Transportation is shifting – and manufacturers must pay attention. In this Supply Chain Byte, Lisa Anderson discusses what is happening across trucking, package shipping and ocean freight – and why understanding demand and supply dynamics within transportation is critical to maintaining profitability and success.
Transportation capacity is tightening. In addition to carrier attrition, bankruptcies, and regulatory enforcement increasing, there is a seasonal softening after the holiday. The supply of class 8 trucks is down and the drivers with certified driver’s licenses (CDL) is down by almost 20% vs last year. Thus, supply is down. Since demand is not down commensurately, truckload rates have been increasing.
In package shipping, UPS and FedEx have increased rates by around 6% on average. They have mainly focused on transportation charges, accessorial charges, and additional handling and oversize increases. To increase service over the holidays, there was additional capacity added of independent carriers. UPS and FedEx have been losing market share to big retailers, private delivery networks, and regional couriers. Thus, supply has expanded, and since parcel overall has grown steadily, demand has also expanded, largely keeping demand and supply intact.
In ocean freight, demand has been greater than supply although was expected to cool in March with after the buildup for the Chinese New Year. Rates were expected to ease as the Suez Canal chokepoint eases, a record number of new vessels are on the orderbooks (1000 ships) and demand softened post Lunar New Year. However, geopolitical risks such as the war in the Middle East could create volatility. Certainly, if the backup at the Strait of Hormuz isn’t resolved near-term, ocean freight will be impacted.
The key is to keep demand and supply aligned. Consider rolling out an AI-enabled SIOP (Sales Inventory Operations Planning) process to proactively navigate demand and supply changes, dynamically optimize routes, and reallocate sourcing and routes as needed. To learn more about how to roll out SIOP to better navigate demand and supply changes, download our eBook, SIOP: Creating Predictable Revenue and EBITDA Growth.
If you are interested in reading more on this topic:
Smarter Logistics, Stronger Supply Chains