2020 will be remembered as a year of constant challenges and transportation was no exception.
The Western Growers Transportation Program Team and experts from C. H. Robinson answer the most common member questions regarding the 2020 transportation market and what we can expect in 2021:
Q. Transportation rates have been extremely high in recent months. Why?
A. Despite the impact of the COVID-19 virus, the U.S. economy has essentially rebounded to 2019 levels. However, many carriers had reduced capacity earlier in the year. Truckers also had to drive more deadhead miles to pick up westbound loads due to reductions or shutdowns in processing and manufacturing. This increased cycle times for equipment returning to the West Coast for produce loading. In addition, the volume of products imported from Asia has drastically increased as retailers restocked for the holidays and built inventories in anticipation of a return to normal purchasing behavior during 2021. Those products are shipped in steamship containers which usually move via rail from west coast ports to final destinations. The railroads have not been able to handle this volume in a timely manner, so many importers are unloading containers in the port areas and using trucks to move this freight. Less equipment, longer roundtrip cycle times and strong demand equal high rates.
Q. How long do you think this situation will last?
A. We think high rates will probably last into the first quarter of 2021 and that the market will return to normal levels by midyear. Motor carriers have ordered large quantities of new equipment and some of that supply will be entering the market during the 2nd quarter. In addition, as COVID-19 vaccinations become widespread, manufacturing and processing operations will gradually return to normal and truck cycle times will decrease. Imports from Asia will likely slow down post-holiday and as inventories reach normal levels.
Q. I had contract rate arrangements with several motor carriers. Most of them are not fulfilling their agreements and are turning back freight. How do I make them live up to their commitments?
A. You’re not alone. The nationwide contract carrier load rejection rate is around 50%, meaning, one out of 2 contract loads are not being accepted. Some of those rejections are due to equipment and driver shortages and some of them are due to the lure of higher spot market rates. In the short term, there isn’t much you can do. But when the market returns to normal – and it will – carriers are going to be looking for business and you should be in a position to take corrective action. If your carriers do not have legitimate reasons for not honoring their contracts, find other vendors. Trucking is highly fragmented and numerous carriers will be interested in your business. The balance you have to strike is providing enough volume to each carrier to make you a valuable account and spreading your risk by having enough carriers. With respect to carrier selection, the mistake most shippers make is having too many carriers. Managing multiple relationships is inefficient and time-consuming and the lower volumes allocated to each carrier will limit their profitability. It is also recommended that you create a relationship with a 3rd party logistics company to further hedge your risk. Finally, take a look at your operating practices to ensure that you are not creating a reason for truckers to turn down your business. Long wait times for loading and frequent last-minute load changes are the leading factors in that decision.
Q. Should I refuse to sell on delivered terms during this difficult market?
A. In our highly competitive business, refusing to sell is a significant gamble. The vast majority of your customers consider the ability of a shipper to provide well-executed transportation a value-added service. That could be the difference in getting the next purchase order. Be sure to set realistic service expectations and proactively communicate any delays or problems. Feel free to reach out to the Western Growers Transportation Program for information on current market conditions.
Q. Is intermodal a viable alternative with respect to cost, service and equipment availability?
A. It is regarding certain service corridors, although intermodal carriers are currently experiencing the same elevated demand as motor carriers and are pricing accordingly. It is unlikely that intermodal service will provide any cost relief at present. However, when you are reviewing your carrier base in 2021, you should consider providing a refrigerated intermodal carrier with a steady volume in a specific service lane as a further carrier risk hedge. Carefully consider the service parameters offered by the carrier before making any commitments.
Q. I don’t have any contracts with motor carriers and sell delivered only on occasion. If a customer wants me to take care of transportation arrangements in the current difficult environment, what do I do?
A. Leverage the features of the Western Growers Transportation Program. Use C. H. Robinson’s Navisphere 2.0 software which guarantees capacity for infrequent orders on one easy to use platform. Also use C. H. Robinson’s FreightQuote, which provides real-time cost of capacity and order execution.
Q. What else should shippers do to improve their transportation strategy in 2021?
A. Take advantage of C.H. Robinson’s analytics suite, Navisphere Insight and consultative capabilities to figure out your freight lanes, shipping patterns and carrier requirements. Use it to develop your RFP process, an automated route guide and carrier performance data. Call John Stenderup at 831.392.5498 to learn about Navisphere 2.0, FreightQuote, Navisphere Insight and other tools that will enable you to implement a successful 2021 transportation strategy.
Click here for more information on the Western Growers Transportation Program. For additional information, contact Kim Sherman, WG senior director of membership, at (949) 885-2265.