3PL Perspectives
Ashley Caloia | Knichel Logistics
“I have never seen a market like this in my entire career,” said Kristy Knichel, CEO of Knichel Logistics, summing up the freight market for 2018. Coming from someone with 25 years’ experience in the industry, this speaks volumes. With that in mind, expect these current market conditions to continue well into 2019 and potentially beyond.
Railroads Are Operating at Peak Capacity
The Union Pacific Railroad has stated they were experiencing higher freight volumes in June of this year than they were in the height of the 2017 peak season, strongly indicating that we are already well into a much-earlier-than-usual peak season.
Their contractual market is booked up, meaning that Union Pacific will not entertain any new business due to being over capacity. For their part, the railroad has added 3,500 new steel EMP boxes and 2,850 chassis to help alleviate the upcoming fourth quarter crush. However, the adding of new boxes alone will not help fluidity. They are also attempting to add crews and train power, yet we anticipate there will be little relief felt during the fourth quarter despite these efforts.
Currently, there is a surge out of Los Angeles and Northern California that will continue to rise. The surge surcharge will likely go into effect soon for other contracts. However, there is no definitive date, nor do we know what the amount will be. Union Pacific has stated it will likely be putting surge surcharges in place for contractual customers shipping above their normal volumes going forward. Those impacted will be contacted with more information. If you are not under contract, then it should be noted (if not already known) that you will be paying high spot/transactional rates.
In order to get through the peak-season capacity crunch, decreasing dwell time is key. Customers will need to modify previous behaviors by being flexible with appointment times and moving to live loading and unloading. Providing more lead time to find capacity to book loads is also crucial. At present, at least two days notification is required. Also bear in mind that capacity dips on Fridays due to some carriers not operating.
An Eye on Contract Compliance
An important item to note regarding contracts is that the rails are very closely monitoring volume compliance. They are tracking volume on a weekly basis – something else that has not been done at this level prior to this year. Any customers falling below 75 percent on their committed volume are being monitored with the intention of cancelling contracts due to non-compliance. The railroads are already starting to cancel contracts that are well below compliance and will likely become more stringent when it comes to defining what constitutes non-compliance. This would push more customers to a transactional model which is much costlier for the customer and more profitable for the railroads.
The market is also dictating that storage and per diem charges will increase, so be prepared. Several markets for spot pricing have already been blacked out and more are expected to follow as capacity tightens around the country. Intermodal capacity is more than just securing a box! It’s a driver, a chassis, the terminal, and the train all combined. All of these separate entities need to be coordinated and running smoothly to keep delays to a minimum.
Tips for Surviving Peak Season
Reduce dwell times by making sure dropped containers are filled and turned in a timely manner.
- Do not cancel your shipments at the last minute.
- Create efficient street turns by not letting boxes sit at shippers or consignees.
- Block and brace properly! Incidents can cause equipment damage, increase shipper costs, delay transits, and can lead to derailments.
- Be a shipper of choice and be flexible with appointment times; give ample time (at least two days) to secure capacity, reduce wait times at your docks, and be kind to your drivers. Allowing them to park at your facility, use the restrooms, and providing something as simple as water can go a long way in making a carrier choose to repeat business. Being a driver is a very hard job!
Highway – High Rates, Low Capacity
On the truckload side, rates are nearly as high as they were in January with some cross-country loads moving at rates as high as $10K. It is incredibly difficult to find and hold onto trucks in this market. A word of advice for customers trying to secure truckload capacity – give as much info as you can up front, and be quick to make a decision. Carriers don’t really lock down rates and they won’t wait for your load, so if you have a target price or a limit, it is in your interest to let us know.
Also keep in mind that since the ELD mandate went into effect, drivers have decreased from an average of 550 miles to 450 miles per day. Something as seemingly non-consequential as having morning receiving hours can cause a carrier to reject a load due to inconvenience. They are definitely not having issues finding freight. Be flexible in order to secure capacity and be a shipper of choice.
This is definitely the toughest market any of us have dealt with to date. We are seeing rates fluctuating on a weekly basis. However, we will get through this by working together. The best way to do so is by being transparent with one another and creating true partnerships. The more we know about your needs, the better prepared we can be to find the solutions you want. In this market, more than ever, time is critical. Between the time it takes to make a phone call and get a decision, a carrier may have already booked a load with someone else.
Ashley Caloia is Marketing Coordinator with Knichel Logistics, located in Gibsonia, PA. She may be reached at [email protected]
