Adapting to change: More trailers over tractors

Trailers

The capacity crunch is driving carriers to buy more trailers than trucks. Here’s how the shift is impacting the transportation environment.

As the 2020 holiday season comes into focus, it’s becoming clearer that the uptick in e-commerce orders, the persistent supply chain shortages, and reduced transportation capacity could turn into a “perfect storm” of challenges for companies across many industries.

“The 2020 holiday shopping season will close out an intense, unpredictable year for retailers and consumers alike,” the National Retail Federation (NRF) writes. “With ebbs and flows in retail sales and COVID-19 infection rates, retailers are entering an unprecedented holiday season.”

NRF expects 2020 retail sales overall to grow by 3.5%-4.1% to over $3.9 trillion despite uncertainty from the lingering trade war, coronavirus, and the presidential election. The U.S. e-commerce sector has become a force of its own during this period. Already growing year-over-year, U.S. e-commerce sales grew by 43% in September 2020 after increasing by 42% the prior month.

“Both FedEx Corp. and United Parcel Service Inc. have told some of their largest shippers that most of their capacity is already spoken for and that any extra trailers with holiday orders will have to wait to be picked up, according to shipping consultants and retailers,” WSJ reports.

“Overloaded carriers are struggling to keep up with the expected surge in online orders during the peak holiday season.”

Managing the Frenzy

The trucking industry has been thrown into a frenzy as it works to address current challenges while also preparing both for the looming holiday shipping season and for what 2021 will bring. E-commerce velocity, for example, is expected to remain strong into the coming year as—even when COVID is no longer a threat—more consumers shop online versus visiting brick-and-mortar stores.

To adjust to these new realities, carriers appear to be acquiring more trailers than trucks right now. “Tender rejection rates continue to hover around all-time highs as carriers struggle to cover the recent freight boom, driving rates and revenues higher,” Freightwaves reports. “The last time this occurred carriers rushed to purchase record amounts of equipment in 2018. But this time around, trailers are the equipment of choice over tractors.”

The publication says preliminary trailer orders for September will be the third-highest month in history at 52,000 units. “This is part of a five-month trend of increasing dry van trailer orders that began in May of this year,” it says, noting that for the year overall, trailer orders are growing in relation to tractor orders.

“Trucking companies are having to adapt like many other businesses to an environment filled with questions about the near future. Investing in trailers over tractors is a far safer bet due to lower costs and the fact that they do not have to hire a driver to utilize them,” Freightwaves points out.

“The growth in trailers over tractors suggests carriers are more willing to drop empty and loaded trailers at shippers and their consignees instead of waiting at their facilities,” it adds. Under “normal” circumstances, carriers pick up loaded trailers after placing the empty ones—a process known as “drop and hook.”

Drop and hook is easier to manage if the carrier has spare trailers to work with as it “leads to fewer wait times that drain driver productivity,” Freightwaves explains. “This is also good for social distancing, which may also be contributing to the trailer pool growth.”

“Trucks aren’t Where the Loads are”

Commenting on the rush to acquire trailers that’s happening right now, DAT iQ’s Dean Croke told Talk Business & Politics that the old adage, “Trucks aren’t where the loads are,” is applicable right now because trucks are more likely to be running more empty miles and spending more time at the loading dock. “There’s a tendency to move light loads to drop trailers,” Croke says, “creating a backlog of equipment through networks.”

“When you’ve got a massive influx of e-commerce freight on a loading dock on the inbound side, you’ve got a big back up of trailers,” he continues. “The trailer people are telling us they’ve never had a higher utilization level of their trailers because they are both in demand and being used as on-site storage as they try to process this surge in demand.”

5 Factors that Impact Carrier Lane Pricing

carrier-lane-yard-management

Ever wonder how your carriers come up with their lane pricing? Here’s a quick primer on some of the key factors that go into these decisions.

Also referred to as a “freight lane,” a carrier lane is simply a route that’s routinely served by a specific carrier. By establishing lanes to operate in, carriers, independent operators, and large trucking operations can run more efficiently and effectively (versus trying to serve “everyone everywhere”).

Many less-than-truckload (LTL) carriers operate within a fixed region of the country where they have established lanes, while national LTL carriers operate both within defined regions and via long-haul lanes that carry freight through those regions. Finally, independent operators manage both full and partial truckloads within their established lanes.

5 Points to Remember

Here are five determining factors that carriers use when developing their lane pricing:

  • Current freight volume. Much like any industry that fluctuates according to supply and demand, freight usually costs more to move when everyone is vying for space on trucks. When that demand wanes, lane pricing usually retreats along with it. “Rates are elevated right now and the supply-demand dynamic suggests they will remain so for some time,” Freightwaves “Carriers are rejecting loads at a high rate and volumes are flowing at historic levels. Carriers have options and they are exercising them in search of margins.”
  • Fuel costs. As fuel prices go up, carriers typically adjust their costs to offset their own increased cost in this realm. When fuel costs go down, the savings are often passed along to the shipper via a fuel cost component that carriers build into their own pricing models. These fluctuations can directly impact carrier lane pricing.
  • Head-hauls, backhauls, and deadhead miles. When truck drivers are competing to reduce empty miles, rates will be lower. When shippers are competing to find capacity, rates will be higher. Key factors that carriers look at include the chances of getting reloaded after delivery; and the load-to-truck ratio at the pickup and delivery locations. They also factor in deadhead miles or the number of “empty” miles that have to be driven between pickup and delivery locations (for the next load).
  • Driver pay and labor availability. These two go hand-in-hand: when there are ample drivers to choose from, and when those drivers aren’t commanding higher wages, carrier lane pricing tends to remain steady. However, when driver shortages begin to drive up wages, those increases are usually reflected in higher transportation costs for shippers. Coming off a year when labor availability was an issue for most organizations—and then moving right into the 2020 pandemic (which took a different toll on workforce availability)—this point remains a major hurdle for carriers and trucking companies.
  • Government regulations. Hours of service (HOS) rules, the electronic logging device (ELD) mandate, and other government regulations can all directly impact carrier lane pricing. For example, the HOS rules—which have since been integrated into carriers’ business models—had an initial impact by reducing the number of hours that a driver could be behind the wheel before stopping for a break. That meant no more waiting out in the yard for two hours for a dock door to open up (during which time the driver’s hours could run out). By deploying digital yard management systems (YMS) like PINC, companies have been able to eliminate these detention issues and keep drivers safe and operating (and subsequently, transportation costs affordable).

Keep these points in mind as you plan out your next load, knowing that most of the issues can be worked around if you attack them well in advance (versus waiting until it’s too late to do anything about it). Talk to your carriers about your options and use your YMS and transportation management system (TMS) to come up with a plan to provides the best value at the right price.