Freight ‘Costs Must Go Up’ – How to Mitigate Freight Price Increases
What does next year, heralding the coming decade, and almost upon us, have in store for the transport industry? What factors will influence carrier pricing?
Truck Driver Recruitment and Safety Issues
In a previous article, (about a year ago), on how shippers can attract quality carriers we wrote about a skills shortage for drivers in the Australian transportation industry and the impact of safety laws. In a recent article in The Age, ‘Costs must go up: Freight companies warn of looming truckie shortage which highlights that, of the 60 public submissions made to a Senate committee reviewing safety and efficiency in Australia’s road transport sector, we can see that these issues are set to grow even more relevant in the coming years.
In an aging workforce, we face difficulties training and recruiting for the 220,000 jobs that will be needed in this industry over the first half of the 2020’s.
Couple that with the finding that ‘women and workers from a variety of backgrounds’ shun jobs in the transport industry because of a perceived unwelcoming environment and the industry will have its job cut out trying to source, train and manage the gap of drivers vs. deliveries.
Transport Safety
The unattractiveness of the sector with regard to safety was a factor in the growing recruitment problem. This then is compounded as, with not enough drivers for the workload would potentially lead to further issues with safety.
Better policies, infrastructure and technologies are needed to combat this and hopefully the need will be met. However, meeting these needs will come at a cost, and whilst funding might be found through the ongoing governmental reports, presumably there is reason to believe some of those costs will be shouldered by the transport companies, which will be passed on to the shippers and on to the consumer.
Fuel Price Increases
The Australian recently wrote of a proposed hike to the Road User Charge on Diesel fuel that may be as much as 11.8% over three years. If this comes to pass SME trucking companies will find this difficult to swallow. Fuel costs are only second to wages for carriers. In order to accommodate this, they will have to increase their costs; obviously with regard to fuel surcharges but perhaps it will influence other rate pricing structures as well.
Edit: Since posting this a new article has been written up in The Australian that the government has backed down from an 11.8% increase over three years to a 5% increase over two years. Nonetheless, key transport figures are still saying this cost increase will hurt and must be passed on.
Carrier Surcharges Increases
Most, if not all, will assume prices will go up. Everyone who works in a logistics department is familiar with the dreaded yearly percentage increase on prices letter from their carriers, and, with the periodic change to fuel surcharges.
Recently, with the rise of omni channel logistics, we’ve had added complexity with surcharges to contend with as well. The trend has led to more detailed and increased redelivery and residential surcharges, for example, as the rise of online retail leads to difficulties with last mile delivery and more B2C deliveries. Couple this with the customer demand to have free deliveries and shippers must closely track this cost to their business.
Carriers have increased the automation capabilities of their warehouses with robotics and conveyancing systems, which has led in recent years to an increase in materials handling surcharges. There has been a rise in unloading surcharges as receivers may not have forklifts etc. to handling deliveries.
It’s great to see the carriers and 3PLs working to accommodate the changing needs, upgrading their technology. However, if you cannot easily fit in with automation you will pay.
So, the pressure is on for retailers, shippers, and distributors to ensure, first of all, that they have visibility on their costs, and secondly, that they audit their freight operational processes to ensure that they can adjust to limit the impact these changes in the industry might have from both a pricing and service perspective.
Carrier Data Smarts
No doubt some carriers will struggle with these pressures, but others will rise to the occasion and work to moderate the impact of these price rises within their industry. As shippers become smarter with their technological capabilities, so too do carriers. And with these issues breathing down their necks they will no doubt redouble their efforts to gain visibility on their costs so that they can safeguard their margins and stay afloat.
It’s in everyone’s best interests that they do. Transport represents about 5% GDP in Australia and is a crucial part of many industries. We all need a win-win where transport companies are fairly compensated for their services, yet shippers can remain competitive.
We’ve written before about carriers wanting clean data to assist with rates creation for new customers. This trend of analysis of margin protection, customer freight cost activity will probably spread beyond the first and second tier carriers to encompasses a broader swathe of the trucking industry.
How Can Shippers Mitigate these Predicted Freight Cost Increases?
Shippers will need to up their own game when it comes to data-driven freight management. Owning their own freight data, having complete visibility of their true transport costs, (not guesstimates), to ensure that they are optimising their warehouse and dispatching processes and are operating as leanly and efficiently as possible; selecting the least cost carrier for each consignment, consolidating consignment costs, and designing a tailored distribution solution that best matches their freight profile.
In order to be a balance to the potential price increases shippers will need to remain vigilant in analysing their freight data and stand ready to adjust their distribution network and warehouse operation, freight, and customer services processes accordingly.
If you are looking for assistance with incorporating freight data smarts to your organisation in order to optimise your freight spend, please contact us to discuss.