How Did the Logistics Capacity Crisis Start?

It was back in late September 2017 when the logistics capacity crisis began affecting supply chain providers. By extension, businesses relied on the transportation industry as a part of their supply chain operation. In fact, according to Transport Topics, “By mid-October [2017], DAT reported the van load-to-truck ratio hit 7.0 loads per truck—the ‘highest ever recorded’ in DAT Trendlines—a study that began in 2010.”

The 2017 hurricane season, particularly Hurricane Harvey hitting the Houston area and Hurricane Irma hitting Florida soon after, brought to light the effect of the transportation capacity crisis’s crisis. Both areas sucked up a lot of the domestic logistics sector’s capacity, leaving retail and agriculture with capacity shortages just as they were entering the peak season. And while the 2017 hurricanes pushed the truck capacity shortage over the edge, many other variables influenced the logistics capacity crisis.

One of the main causes behind today’s freight capacity crisis was the 2008 Financial Crisis. Following the economic downturn of that period, thousands of companies operating in the trucking industry went bankrupt. In fact, in 2008, around 5,500 fleets filed for bankruptcy. By 2012, over 18% of the entire trucking capacity was removed from American roads. Over the subsequent years, freight volumes began rising again. However, logistics providers were more cautious in adding the extra capacity needed to manage it.

When capacity became overwhelmed by demand in 2017, transport trucks became scarce, and rates began to skyrocket. Traditionally, when the transportation industry was experiencing tight capacity, logistics providers could either purchase or obtain the extra capacity from the market. Today’s freight capacity crisis is a nationwide issue, with the logistics industry quickly approaching complete active truck utilization. Shippers and freight brokers are constantly subject to price hikes; they need to find motor carriers who operate in the exact lane their own freight is moving.

Subsequent Reasons for the Current Logistics Capacity Crisis

Aside from the aforementioned reasons that led to today’s freight capacity crisis, several other leading causes also played a major role. Aside from the steadily climbing GDP as well as the uncharacteristic and unpredictable weather variations, there are also the following:

More Stringent Government Regulations

Currently, around 20 government regulations have impacted both the cost of transportation and the available freight capacity. Among these rules, the following have the greatest impact on the capacity crisis.

The Driver Coercion Law and CSA Compliance – Both government regulations were established by the U.S. Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) as a means of taking action against those in the transportation industry that knowingly jeopardize the safety of the driver and the general public. According to the FMCSA, “coercion occurs when a motor carrier, shipper, receiver, or transportation intermediary threatens to withhold work from, take employment action against, or punish a driver for refusing to operate in violation of certain provisions of the Federal Motor Carrier Safety Regulations (FMCSRs), Hazardous Materials Regulations (HMRs) and the Federal Motor Carrier Commercial Regulations (FMCCRs).”

• Hours of Service Regulations – The “Hours of Service” regulation refers to the maximum amount of time truck drivers are allowed to be on duty so as to ensure that they remain awake and alert at all times.
• Electronic Logging Devices – Also known as eLogs, electronic logging devices are automated digital tools used to ensure that truck drivers comply with the hours of service mentioned above.

Together, all of these government regulations result in fewer hours truck drivers are on the road. And while they provide increased traffic safety by ensuring that truck drivers are well-rested while on duty, these laws also indirectly result in trucking companies taking more trucks off the road. Under optimal circumstances, this shouldn’t be a problem. However, there is also a truck driver shortage that’s also affecting the industry.

Licensed Driver Shortage

The driver shortage was first documented in 2005 when the American Trucking Association (ATA) estimated a 20,000 driver shortage in the logistics industry. In 2019, the ATA expanded that number to 61,000 for 2018. In 2019, the American Transportation Research Institute determined the driver shortage to be the number one issue for the transportation industry, estimating a shortfall of over 100,000 drivers over the next five years.

One of the key reasons for this driver shortage is the lack of higher pay, causing more and more drivers to quit. It’s also important to remember that the median truck driver age is 55, with little interest in the career path coming from younger generations, many current drivers are approaching retirement. The most likely candidates for this position include people who are single, have no young children or families, and are okay with living on the road. And while trucking companies are actively looking to train, license, and recruit more drivers, they have limited success.

Fleet Deterioration

With the 2008 Financial Recession, companies all across the United States began scaling down just to keep their business afloat. Many were unable to cover the costs of upgrading or simply repairing their rigs, trailers, and other equipment. Plenty of vehicles were also reassigned to less rigorous tasks while others were forced into early retirement. As a result, fleet deterioration had a tremendous impact on trucking companies, pushing them to scale down their fleets.

Other Operational Inefficiencies

When it comes to cost savings and effective profit management, it’s important to keep in mind that they are strongly linked to a proper transportation cost analysis. Given today’s freight capacity crisis, it’s more important than ever that both the carrier’s operating costs and the shipper’s direct transportation costs are properly calculated. Given the highly disruptive effects of the capacity crisis, many experts believe that truckload carriers’ traditional per-mileage costs (both FTL and LTL) benchmarks are no longer viable in understanding costs and profits. More complex and comprehensive budgeting and forecasting are required to take the capacity crisis into account.

Conclusion

Just as only a few people saw the capacity crunch coming, it’s also equally uncertain how things will evolve in the future. Looking forward, many industry experts and analysts believe that the current capacity crunch will not continue forever. However, considering the current COVID-19 pandemic, it’s really uncertain when capacity issues will equalize closer to demand.

But when the business environment becomes volatile and uncertain, like the case with the current transportation capacity crisis, it’s in everyone’s best interest to find different opportunities to become more agile and flexible. For Freight Forwarders and shippers to stay on top of the situation, they will need to look at their internal processes, systems, and carrier relationship management.