5 February 2019
Shipping costs are influenced by a number of factors, one of which is shipping capacity. Shipping capacity is an important metric to be mindful of, as it can have a large impact on how you ship your products and how much those shipments cost. Understanding the forces that help shape the shipping industry’s capacity to transport products is essential for understanding shipping cost trends over time.
In this article, we’ll explore five factors that help shape shipping capacity. These factors include a long-standing shortage of qualified drivers that has become increasingly acute in recent years, as well as increased demand for shipping services stemming from the explosive growth of online shopping. Additionally, recent regulatory changes affecting the shipping industry have exacerbated a labor shortage and driven up prices. An increased presence in the manufacturing sector is also influencing demand, while short-term unforeseen events such as inclement weather and natural disasters are producing disruptions in the shipping industry. Taken together, these five forces are contributing to a shipping industry characterized by shrinking capacity amid growing demand.
Lack of drivers
The current truck driver shortage is nothing new in the shipping industry. The transportation industry has seen a steadily growing gap between the number of parcels that need to be transported and the number of drivers available. Over the past two decades, this situation has become increasingly acute. The industry is currently in need of an additional 51,000 drivers. Unless something is done quickly, this number is expected to continue to grow.
There are a number of reasons why labor is difficult to come by in the transportation industry. Among these are slow wage growth of the past two decades, making driving a less attractive option when compared to other alternatives. Additionally, truck drivers work long hours and traditionally spend a large amount of time away from home. This has made it difficult to attract young drivers that also want to start a family. In response, many carriers are exploring routing options that keep drivers closer to home and are attempting to incentivize new entrants into the labor pool through steadily rising wages.
The most significant regulatory change affecting shipping capacity in recent years was the implementation of the Electronic Logging Device (ELD) Mandate. The ELD mandate rule went into effect on December 18, 2017, with mandatory compliance beginning April 1, 2018. The intention of the rule was to reduce driver fatigue associated with long hours, which had been linked to increased accidents. In the name of road safety, drivers must now equip a device that records things like engine status, engine hours, duty status, the number of miles driven, and motion status.
Although drivers and carriers have expressed frustration with the new ELD mandate, part of the reason it was enacted was to reduce instances of driver exploitation. Carriers would rely too heavily on a dwindling workforce of drivers, placing both the driver and other travelers at risk. That being said, the ELD mandate has resulted in further constraints on the availability of labor in the shipping industry. Specifically, requirements to closely watch duty hours have further limited the ability of the industry to move large amounts of goods quickly. In response, the industry is beginning to explore better shipment routing to comply with both the regulatory requirement and provide a better quality of life for drivers themselves.
The explosive growth of online shopping has resulted in significantly increased demand for shipping services. This demand is also changing the way that shipments are routed and processed. For example, under the old brick-and-mortar, retail regime shipments were usually large and at regular intervals. Retail stores would simply keep multiples of the same product on their shelves and replenish their stock when it got low. In contrast, today’s shipments tend to be smaller and more individualized. Online retailers ship orders that are much smaller, more frequent, and go to highly diverse destinations. This places the strain on the shipping network to keep pace with demand.
Many carriers are exploring ways to drive increased efficiency in the face of higher demand. In particular, carriers have begun reorganizing distribution networks in and around major cities to accommodate the increased demand for same-day delivery services. More carriers are beginning to explore alternative avenues of increasing efficiency in final-mile delivery, which represent a substantial portion of residential delivery costs.
E-commerce isn’t the only market sector that is placing increased strain on the shipping industry. A surge in domestic manufacturing growth is also resulting in increased demand for shipping services. Domestic manufacturing has been growing in recent years, and this growth has challenged shippers in two ways. Manufacturing puts a strain on the shipping industry through incoming shipments carrying raw materials and outgoing shipments carrying finished products.
There are a number of short-term factors that can influence the capacity of the shipping industry. Specifically, weather and natural disasters are two of the most prominent. Inclement weather remains a major factor in the capacity of the shipping industry to get products where they need to go. One way that the industry is attempting to minimize the impact that weather has on shipping capacity is through the use of better road-weather mapping data. Some carriers have begun utilizing Internet of Things (IoT) integrated technology into their trucks, giving them real-time weather data and allowing for more efficient and intelligent routing.
Climate change is also beginning to have an increasingly large impact on the transportation industry. In particular, more frequent severe weather phenomena are expected to place increasing amounts of strain on the transportation industry as a whole in the coming years and decades. Many transportation engineers are exploring ways to make the transportation industry as a whole more resilient in the face of extreme weather. Increased precipitation or extended periods of drought can both wreak havoc on the roadways that support our transportation network. At the same time, other areas of transportation infrastructure such as bridges, ports, and railways are all vulnerable as well.