The dire state of global supply chains over the past two years has shown the world just how scary logistical challenges can become — from seafarers stranded on cargo ships to extreme shortages of food and other basic necessities threatening economic stability and human life.
Many supply chains that operated efficiently before the COVID-19 pandemic have lost that efficiency just to survive. That’s causing transportation costs to skyrocket — both in real terms to shippers paying for transportation services and as a share of gross domestic product (GDP). Transportation costs are at about 7% of total U.S. GDP right now, and that number could jump to 10% or even 15% as we move further into the year.
The cost to buy, produce, ship and store will continue climbing for the foreseeable future, and that problem could linger and translate to long-term inflation.
Shorter-term, carriers won’t be able to handle all of the volumes in the system. There will be more instances like FedEx’s announcement early in 2021 stating that they’re dumping customers.
Transportation service has become a commodity, and thus rates are fluctuating daily. A less than truckload (LTL) move from Washington state to Dallas might be $2,000 one day, but next week it could be $8,000. Truckers are basically taking bids for their service. Shippers and brokers place their best offers, and the carrier takes the load for the highest price.
The supply chain is like a playground seesaw right now. Everybody on the freight carrier side (aka the supply side) jumped off at once, just as a weight crashed onto the demand side (aka freight volumes). And the demand side has been pinned to the ground ever since.
The only way to rebalance the seesaw is to find dynamic approaches to sourcing, pricing, and securing transportation capacity for shippers and brokers. That’s the silver lining about the current supply chain disarray — there’s a more dynamic, more resilient world ahead.
The brokerage market is going to soar as shippers increasingly turn to third-party providers, rather than trying to work directly with carriers to lock in long term contracts. The supply chain is going to become immensely more dynamic, and the way we buy, and ship goods is going to completely rearrange itself. Transportation management platforms will give brokers a full, dynamic, real-time view into their options for each load, and if the preferred carrier and price aren’t available, it’ll automatically find and secure the next-best option, whether that’s a different carrier or a different mode entirely.
To use the term that’s become so common in our pandemic-era jargon: That’s what the “new normal” of freight transport will look like. And it’s one of the only tools in the chest for battling current and long-term inflationary pressures caused by the supply chain’s sticking points.
J.P. Wiggins is co-founder and vice president of corporate development for 3Gtms.