Truck driver shortage doesn’t have to mean unlevel playing field for small businesses
It’s not the costs that worries SMBs, it’s the element of unpredictability
Small and medium-sized businesses across North America have been facing an unusual sort of competitive threat from the big business community over the past few years.
Main Street businesses have always struggled to compete with big-box stores on price with the latter capitalizing on the economies of scale they achieve by purchasing and selling in high volumes.
But now those economies of scale are putting pressure on SMBs to compete on supply chain reliability, which has a reverberating effect on everything from cash flow and inventory control to customer service and market reputation.
The ongoing trucker shortage that has pushed rates up more than five percent over the past year is having a far more profound effect than just increasing the cost of moving goods. While higher rates are certainly cause for frustration, total spend on freight generally doesn’t far exceed five percent of total cost inputs. A five-percent increase on something that only makes up five percent of total spend isn’t something that triggers CFO alarm bells.
But there’s an element of the trucker shortage that goes well beyond cost and ripples through supply chains to wreak havoc on everything from inventory control and warehousing costs to customer service and market reputation. That element is reliability.
Last year, ground freight moved more than 60 percent of the imports and exports between the United States and its NAFTA trading partners. The American Trucking Association estimates it will be short 63,000 truckers by the end of the year. That means that it’s not only more expensive to get goods from supplier to manufacturer to distributor to retailer and to customer, it’s less predictable.
That lack of predictability can be a death knell for small and medium-sized businesses that are under increasing pressure by major retailers and consumers to get their wares to required destinations on time.
To be sure, the higher expectations have been a boon to carriers in the spot market who have been capitalizing on businesses’ that need to get to move goods punctually. But with spot pricing almost one-third higher than standard freight, only those with deep pockets can afford to take advantage without negatively impacting their cash flow in the short term and, ultimately, their bottom line. Herein lies the advantage of big business over their SMB cousins.
In addition, many carriers give priority to transports moving full truck load, rather than less than truckload (LTL), giving further advantage to high-volume shippers.
Unfortunately, those who don’t take advantage of spot pricing face a far more ominous set of consequences. They may save on freight, but they run the risk of souring crucial relationships with their supply chain partners and/or end consumers whose expectations for on-time shipments is at unprecedented levels.
In other words, lower volume shippers face the impossible choice of opting to narrow already thin profit margins or compromise their market reputation.
There are two critical steps smaller businesses with lower shipping volumes can take to mitigate against having to make such choices. The first is to plan ahead. Booking freight well in advance helps not only to save on cost, but ensure the availability of a transport to move your goods.
The second is to work with carriers and freight forwarders who can offer enhanced reliability. While it’s true that the added reliability may come with higher-than-average freight rates, the rates are still significantly lower than spot pricing and offer what the spot market can’t – a transport guaranteed to be available for your shipment.
This may be easier said than done in certain instances and industries. In many cases, new orders may demand shorter lead time and the move from brick-and-mortar retail to e-commerce has put ever-greater pressure on expedited delivery of finished goods, many of which are being fulfilled directly from manufacturers rather than through the retailer.
But for those with the flexibility to plan in advance, there’s tremendous opportunity to save cost and market reputation by ensuring goods arrive at their destinations on schedule.
The alternative isn’t much of an alternative at all.
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