How to Handle Tight Capacity Markets

As the economy tries to recover and reopen during COVID-19, freight rates are rising and things are changing constantly. According to DAT, capacity is projected to continue to tighten until the end of the year.

 

What does “tight capacity” mean?

A tight capacity market means that there is a greater demand from shippers than carriers. This means that carriers will a have more opportunity to choose from and can negotiate for a better income, thus making it a carrier market. This also means that it will be more difficult and more expensive for the shippers to receive the equipment and goods they need.

 

What you can do now

Allow enough truckload lead time and book earlier. By extending your truckload lead time by just a few days can lead to cheaper prices because carriers want to know ahead of time and most carriers are interested in pre-planned loads. If you book earlier, you also have more time to ensure a smoother performance and accurate delivery times which will positively affect your customer satisfaction.

Look to other shipping modes to increase capacity. For example, your company typically ships via dry van and is having difficulty finding capacity. Instead, of taking on the risk of missing deliveries or paying the outrageously high rates, you should consider switching to flatbed given the goods allow for it. This would provide a cheaper less risky alternative.

 

What you can do to prepare

Get a good understanding of your previous year’s transportation rates, where they started, where they ended, and were they good or bad. Take this information and use it to benchmark and set realistic expectations for your current year. Knowing whether current rates are high or low is important when comparing them to the overall market. Transportation management systems are technology tools that shippers can use to leverage historical data, benchmark, and create projections. Shippers use these tools to educate themselves as much as they can about rates.

Do not try to time the market for when you believe rates will be at their absolute lowest. Even if your data suggests that a certain time of the year will be ideal for rates you the market may not be where you expect. Choose a time that better fits in with the timing of your business cycle and when you have the time and assets available.

Steer clear of the spot rate market long term. Shippers are building new solutions and managing more strategic especially with purchasing. Because of this the spot market is slowly shrinking into a smaller slice of the overall market. Because the spot market is smaller than the amount of capacity available for freight, even a slight disturbance can spike spot rate prices.

 

Learn to thrive with tight capacity

Taking a more strategic approach to truckload lead time and being creative with your modes will help you in any short-term scenario. Think about the long haul you want to become an expert on the history of your rates compared to the market and use that data to make decisions when the time is right for your business. The best rates and capacity can be achieved when the goals and outcomes are aligned between the both the shippers and the carriers.

MVP’s team of logistics experts specialize in creating solutions for these exact scenarios. By partnering with MVP, you will differentiate yourself from the competition with accurate order fulfilment, increased data transparency, and clear communication.

 

MVP Logistics is your 3PL logistics partner for supply chain project management, logistics, warehousing and fulfillment, LTL, and other supply chain needs. Our Minneapolis, Houston, and Los Angeles area warehouses provides local, national, and international shipping services. Find your solution today.

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