcharge for each box used in excess of the MCP volume.
The surcharge can range between $500 to $3,000. The surcharge depends on the severity of the peak.
Additional items to understand with an MCP Program:
- The surcharges are only instituted when and if a railroad calls out a capacity-constrained market, which means you may never have to pay the surcharge if a constrained market is never called out for a period of time in the year.
- The MCP guarantee is based on a 7-day week, so once the week is over the count of intermodal containers starts back at 1.
- The MCP program is not an aggregate of your total volume but instead managed lane-by-lane.
Pay Close Attention to Market Analytics
The sooner a company knows they will have to dig into their peak freight season playbook, the better their chances for successfully managing through peak.
With that in mind, shippers have to be economists meaning they have to pay close attention to how the economy and its consumers are performing.
Areas to gather key market data:
- Your most valued freight providers will have a great deal of data at their fingertips, as they utilize it also for their pricing strategies and operations. Many of the stronger logistics providers are panelists or channel check companies that gather a great deal of freight data as they work through the speaking circuit and participate in the channel check calls.
- Any number of economic magazines and newspapers are a great source, along with tapping into freight and logistics magazines and websites that have key readings on where the market is headed.
Stuff the Channel Early
One strategy to use to help in the most viscous of peak freight seasons is stuffing the sales channels early and often. In some cases, this may happen even before your company has the appropriate sell through data, so it makes sense to hold it back at port of entry and then release shipments inland based on actual sales data.
Keep an Eye on the Details
The freight market is tied directly to the economy, which can carry a great deal of fluctuation that will not remain constant. With that said, keep an eye on the details and manage as necessary for optimal peak season success.
Details should also be constantly reviewed for performance because not every plan in the peak season strategy will work perfectly, so know when to take the next steps, either up or down on scale as the market dictates.
Freight markets are in constant flux and balance, but in peak freight markets the swings are more extreme, so keep an eye on the ball and your company will have more hits than strikeouts.
Closing Thoughts on Successfully Navigating Peak
Not every peak freight market is the same, so what may have worked last time may not work the next time as other variables in the market play out.
One of the best examples of this is what occurred in the freight market at the beginning, middle and as economies began to open up. Peak season turned from what is typically a four to five month condition to a year-round problem for shippers.
To sum up the peak freight season discussion, it is important to:
- Have a plan for all three peak freight market conditions.
- Execute the peak season plan, but be flexible as conditions improve or worsen.
- If you do not have freight providers that are more than a truck, driver and invoice, then find a handful to bring into your operations and lean into their expertise to help you through your peak season challenges.
If you're ready to take the next step, at InTek Freight & Logistics, we can help. Just tell us what you need and we'll discuss how our expertise can help with the unique shipping challenges your business faces. Rather do a bit more research first? View our Freight Guides for comprehensive articles and eBooks on all things freight and logistics.
Below is a small sample of our more in-depth papers on key topics shippers have found useful in managing through their freight and logistics challenges that you too may find helpful:
- Freight Costs: An Insider’s Look on Freight Pricing Buyers Should Know
- The Complete Guide to Freight Management Service Solutions
- The Complete Guide to Intermodal Transportation
- How to Get Your Outbound Chicago Freight Moving Again
- How to Get Your Outbound SoCal - Los Angeles Freight Moving Again
- Reasons for Outbound Freight Capacity Shortages in SoCal - Los Angeles
