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To say that the land transportation sector has changed dramatically over the last two years would be a major understatement. Between the truck driver shortage, lack of equipment and the persistent capacity crunch, shippers are now dealing with a very different environment than the one they were working with pre-pandemic.
“The driver shortage has been the biggest challenge by far,” said Rob Segsworth, Vice President/Head of Land at DB Schenker Canada. The proof is in the numbers: According to the Canadian Trucking Association, there are currently 23,000 vacant driver positions in Canada. And, the American Trucking Association (ATA) says that number exceeds 80,000 in the US.
“There’s a huge vacancy rate and it’s the second-highest for any industry in North America right now,” said Segsworth. Unfortunately, this isn’t the only pain point that land transportation providers and users are dealing with right now. Throw in the increased demand for commercial goods, for instance, and you wind up with an inequity of balance between loads available versus truck capacity available.
“These factors have created a polar shift in a market that at one point was fairly competitive,” said Segsworth, “and that has since experienced a complete 180-degree shift, where now shippers have to compete for capacity because there’s more freight than there are trucks to go around.”
A Simple Economic Equation
The current land transport environment is being driven in part by a very simple economic concept: the law of supply and demand. It states that the price of a commodity (in this case, trucking capacity) is determined by the interaction of supply and demand in a market. When demand is high and availability is scarce, prices go up and capacity is harder to find. The opposite is true when supply is plentiful and demand wanes.
Right now, the driver or shortage and the disparity between the number of loads that need to move and the trucks available to transport them are a consistent force that’s driving up rates and making life difficult for shippers that need to get their goods from point A to point B. “It’s a simple economic equation; demand is exceeding supply,” said Segsworth. “Who ends up paying the price in the end? The consumer does.”
And while there is a short transition period where shippers, carriers, distributors and manufacturers absorb the added costs, it does subsequently trickle down to the end consumer. We’re already seeing this happen across numerous product categories—from cars to detergent to fresh produce.
Riding the Storm Out
To help its customers better manage these fluctuations and keep prices affordable for their end consumers, DB Schenker has worked to keep its contracted rates to single-digit increases over the last 12 months. This has been a major accomplishment considering that contracted rates are up 11% year-over-year and spot quote rates have increased by 30% or more over the last 12 months.
“We’re protecting our existing customers by keeping their transportation rate increases well below inflationary levels,” said Segsworth. “Most carriers and logistics providers have not been able to do the same for their existing customers.”
By working with its established network of partner carriers, DB Schenker has effectively limited the cost increases in 2022 to single-digit percentage points of 5% or less. “Our carrier network respects the relationship that we’ve built with them and has built a capacity around our customer base and our needs,” Segsworth explained. “They’ve also planned their supply chains and modeled around those needs.”
With its large, global logistics footprint, DB Schenker also represents a substantial portion of its carrier partners’ own business, and as such is definitely worth maintaining. DB Schenker also has access to multiple different carriers and can make last-minute changes and tap into alternative sources when plans change.
“If carrier A doesn’t want to mitigate the pricing from the market shift perspective, and if it doesn’t want to make capacity available at contract rate levels, we have carriers B, C and D available to support us and our customers,” Segsworth said. “That’s an important advantage for our existing customer base.”
Leveraging the Buying Power
Given the capacity constraints in the trucking market right now, Segsworth tells companies facing challenges in this area to carefully assess how much time and effort is being funneled into finding capacity, negotiating and monitoring transportation. These manhours and resources could all be put to better use by offloading the responsibility to a reliable logistics provider.
“Let a partner like DB Schenker do that work for you. We’ll manage all of the different carriers in our portfolio to find the right match from a lane, commodity and equipment perspective,” Segsworth recommends. “We’ll ease the burden from an administrative perspective and you’ll maintain price competitiveness thanks to the buying power that we have within our network.”