reversal of fortune

(This is part three of a three-part series. Read parts one and two.)

When the going gets tough, the tough get ... creative. At least that appears to be the case with America's supply chain managers as they face what amounts to a crisis in trucking. Not that they have much choice. After 25 years of what could best be described as a buyer's market where transportation services were concerned, the tables have turned. As a result of rampant industry consolidation and a driver shortage, the once plentiful supply of trucks has dried up.

For shippers, that's a crisis indeed. Managers long accustomed to simply picking up the phone and hiring a truck are learning it's not so simple anymore. First, they have to locate a carrier that actually has capacity—no easy task. And even if they manage to find a truck, they still have to persuade the trucker to take their freight. With demand for trucks far outstripping supply, the carriers that are still around can afford to be downright choosy about whose freight they'll accept.

That's left shippers scrambling to make their business more attractive to carriers. No longer are they letting invoices gather dust on a corner of their desks; the smart ones, at least, are paying bills promptly. And they're making a serious effort to minimize freight claims (which can be as simple as changing loading procedures).

But beyond those obvious steps, shippers have come up with increasingly creative ways to make their operations more carrier-friendly. They're shipping more loads on pallets, hiring "lumpers" and launching incentive programs. They're rerouting truck traffic around their facilities to eliminate traffic snarls, and they're investing in software. They're also re-evaluating the modes of transport and the carriers they use.

To learn more about how the nation's supply chain managers are responding to the crunch, the Warehousing Education and Research Council (WERC) conducted an online survey of both WERC members and DC VELOCITY readers late last spring. By the time the survey's cutoff date rolled around, managers from 722 companies, representing more than 10 percent of all distribution facilities in the major markets in the country, had responded, giving us a detailed picture of the actions they've taken. What follows is a summary of what they said.

FIGURE 1
How have you dealt with the shortage of trucks?
Change	Percentage of respondents
Changed to intermodal	27.8
Added carriers to approved list	66.0
Changed carriers	55.0
Considering adding private fleet	10.0

FIGURE 2
What have you done to increase DC turn time?
Change	Percentage of respondents
Added trailer dock area	24.8
Changed shipping schedule	47.0
Increased warehouse staff	16.8
Added truck doors	7.8
Added drop-and-hook system	20.0
Changed operating schedule	39.0
Added staging areas	27.0
Added more areas for trailer drops	18.0

A closer look at carriers
The obvious response to a shortage of suppliers, of course, is to cast a wider net. And so, in a reversal of a longtime trend, shippers that once consolidated their business with a few core carriers are now actively soliciting new haulers. About two-thirds of the respondents said their companies had added carriers to their approved list. (See Figure 1.) As one of the executives remarked, "I just needed more trucking options."

Others have changed carriers. More than half of the respondents said they had revised the slate of carriers they used. And in some cases, they have turned to brokers as a way of expanding their carrier base.

Still others apparently have decided to take matters into their own hands. About 10 percent of the respondents said they were considering starting up their own private fleet. One manufacturer described his company's strategy as adding "pop-up fleets" in areas where service was inadequate.

And more than a quarter have actually changed transport modes, shifting freight from trucks to intermodal truck/rail transport. A full 27.8 percent of the respondents said they had switched to intermodal transport, an account that's consistent with the large increase in intermodal traffic reported by the nation's railroads.

Catering to carriers
For those sticking with truck transport (at least for now), the capacity crisis has evidently sparked a review of their internal operations. Almost half of the survey respondents reported that they had modified their shipping/receiving procedures to increase turn time at the DC, thus making their operations more carrier-friendly. Many respondents, for example, have expanded their shipping hours to give their carriers more flexibility in their routing even if it meant adding a second shipping and receiving shift.

While some have added (or reassigned) personnel to accommodate a second shift, others have invested in equipment. About one-fifth of the respondents said they had established a drop-and-hook system for truckload carriers, which allows carriers to drop off a trailer for loading or unloading at the shipper's convenience, hook up a new one and be on their way. Although this eliminates the dwell time problem for carriers, it often requires the shipper to buy extra trailers. Still, some have apparently decided it's worth the cost.

As further evidence of shippers' commitment to improving efficiency, many of the respondents said they had made physical alterations to their facilities, such as reconfiguring their space to expand their product and/or trailer staging areas. Some even said they had enlarged their DCs and yards, adding staging areas, trailer drop areas or dock doors, a strong indication that they do not consider this to be a short-term problem.

Curiously, despite their ambitious expansionary plans, companies remain reluctant to hire more workers. Although about 30 percent said they had added inventory and 39 percent had changed their operating schedules, only 16.8 percent said they had expanded their warehouse staffs. (See Figure 2.)

Attitude adjustment
Respondents have used their ingenuity to come up with still other creative ways to ease the crunch. Some, like Limited Brands Logistics Services (see preceding story), have sought out a non-competing user that needs transport at a different season (or in a reciprocal place) in hopes of creating a mutually beneficial collaboration. This type of opportunity is obvious if you look; most are not looking.

Others have attempted to ease the problem by collaborating more closely with their carriers. They've set up regular meetings at which they share forecasts or work out problems.

But what's also clear is that even as they fine-tune their operations, the survey respondents are also hedging their bets. Almost 30 percent are doing what was once unthinkable: increasing inventories. For years, one of the primary goals of U.S. business has been to reduce inventories. But now those same companies that eagerly embraced Quick Replenishment and Efficient Consumer Response programs are abandoning those initiatives. Instead, they're stockpiling inventories to offset transportation service deficiencies—a trend that's reflected in the national inventory statistics.

As for the future, it appears that the survey respondents aren't expecting relief anytime soon. More than half of the respondents (53 percent) said they didn't expect to see much improvement over the next year. Indeed, those on the most pessimistic—or perhaps, realistic—end of the spectrum are convinced that the scarcity problem is here to stay. It may not be pretty, they say, but it's logistics' new reality.