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There’s no doubt about it: When it comes to transportation, economic fluctuations have had a huge impact. Within a decade, the logistics industry has done a 180—ten years ago, an overabundance of trucks and drivers vied for companies’ precious cargo by offering competitive pricing; today, a smaller number of transportation companies find themselves hard-pressed to meet their commitments, despite considerable rate increases.
It’s a simple matter of supply and demand. The recession took its toll on the logistics industry, driving thousands of trucking companies out of business. Now that the economy is on the rebound, the gap left by extinct carriers is tangible. With a significant shortage of both trucks and drivers, the market naturally answers to the highest bidder. So how can you keep your products moving and still control costs in this challenging scenario?
RATES ALONE WON’T CUT IT
When it comes to transportation, substantial cost reduction incorporates two important components: rate reduction and process improvements. For many companies, the emphasis has been placed primarily on rate reduction, which remains important. However, having the right logistics framework in place is just as effective, if not more so, for managing transportation costs.
Even skilled rate negotiators, who in years past expertly bargained for the best deals, aren’t able to produce the same results in the current environment. Today’s marketplace is conspiring against them, and carriers now undoubtedly have the upper hand. According to Forbes, private U.S. trucking companies posted their fourth year of higher sales in 2013 with net margins averaging 6 percent, compared with 3 and 4 percent in recent years. In fact, the trucking industry’s outlook is so peachy and the driver shortage so severe that drivers are being snatched from school before getting their certification, while trucking companies are resorting to incentives in order to lure enough drivers to keep their fleets on the road. So unless an organization is planning to launch its own trucking division, it might be time to start considering other viable ways to improve the shipping process besides just benchmarking freight rates.