Refrigerated Trucking Capacity Shortage: How to Avoid Sky-High Costs
Originally posted on Food Logistics on 7/12/21.
Here are a few key strategies that reefer shippers should keep in mind as refrigerated capacity continues to remain tight.
The summer is finally here. And, while generally that is welcome news for many, for manufacturers, shippers and freight procurement teams, summer usually means one thing -- a shortage of refrigerated trucking capacity.
Even in the best circumstances, finding available -- and budget-friendly -- refrigerated trucking options during the summer is a major pain point in freight. However, as the Coronavirus disease (COVID-19) pandemic continues to impact the logistics space, this year’s summer shipping season is presenting shippers and freight procurement professionals with a whole new batch of strategy, planning and cost challenges. For example, as the calendar ticked over to May, tender rejection for refrigerated capacity sat at a mind-boggling 41% -- setting the stage for one of the most hectic summer procurement periods in recent memory. Luckily, there are several steps that manufacturers and shippers can take to ease the refrigerated freight headaches they are likely to face over the next several months.
With that in mind, here are a few key strategies that reefer shippers should keep in mind as refrigerated capacity continues to remain tight.
Bring transportation under the COGS umbrella
The food and beverage sector has become strained with rising competition, thinner margins and increased customer demands. Therefore, many food and beverage manufacturers have been searching for ways to drive profitability, while reducing pass-along costs to the end customer. This has resulted in many manufacturers taking steps to find ways to reduce their cost of goods sold (COGS). Yet, for all of the efforts they are making in terms of COGS planning and strategy, they continue to leave out one of their biggest annual expenses from their COGS equation -- transportation.
Transportation is one of the biggest budget items each year for food and beverage manufacturers. However, instead of viewing it as part of COGS operations, many continue to silo off transportation, creating fragmentation and confusion when it comes to planning and managing costs as a result. By wrapping transportation into COGS strategy, food and beverage shippers can build a more holistic view of their entire operations, allowing them to gain better visibility into how freight procurement decisions are likely to impact other “traditional” COGS components and vice versa. Granted this may seem like a subtle tweak, but by making this strategic switch, shippers will be able to gain pivotal operational oversight that will prove to be indispensable during periods when freight capacity is tight.
Adopt dynamic freight procurement
With tender rejection rates sky-high for temperature-controlled freight, shippers are unfortunately faced with the undesirable situation of having to rely on brokers and the spot market and associated heightened fees and on-time delivery (OTD) unreliability. That is if they don’t have the tools in place to enable direct access to carriers typically blocked by brokers, which represent over 60% of total capacity on the roads today (millions of compliant trucks).
Technology has optimized the static freight procurement process making it dynamic. Shippers no longer need to wait for the static, systematic waterfall process to take place, which could take hours before a single load is accepted. Instead, they can automatically open compliant, out-of-network, asset-based capacity when needed most to speed up tender acceptance.
Break broker reliance
Arguably the foremost key to saving on refrigerated cost and efficiency is relatively simple – break up with your freight broker. Brokers have been sinking freight budgets for decades. Moreover, brokers are likely playing a significant role in inducing capacity bottlenecks as they gum-up the works in search of the best possible fees for themselves -- not their clients. This simply doesn’t need to be the case.
To combat this, shippers need to look at ways in which they can circumvent the broker market so that they can get access to the capacity they need as soon as they need it and at the best possible price. Thanks to innovations in artificial intelligence (AI) and other sophisticated technology, shippers can now directly access compliant, out-of-network, asset-based carriers themselves. With direct access, shippers gain capacity, truckload savings, stronger OTD and actionable rate data.
Simply put, the summer is always tough on refrigerated freight costs. But, just because the market may drive up procurement prices doesn’t mean that shippers should flush money away by relying on the unscrupulous broker market.
This summer looks to be one of the most hectic yet for refrigerated capacity. However, by taking these strategies into account, manufacturers and shippers cannot only drive success during the dog days of summer, but throughout the entire year as well.