How the 2018 Transportation Crisis Affected Middle Market Businesses

The economic boom in America over the last several years has created jobs, boosted consumer spending, and driven up profits for local and global businesses. However, working quietly in the background is a transportation crisis that’s coming to a head, and almost no industry will be exempt from its consequences.

Though the 2018 transportation crisis went largely unnoticed until recently, its affects are being felt very seriously. Businesses are struggling to absorb rising transportation costs and deal with increasing service issues that result in dissatisfied clients and consumers. And what it comes down to is this:

“In today’s world there’s greater demand for transportation services than there is available transportation providers and equipment to provide those services,” says Philip Franz, Vice President of Supply Chain and Operations at FortéOne. “It’s the perfect storm.”

What is the 2018 transportation crisis?

In the late 1970s, the rail, airline, and trucking industries were de-regulated, meaning that carriers can set whatever price they want at any time. Pricing is decided based on supply and demand, and during the 2008 economic crisis, businesses were able to take advantage of low transportation costs. However, when the economy turned, consumers started buying more goods and the transportation industry couldn’t transport the goods fast enough, putting pressure on an already stressed system.

“The transportation crisis not only affects businesses selling to end-users, but it affects B2B companies who are selling parts to manufacturers,” explains Franz. “Because shipments of goods are delayed, manufacturers don’t have the supplies needed to create the end product. Businesses across the board are losing customers and experiencing layoffs because they can’t keep production moving or keep up with the rising shipping costs.”

Franz notes that as long as the economy holds up, the problem will get worse.

What factors contributed to the crisis?

The 2018 transportation crisis is a convergence of many issues. While there are a number of contributing factors, three are particularly responsible: a shortage of qualified workers, a shortage of equipment, and new tariffs and trade regulations.

As older generations of truck drivers, train crews, and loading dock personnel age out, they’re not being replaced by a new generation of qualified workers. The result is that the transportation industry lacks the people to get goods transported and unloaded in a timely manner.

“Studies show that millennials don’t want to be truck drivers,” says Franz. “Despite massive signing bonuses, they don’t believe a career in transportation is wise, and the industry is left with hundreds of thousands of open jobs.”

The lack of trailers, trucks, train cars, airplanes, and good tracks for trains has also been a looming problem. Manufacturers can’t make trucks and train cars fast enough to meet customer demands.

Finally, new tariffs and trade regulations have caused a spike in orders of both raw goods and consumer products from countries like China. So many consumers and businesses tried purchasing goods before the regulations went into place that the Port of Long Beach California has been shut down because they’re at capacity and can no longer accept additional containers.

“Shipments from China by boat used to take roughly 30 to 65 days to arrive,” noted Franz. “Because ports are closing and ships are scarce, those same shipments now take 90 to 100 days, and businesses are hurting.”

What does this mean for middle market businesses today?

Though the crisis hit in late 2018, we’re far from seeing the end of its effects. Transportation costs will continue to rise, and delays will diminish the quality of service. Businesses will struggle to cover transportation costs and they’ll feel the wrath of dissatisfied customers who haven’t received their goods, parts, or products.

The problem becomes worse for middle market businesses. Many of these businesses are purchasing transportation on an as-needed basis, but this model allows for serious pricing fluctuations from week to week.

“You may ship the exact same load, to and from the same locations, but the pricing will double from One week to the next,” states Franz. “And that fluctuation is on top of historically high transportation costs.”

Needless to say, these increased costs will have a huge impact on the bottom line. In order to survive, middle market businesses will need to move from a more passive, transactional approach to a more strategic approach that scrutinizes transportation costs and relies on contracts with suppliers to control pricing.

How can FortéOne help?

FortéOne has been helping middle market companies address their transportation service and cost challenges for almost two decades. We pull and analyze data surrounding your shipping costs to determine where you can cut costs or become more strategic with your spending. We help you determine whether it’s prudent to outsource your transportation needs to a logistics company, streamline your in-house systems, or rely on a hybrid of the two.

We then help you sign and negotiate contracts with carriers to ensure you’re getting a fair rate, and we’ll help get your money back from carriers that charged unwarranted noncompliance or detention fees.

Once you’re ready to take action, we carefully vet carriers to make sure you’re getting a trusted partner and help onboard any new carriers or employees in your logistics department. FortéOne will also help restructure your pricing model so you can pass increased shipping costs on to your customers without losing your customer base.

We’ve only seen the beginning of the 2018 transportation crisis, and rising shipping costs will continue to be coupled with poor service in the near future. Middle market businesses will be hit hard, so don’t assume you’re stuck with the old methods of thinking. Contact us to see how you can go from passive to strategic planning and save 10-20 percent on your transportation costs.

 

Contributor: Philip Franz