Are rate issues actually capacity issues?

Alex Robertson

By Alex Robertson Business Development at King Solutions

shipping rate vs capacity issues

In a time when shippers are sandwiched between rising freight rates and consumer demands for more affordable shipping, rising costs are at the top of every supply chain manager’s mind. Rising carrier rates are rampant across the country, and although shipments are down – the Cass Freight Index in Q3 showed them decreasing from a high in May – freight expenditures are way up. Expenditures in Q3 of this year were 16.7% higher than they were last year, and have continued to increase for the past 23 months, meaning shippers are spending more with each successive month.

These rising rates are a major headache for businesses, but the tonic for rate issues is not necessarily convincing carriers to lower their rates. Understanding why both spot and contract rates are rising comes down to one major issue in the industry: capacity. 

Driver shortages + capacity issues = rising rates
While we wish the capacity crunch was just a breakfast cereal, the harsh reality is that rates are rising, and shippers are struggling to budget properly for them. The major rate issue boils down to supply and demand; there are fewer carriers on the road, creating a shortage of those willing to take certain loads, which inevitably increases prices for shippers. The American Trucker Association estimates that the industry will need 900,000 new commercial drivers within the next ten years, and 252,000 will be needed to handle the ongoing freight growth.

The issue of driver shortages isn’t going anywhere soon. Carrier companies are not expected to add enough drivers to counteract the effects of the capacity crunch, and additional pressures from ELD mandates and other compliance and safety regulations are threatening to take more drivers off the road. On top of regulations pushing drivers off the road, carriers are also struggling to retain drivers, and turnover rates continue to increase. This is clearly demonstrated by the major increase in driver pay, a clear sign that carriers are doing whatever they can to retain the necessary drivers needed to haul the available freight.

Solving the equation
While shippers can do very little about helping carriers increase their driver numbers, they can skirt the issue of capacity with better logistics management, particularly in the areas of partial truckload (PTL) consolidation and less than truckload shipping (LTL). PTL and LTL shipping help with one major area of the capacity crisis: reducing the number of shipments on the road as well as the stops carriers have to make. By consolidating carrier trailer space with freight from other businesses, shippers are sharing costs by sharing the (literal) load.

At King Solutions, we specialize in helping shippers with their PTL and LTL shipping. Our partial load optimization results in fewer shipments, less handling of freight, quicker times to market. When you work with our supply chain specialists, we handle everything from load to consolidation to route planning, carrier selection, rate negotiation and so much more.

Ready to talk solutions for your business? So are we. Give us call or send an email our way. Contact our team today.