2017 Holiday Season Capacity Outlook: 5 Tips for Controlling Shipping Costs
Estimated reading time: 3 minutes
The retail business is surging and will continue to gain momentum in the upcoming holiday season. That’s the report from The National Retail Federation (NRF), which is forecasting a boost in retail sales by 3.6 to 5 percent above the same two-month period in 2016. GDP growth of 3 percent has contributed to a strong economy, largely fueled by consumers ready to spend more and take on more debt than in recent years. Adding to the optimism, Christmas falls on a Monday this year, squeezing an extra shopping weekend into the calendar, along with one more day between Thanksgiving and Christmas. Yet, the holiday news is not all cheery. Higher demand brings limited shipping capacity and increasingly higher costs for shippers (Logistics Management).
Competing for Capacity
Shipping capacity is already tight in the wake of a destructive hurricane season that isn’t quite over. Texas and Florida are still recovering from the effects of Harvey and Irma, struggling to rebuild. Neighboring states have picked up some of the shipping slack, but demand for materials and trucking capacity has led to sharp rate increases on the spot market. In the last week of September, the truck-to-load ratio reached a seven-year high of 9.5 percent. That’s a 120 percent increase over September 2016 (Supply Chain Matters).
Feeling the Squeeze
Contract rates are experiencing a domino effect, with increases of 10 percent or higher—and in some cases as high as 30 percent—just as shippers begin 2018 negotiations. Further, an estimated one million trucks are not yet equipped with electronic logging devices (ELDs), even as the December compliance deadline nears. Experts predict that many owner operators and small carriers will leave the industry before then, squeezing capacity another 10 percent (Freight Waves).
Slowing a Runaway Train
Amid so much competition for shipping capacity, a strong holiday sales forecast will surely put even more pressure on shipping costs come November and December when the season hits its stride. The following tips can help you put the brakes on runaway costs:
- Position yourself as a "Shipper of Choice." More than a marketing slogan, making your business attractive to carriers will lead to better negotiations. Of all the steps you can take to keep costs in line, this approach has the most potential to yield good outcomes for all parties. Click here for tips on becoming a Shipper of Choice.
- Implement short-term pricing adjustments. To ensure service standards are upheld through Q4, consider paying higher contract rates for a shortened period, with the option to revisit pricing on a quarterly or monthly basis.
- Keep open lines of communication and plan ahead. Share with your shippers your expected weekly or biweekly volumes, as well as changes in sales projections or production. While providing accurate forecasts can be difficult during peak seasons, planning ahead as much as possible makes it easier for carriers to work with you and execute on their commitments. Further, keeping lines of communication open with your buyers and leveraging data from the past year can also help you know what to expect.
- Consider intermodal when possible. Intermodal offers options and cost savings worth considering under any market conditions. To learn more about the benefits of intermodal shipping, check out this white paper.
- Understand the Market. Monitor spot market rates through a market index like Chainalytics or DAT, and subscribe to industry publications like Journal of Commerce or Transport Topics to understand how rates may be impacted by seasonality, weather, commodity type, geography, etc.
Full Steam Ahead
The 2017 holiday season should be one of the busiest in years. Leveraging Capstone’s proven carrier network and experience with all manner of economic and capacity changes may be just what you need to make the most of the economic prosperity ahead. Connect with a representative today to understand all the benefits of working with a 3PL.