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The Shipping Status Quo

By AICC Staff

September 13, 2022

Many box plants and related manufacturers have been running at or near capacity during the last few years. Yet that increased demand for packaging has created problems when it comes to getting those boxes, inserts, and displays to their destinations on time and on budget.

Capacity shortages, rising fuel costs, and other transportation are creating challenges to the shipping status quo that, at present, have no easy solutions.

The Driver Dilemma

Oklahoma Interpak relies on a variety of less-than-truckload (LTL) asset-based carriers as well as brokers for its shipping. “We use trucking companies for everything we do,” says owner Eric Elgin. “Even though we work with about 10 different carriers, it’s harder to find a truck in the first place. When you do, it’s a challenge to get it where it needs to go and when you need it to be there.

“Most of the time, they don’t have the capacity to do the job,” Elgin continues. “They can do it in a week; they just can’t do it when you need it. So when that happens, you move on to the next option, which could either be a broker or a different carrier. And then you end up just taking the most cost-effective option—assuming you can find an option.”

Lawrence Paper Co., a division of American Packaging, manages its own shipping fleet, which could sound like the best way to guarantee capacity. Yet Shane Old, operations and plant manager, says it has been particularly challenging to find and to keep drivers. “We’ve got enough drivers today,” he says, “but hiring is very hard. There aren’t many applicants when we post a job.”

The lack of available drivers suggests a driver shortage. Yet Avery Vise, vice president of trucking for independent forecasting firm FTR, believes the situation isn’t as straightforward as that. “Yes, we did lose some drivers during the early stages of the pandemic because, at one point, there was very little freight to haul,” he says. “But we estimate that we were back to the pre-pandemic supply of drivers at least a year ago.”

Now, he notes, it isn’t so much that there aren’t enough drivers; it’s that those drivers have been working in other segments of the market. “They got their own authority, they set up shop as independent carriers, and they hauled freight in the spot market for brokers on a load-by-load basis,” Vise explains.

The first year of the COVID-19 pandemic brought a major shift in both volume and capacity away from the contract market—the typical day-to-day relationship between shippers and their carriers—and into the spot market, where brokers place loads with whoever is available to accept them. “That was an unprecedented shift,” Vise says, “and it continued for a long time because of all of the disruptions we had in the supply chain and in the labor market.”

In addition, Vise points out that high turnover has been a chronic issue for many larger carriers. “They tend to have high turnover because their business model is built on bringing in new drivers and training them; they don’t necessarily prioritize retention. So those carriers, even in weaker times, can often have a hard time keeping all of their trucks filled.”

The technicalities of whether there is a driver shortage, or what the situation should be called, are beside the point, though, if you’re a shipper who has to spend valuable time simply trying to find an available truck. “Having to do all of this extra planning with our freight has definitely made more work in the office,” Elgin says. “Everybody’s having to work harder.”

The good news, according to Vise, is that the capacity lost over the last few years is poised to return. “This spring, we’ve seen really astounding growth in the number of payroll employees in trucking, and 60% to 65% of those are going to be drivers,” he says. “So we’ve had a very strong hiring period. And I anticipate that—as long as freight demand stays as strong as it is or at least close to as strong as it has been—that trend will continue, because we’re seeing a shift in volume back into contract.”width=486

Rising Costs, Hidden Rates

Perhaps the biggest current challenge is higher prices, in terms of overall carrier rates as well as fuel costs. “We’re seeing 50% to 70% fuel surcharges from outside carriers,” Old acknowledges, “and we are having difficulty finding carriers to lock in rates for more than a couple of days to some lanes.”

The situation is similar for Elgin. “I’m seeing an increase in the price of every movement,” he says. “Just a few years ago, I might have paid the same price for two years straight. Now, it’s different every time.”

Because Oklahoma Interpak has an unusually large shipping territory, the company is pooling more orders together, “so we can maximize whatever carriers we can find,” Elgin says.

