The freight industry has been fraught with capacity constraints for the better part of two years now. And while many people automatically blame the pandemic for these issues, many of them were brewing years in advance. Essentially, a perfect storm has hit the industry with no sign of resolution any time soon.
Why Is Capacity So Tight?
While most people know that truckload freight capacity is tight right now, they likely don’t know why it’s this way. Essentially, cargo capacity is tight due to a combination of different exacerbating conditions that came together to create a perfect storm. Even though many of these conditions are related to the COVID-19pandemic, some of them are not.
Driver Shortage
One of the biggest reasons that freight capacity is so tight in the shipping industry right now is due to a driver shortage. Even though there was a driver shortage before the COVID-19 pandemic, the resulting growth in consumer demand made the existing issue even worse.
But why is there a truck driver shortage? The main cause is an aging workforce. 51% of truck drivers are over 45 years old, and 17% are over 55 years old. Many drivers are retiring in this aging workforce, and there aren’t enough younger drivers to replace them.
But why aren’t young people becoming truck drivers? To receive an Interstate Commercial Drivers License (CDL), you need to be over the age of 21. This leaves a three-year gap between graduating high school at the age of 18 and when you can become a truck driver at 21.
During these three years, many young people are forced to launch careers in other industries instead of launching a career in the freight industry.
Another demographic issue relates to gender as the industry struggles to recruit female drivers. In fact, women only make up 6% of commercial truck drivers despite the fact that they make up 47% of the nation’s workforce as a whole. The industry needs to work on recruiting younger people and women.
Changes in Regulations
On June 1st, 2020, the Federal Motor Carrier Safety Administration (FMCSA) revised the hours-of-service (HOS) requirements that carriers and drivers in the industry must follow. While many of these changes benefitted drivers, they have required carriers to make painful adjustments to how they manage capacity and truck utilization.
Here’s a quick outline of the changes made by the FMCSA that went into effect on September 29th, 2020:
- Expands the short-haul exception to 150 air miles and allows a 14-hour work shift to take place as part of the exception.
- Expands the driving window during adverse driving conditions by up to an additional two hours.
- Requires a break of at least 30 consecutive minutes after eight cumulative hours of driving time and allows an on-duty/not driving period to qualify as the required break.
- Modifies the sleeper berth exception to allow a driver to meet the 10-hour minimum off-duty requirement by spending at least seven hours of that period in the berth combined with a minimum off-duty period of at least two hours spent inside or outside the berth, provided the two-period totals at least ten hours.
Inventory and Supply Issues
The COVID-19 pandemic has created supply issues that span the entire world and impact almost every industry. For starters, the pandemic began in China, where over 90% of Fortune 1,000 companies have Tier 2 suppliers. As the pandemic continued and spread to other countries, more nationwide shutdowns occurred.
Factories were often seen as hotspots for the virus as they all involve large numbers of people working in close quarters indoors. So even if there wasn’t a nationwide shutdown, individual factories were often shut down due to outbreaks. Finally, staffing was an issue because even if people could work, they didn’t want to risk catching the virus at work.
Chip Shortage
While inventory and supply issues from the pandemic impacted all industries in one way or another, the tech industry was particularly affected. Specifically, computer chips have become extremely hard to come by. Not only does this affect computers, phones, and televisions, but it also affects cars.
Contrary to popular belief, the chip shortage wasn’t 100% caused by the pandemic. Instead, it stems from a number of different factors. Before the pandemic, the United States placed trade sanctions on China, which led to Chinese technology companies placing big orders for chips in anticipation of these upcoming sanctions.
At the same time, technology companies around the world were rolling out new 5G devices that all require chips — so it wasn’t just Chinese companies placing big orders it was also companies like Apple, Samsung, etc.
Finally, the global pandemic exacerbated these existing issues when factories shut down but demand for products with chips skyrocketed. Unfortunately, the automotive industry doesn’t get priority for chip orders, so this issue is likely to continue.
