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The Rising Costs of Freight

As if dealing with COVID-19 wasn’t enough, PROs are now facing yet another operational detour on the road to running their portable sanitation businesses. Freight costs are up. At times, the increases have been significant.

We’ve heard from PROs on this subject perhaps more than any other topic in recent history. It’s been upsetting and unsettling owners every time the bills come in. Industry sales representatives and regional sales managers of portable sanitation products, who are usually the business owners’ first and most trusted contact sources, have been on the receiving end of most of the concerned responses. Why have costs gone up? How long will it last? What can I do about it?

Although we can’t wish away the market pressures and circumstances that are driving the current rates, we want to provide a better understanding of the reasons behind the increases. With a more informed working knowledge of freight charges, you will be able to monitor the trends and prepare for the future. Importantly, it will help you communicate on a higher level with your sales reps, which gives them more information to help you.

It’s All About the Supply Chain

The ideal business relationship in the shipment of goods is for manufacturers to safely, securely and speedily deliver the portable sanitation products you need, when you need them, and in sufficient quantities to keep you well-stocked to meet the demands of your business.

The framework for shipping portable sanitation products (or any products) is called the supply chain. It’s a complex network of organizations, processes, modes of transportation and human effort involved in the manufacturing and delivery of a product. It’s not just putting stuff on a truck and driving it to you.

Your own routes are a supply chain on a mini scale. They involve planning which units go where, delivering on a certain day, cleaning on a schedule and providing specific supplies and amenities. Your supply chain, like the more sophisticated one that moves products nationally, involves proper loading and storage, documentation and tracking, experienced drivers and many other elements all working in unison.

Each component has a cost. Some of those costs you have little or no control over. When a cost at any point in the supply chain increases, it can cause additional, larger problems down the line. When costs rise in the short-term, a typical response is to absorb the additional costs and not pass them on to customers. But when the costs become a constant pressure, the business is left with no choice but to increase prices.

That’s where we’re at today.

There are many reasons that freight costs have ballooned, but we can summarize: too few drivers, a lot of freight, and COVID-19.

Driven Higher by Drivers

The U.S. has a shortage of truck drivers. Without the drivers, freight goes nowhere.

The American Transportation Research Institute (ATRI) has stated that a truck driver shortage has affected the shipping industry for decades. In 2017, the shortage was the top issue according to shippers. By early 2018, CNN Business was reporting on the “skyrocketing” increase in shipping costs due to lack of drivers.

Wages and benefits make truck driving a lucrative career, but it’s simply a hard job that requires a lot of hours on the road and away from home. ATRI noted that in 2014, while nearly 60% of drivers were baby boomers (ages 45+), less than 5% of the workforce was 21 to 24. Since you can’t be an interstate truck driver until the age of 21, many young people choose other careers by then. Also, not many women find the work appealing.

As a result, the baby boomers are now retiring and there are fewer and fewer of the younger generation to replace them.

Technology has also impacted the shortage. In 2019, use of electronic logging devices (ELDs) was fully implemented. ELDs enforce hours-of-service rules, cutting driving time. Next, the federal Drug and Alcohol Clearinghouse became operational in 2020. It’s an electronic database that identifies drivers who are prohibited from operating a CMV based on DOT drug and alcohol violations. It has taken thousands of drivers off the road.

Then, the pandemic struck. It motivated more drivers to retire. During the shutdown, many other drivers became unemployed and found other jobs. The pandemic also forced the closure of many truck driving schools, and those that have opened are graduating fewer students due to social distancing.

PROs know all about the difficulty of finding drivers! The trucking industry has increased salaries and benefits as incentives to hire, and that has greatly contributed to higher freight costs.

Carrying the Load

There are two kinds of risks that can disrupt the supply chain and cause freight rates to rise: predictable risk and unpredictable risk. Shippers are used to predictable risks, such as shipment delays, so they can be more easily managed. Predictability is key to smooth supply chain management.

The supply chain hates unpredictability. Perhaps the worst problem caused by the virus, as far as freight shipping is concerned, has been the sudden, unexpected changes to the system. As one expert put it, COVID-19 changed everything about freight, and it happened practically overnight.

Remember the toilet paper shortage? According to Fortune, by the end of March 2020, toilet paper was out of stock at 70% of online sellers and U.S. grocery stores. When the nationwide shutdown was announced and non-essential stores closed, there was a dramatic shift in the supply chain. Panic buying of staple goods spiked. Consumers who either didn’t want to go to stores or found supplies sold out began ordering more online.

In the meantime, consumers were still ordering non-essential goods, such as games and toys for their kids, and TVs and electronics for themselves, while they were stuck at home. Non-essentials and staples were competing against the need to deliver critical items such as PPE, ventilators and medical technology.

Even as the pandemic worsened, consumers still expected fast, free (or low-cost) shipping. This expectation (commonly known as the “Amazon Effect”) put more pressure on supply chain costs.

Because of the pandemic, passenger air flights practically ground to a halt. This is important because most freight shipping by air is in the cargo holds of passenger flights. With this sudden and dramatic loss of a major mode of freight transportation, shipping by truck took on the extra load, again affecting prices.

With the passing of several federal pandemic relief packages, money flowed from the government to businesses and consumers. Spending jumped, but in a different way. Out of caution and due to stay-at-home orders, consumers couldn’t travel, eat at restaurants or enjoy other entertainment. So, they spent more of their money on goods. The goods they bought were often heavier and bulkier, such as home office equipment and furniture, taking up cargo space and adding to costs.

