Shippers Push Logistics Firms to Help Offset Transport Costs

This story appears in the Nov. 17 print edition of Transport Topics.

A tightening market for truck capacity and longer transit times for rail shipments are putting pressure on logistics companies to help shippers manage the movement of goods and to offset the rising cost of transportation.

Everyone from automakers to apple growers is facing the prospect of paying more to ship goods as demand for freight hauling outstrips the ability of carriers to provide service, according to executives interviewed for the 2014 Transport Topics Top 50 Logistics Companies publication.

“Truck capacity is finite right now,” said Jeff Grahovec, manager of land transportation for APL Logistics. “The supply chain is completely backed up.”

The situation is forcing carriers and shippers to make adjustments and is driving demand for logistics services, executives said.

For example, rail delays are forcing automakers to move deliveries of finished vehicles from railroads to trucks as railroads contend with surging demand for railcars to haul crude oil and other bulk commodities.

Similarly, in the Pacific Northwest, apple growers are scrambling to find trucks to handle a bumper crop after cancellation of an intermodal train service on the heavily trafficked northern route of BNSF Railway.

As a result, more freight is being pushed to the spot market, where freight is matched with available haulers.

Economist Rosalyn Wilson said last week that capacity constraints will create widespread turmoil in the months ahead.

“A lot has changed in the past six months,” she said, including the acceleration in freight shipments and market dislocations that have plagued all transport modes.

Wilson, who works for consulting firm Parsons, is the author of the annual State of Logistics report.

On the positive side, she said freight shipments have risen 11.2% in the first 10 months of the year. She based her information on Cass Information Systems’ monthly freight report.

“2014 will be the best year we have experienced in the last eight years” because freight industry dynamics such as shipments have improved, Wilson said.

She also noted that consumer confidence increased to a seven-year high in October as fuel prices dropped and the labor market improved.

Meanwhile, rail shippers may have to brace for higher costs and adapt to longer transit times as well, said Steve Golich, president of Celtic International, a company that arranges truck-rail intermodal service.

Rail networks are essentially “maxed out,” said Larry Gross, a senior consultant at FTR in Bloomington, Indiana. “The rails are moving every carload and container that they can, given the crew and locomotive resources available.”

Golich said he expects railroads to raise rates as much as 7% over the next year.

To help ease the problems, logistics executives said there needs to be more collaboration between carriers and shippers to lock in capacity and get better utilization out of existing equipment.

“Customers are frustrated,” said Michael Patterson, president of King Solutions, a logistics firm in Dayton, Minnesota. “They don’t feel like they have adequate control or are getting a good price.”

Looking ahead, Wilson said she believes “2015 will be a mess” in terms of freight operations because capacity constraints are not being eliminated.

On the ocean side, the issue is delays, particularly on the West Coast, because improvements at port terminals haven’t kept pace with the larger size of ships.

The rail sector is suffering, she said, with a persistent lack of crews, locomotives and freight cars.

“The railroads have the ability to increase their volume if you look at that on paper,” she said. “It remains to be seen whether they can do that in fact.”

Trucking capacity is being constrained by the driver shortage.

The situation is particularly difficult where trucking and ocean markets intersect, she said, citing West Coast cargo delays of up to three weeks. New York-New Jersey and Virginia ports also face congestion issues, she added.

“Chassis are causing a dramatic problem,” she said, because of both poor equipment condition that constrains supply and industry practices that don’t effectively make

the units available where they are needed.

In Wilson’s June report, based on 2013 data, logistics spending growth was gauged at 2.3% on a year-over-year basis. Logistics growth was centered in the warehousing sector as inventory rose steadily.

The 2013 report also noted the negative effect of a weak fourth quarter and problem-plagued holiday shipping season.

Among the issues that held down growth late last year, she said, were severe winter weather and the lack of preparedness by retailers and package delivery companies for record online orders.

She believes there won’t be a repeat of the weak fourth quarter that was seen in 2013.

A key reason is that retailers and package delivery companies have been changing practices and adding capacity to avoid holiday shipping problems, Wilson said.