But that solution has led to other . “There are a lot of rules that exist in LTL that have never been enforced in the 21 years that I’ve been doing this,” Elgin notes. “Suddenly that’s changed. The LTL industry has a thing called a capacity rate or cap. What I didn’t know is that it varies from carrier to carrier, and it may or may not be enforced. It may not even be mentioned when they quote a price.”

Elgin recalls that one well-known carrier’s policy had been that any shipment of more than seven pallets would be considered a capacity load, meaning the manufacturer would be charged for the whole trailer. That seemed straightforward enough. “So at one point, I sent eight or nine pallets to Arizona” with this carrier, Elgin says. “I went online and used their quoting template, which gave me a cost of something like $700.”

No additional “capacity rate” was mentioned. However, Elgin learned later that his order had triggered an additional fee. “When I got the invoice, it was over $5,000, which was more than the actual order was worth. There was no indication on the website that the order would trigger the cap or what the real cost would be. In fact, their website still doesn’t give any kind of warning or display the actual price you’ll pay for shipping.”

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And then there is the rising cost of fuel. While most larger carriers routinely add a fuel surcharge to every shipment—a fee that helps carriers manage the volatile nature of fuel costs—many smaller carriers do not typically include them. So, when diesel prices rise, either the carrier assumes that cost—shortchanging itself—or the higher price gets passed along to the shippers, which could lead them to seek alternatives.

While talking won’t lower fuel prices or eliminate added fees, Vise believes that better communication between shippers and carriers could help to reduce misunderstandings and frustrations arising from the current situation. “There’s traditionally been a sort of arm’s-length relationship between shippers and carriers,” he says, “where a shipper may tend to hold things close to the vest because they don’t want to give the carrier any ammo for raising rates. And carriers are just as likely to hold things close to the vest for the opposite reason.

“I would say the best lesson learned from the pandemic and other recent challenges is the need for shippers to be as open as possible with carriers about what their volume requirements are going to be and what their transportation needs are going to be. It’s to everyone’s advantage to be more open with our business partners. It ultimately doesn’t serve anyone’s interest to play games.”

That openness extends to communicating effectively with customers as well, as cost increases and potential delays can strain even the best customer relationships. Says Elgin, “At this point, our customers are understanding when it comes to shipping delays and other . Everything seems to take longer to get than it ever has, so they’re used to it.”

In time, though, that patience may run out.

Slowly Toward Normal

Capacity and costs are, for the most part, outside of shippers’ control. Unless a boxmaker decides to make significant changes to the business—building their own shipping fleet from scratch, for example—there is little to be done but wait for the situation to change. “We’ve done analysis on whether we want to start trucking things ourselves,” Elgin says. “We’re not going to do it at this point.”

Despite his current frustrations, he believes the “solution” likely would be just as disruptive. “I ship a lot, and I ship on a daily basis to the North, the South, and the West,” he adds. “Say I bought a couple of trucks. If I sent one to California, it would be four or five days before it’s back. And I’d need to find something to haul back. On top of that, I would still have to maintain the truck. I’d have to hire the people to drive it. Managing a trucking operation is not our core business, and I just don’t think it’s quite worth it yet. Things haven’t gotten that bad yet.”

Based on his company’s data, Vise believes things likely won’t get “that bad.”

“The trucking market started to normalize earlier this year,” he says. “We started to see capacity returning to the larger carriers, and we saw some easing of stress in the spot market, which was dealing with the sharp increase in diesel prices. Rising diesel prices put a lot of financial pressure on very small carriers—many of which had only just started up during the pandemic—that typically don’t get fuel surcharges. So we’re seeing a number of drivers returning to the larger trucking companies.”

Summing up, Vise says, “The bad news is that the situation is not going to improve quickly. The good news is that the worst is behind us. We’re headed—although slowly—toward a more normal market.”width=337


width=67Robert Bittner is a Michigan-based freelance journalist and a frequent BoxScore contributor.