Fuel Prices
The last issue impacting freight capacity relates to gas prices. This is a more recent issue as gas prices hit record lows during the height of the pandemic when travel was very limited. However, travel has since rebounded, and gas prices have seen substantial increases.
For example, one year ago, the cost of one gallon of diesel fuel averaged around $2.420. Today, the national average sits at around $3.296. This represents a 36% increase in gas prices in just one year’s time.
Since gas makes up a huge portion of shipping expenses, it should come as no surprise that this has impacted the shipping industry.
Is It Getting Better?
Clearly, there are a lot of issues affecting the shipping industry right now that are constraining freight capacity. But is it getting any better? After all, most of these issues have been around for well over a year at this point, so have they run their course? Here’s what you need to know:
- The driver shortage isn’t getting better — it’s only getting worse as older drivers retire. In order to reverse course, companies need to incentivize working in this industry with higher pay and focus on recruiting minority groups to fill in the gaps.
- The new regulations implemented are generally good for the industry, but there are always growing pains to figure out along the way. As a result, it’s safe to say that these growing pains will continue to decrease to the point where companies are used to working within these new requirements.
- The inventory and supply issues are still extremely problematic. At a certain point, it seemed the pandemic was under control and production could increase to meet supply but variants have thrown a wrench into all of that progress. As a result, it’s hard to say whether or not inventory and supply are getting better.
- The chip shortage is not getting better and is predicted to be a problem for quite a while. Some experts say that it will last through 2022 and even into 2023. It will take time for production to ramp up enough to meet the demand for all of these different devices — with cars seemingly at the end of the list.
- The high gas prices may have peaked for now. After all, gas prices are always higher in the summer as people are traveling and “summer blends” are needed. That being said, don’t expect a dramatic drop in gas prices to early 2020 levels. Instead, expect diesel prices to remain steady at around $3.00 a gallon for the rest of the year.
How Lack of Capacity Strains the Supply Chain
Even though a lack of freight capacity has been caused by supply chain issues, it continues to negatively affect the supply chain even as it tries to recover. Take the chip shortage, for instance. The chip shortage was caused by high demand and not enough supply. Now that technology manufacturers are trying to produce more chips to meet this higher demand; more trucks are needed on the road to transport them.
However, the shipping industry is having trouble meeting this new demand because they also need these chips to operate. So the solution isn’t as simple as “putting more trucks on the road” or “hire more drivers.” Instead, our global supply chain seems locked in a vicious cycle of supply that cannot meet the demand for one reason or another.
What’s the Outlook?
Despite capacity constraints, freight shipping spend has reached record levels and shows no sign of slowing down. For instance, freight increased 10.1% from Q1 2021 to 233.6. As a result, companies are scrambling to increase capacity to meet these high demands. What this often leads to is bidding wars between companies who need shipping services.
How Does Capacity Affect Your Bottom Line?
The good news for freight is that companies are willing to spend top dollar on shipping costs for their products. In fact, freight carriers have only been able to accept about three-quarters of all the contract loads that shippers send out to them. This leads to carriers bringing in more money from their loads.
However, the bad news is that the shipping process isn’t necessarily easy. For instance, freight rates are higher because carriers are also dealing with higher gas costs that can cut into their bottom line. They may also have to pay drivers more money to get them onboard — which also cuts into the bottom line.
Conclusion
If you’re looking for a logistics provider that’s able to bypass capacity constraints thanks to an extensive network of more than 30,000 vetted carriers, then you need to consider RPM Freight. We offer services for both vehicles and freight that can cater to all industries. We handle thousands of shipments a day with a 98% on-time delivery rate.
Reach out to us today for a quote and to see how our truckload capacity can meet your shipping needs in such a challenging time.
Sources:
Understanding Capacity Constraints | Inbound Logistics
Hours of Service (HOS) | FMCSA
The Global Chip Shortage: What Caused It, How Long Will It Last? | Tech Republic