Shipping companies were reporting that they could have more than doubled the amount of freight they were delivering if only they had more capacity (and more drivers). They had to turn to the “spot market” more often. Spot rates are one-time or occasional deliveries (done “on the spot”). Shippers prefer the “contract market” instead, where the rates are set for an agreed amount of time.

Using the spot market adds uncertainty to the supply chain because rates can change literally by the hour. They are almost always higher than more stable contract rates. By autumn 2020, spot rates were nearly 50% higher than at the same time in 2019, according to DAT Freight & Analytics.

However, when spot rates rise, usually so do contract rates – which they did. Contract rates rose throughout the second half of 2020, although much less than spot rates.

Keep in mind that all of this was taking place before the Christmas shopping season! Online Christmas shoppers continued to put freight haulers to the test, as retail sales increased more than 8%, and Amazon set new highs in sales and products shipped during the 2020 holiday season.

Finally, another factor in rising rates was the weather. Hurricanes and other severe weather throughout the year caused freight rate spikes due to factors such as road closures and other dangerous conditions.

Advice from the Reps

If it makes you feel better, it’s not just portable sanitation. Rising freight rates are affecting every company that ships. The question is, what can you do about it?

Besides your own knowledge and experience in dealing with your inventory needs, the most helpful resources you have are the sales reps or sales managers of the companies that manufacture the portable sanitation products you purchase regularly.

Establishing a long-term business relationship with reps, managers or the sales department can pay dividends throughout the course of your career – not just in times of stress but in helping your company grow as well. A good sales rep is the strong link between the manufacturer and the small business owner, combining familiarity with your needs with experience of shipping under many circumstances.

We asked some experienced industry reps to assess the current freight situation and make a few suggestions. The key is to communicate and work more closely with your sales rep while freight rates are high, but really, these are suggestions that can and should be used all the time to keep a tight lid on your shipping costs.

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Plan Ahead

The reps we spoke with really emphasized the importance of planning in meeting the ongoing challenge of higher freight costs. Many PROs consistently underplan.

First, let’s be clear about what we mean by planning. It’s not enough to simply order hand sanitizer when you’re running low, or order a few more units because you just took a few out of circulation.

Planning your orders means considering both current and future needs. It means taking a look at what you need at this moment while also seeing the “big picture” of your needs throughout the year. The ability to do this grows with the experience of running a business, working with a business budget, knowing your business plan, communicating with your customers, and understanding market conditions.

Proper planning takes into account two key factors: inventory and time. The goal is to have fewer, larger shipments, and give the orders plenty of lead time for them to arrive.

Time is Money

Reps advised that customers should make orders with clear “need-by” dates a priority. The more lead time given on orders, the greater the chance your sales rep can find affordable solutions. For example, your rep may be able to link your order with other orders to share loads that will save both companies money (see the LTLs section below).

Lead time is important because your rep will usually try to truck Monday through Friday. Shipping over the weekend can often lead to delays, and you don’t want your equipment sitting at a truck stop over the weekend where any number of problems can happen. However, let your rep know if you can receive orders on the weekend. It can be beneficial for the shipper to clear some cargo on the weekend and open up their capacity for the coming week.

Avoid rush deliveries. They have always been a more expensive option and will come at a much higher price tag now than in the past.

Maximize (Fill the Truck!)

As you plan ahead, the key is fewer, larger orders. Make the loads worth the freight by filling the truck. Otherwise, your shipping charges will be higher when the driver is pulling a lightly loaded trailer because you’ll be receiving less inventory for the shipping cost. Your sales rep should let you know when your order is a light load.

A good example is ordering a full truckload of units, say, 28 units instead of 14. This lowers your overall shipping cost per unit. Remember that the shipper can put holding tanks underneath units, and sinks, products and parts inside the units to maximize space.

Consider including a few unassembled units (“knockdown” units) in your order. One potential benefit is that your employees can build the units during slow times to fill their weekly hours.

LTLs (Load Linking/Load Sharing)

Less-than-truckload freight shipping (LTL) may be a cost-saver when your order doesn’t require the use of an entire trailer. When shipping LTL, several customers’ freights are all shipped in the same trailer. You pay for only the portion of the trailer that your freight uses.

Ask your rep if there are any other customers that are ordering LTL loads at the time you plan to order and coordinate to make it a full load and share the cost. It’s important to be able to give your rep enough lead time to receive your LTL order so it can be matched with other customers’ orders.

Evaluate Customer Pickup Option

Usually, picking up your own freight is not a cost-effective solution. Shippers have the resources to haul large loads and ship efficiently, and your time is valuable. Pickup may be worthwhile if you are close to a distribution center, can spare the time and have sufficient hauling capability.

A Look Ahead

The pandemic continues to affect shipping in 2021, but we maintain an optimistic attitude. The distribution of the COVID-19 vaccines and another round of stimulus will be important influences on our society’s return to “normal.”

As reported in JOC.com, logistics experts appearing at the 2020 Transplace Shipper Symposium noted that shipping faces another six to 12 months of uncertainty as supply chains continue to face disruptions from COVID-19 and other factors. However, they predicted that freight demand and truck rates in the U.S. will moderate in 2021.

During this still-uncertain time, we know how difficult it can be to look ahead even as far as summer since it’s still hard to gauge exactly how the public will be responding in 2021. For additional guidance, read Sustaining Business During Winter and Beyond in the Time of COVID-19.

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