Stats Show 15% of Trucks Simply Don’t Show Up. How Are Companies Combating the Rise in Transportation Costs and the Lack of Drivers?
Everyone is cognizant of the current rise in transportation costs and labor shortages, but how are these trends affecting companies, private and public?
Managing partner, Fay Wasylyniuk, asked 203 candidates across 185 companies in CPG-related business to weigh in on the matter. To provide context, these candidates are predominant with a scale of over $500mm and public companies. We were able to speak with 19 candidates through August 2021, and the results allow a closer look into the problem-solving and decision-making taking place around this crisis.
All candidates were clear that this has been a significant challenge in their fields, whether they are working directly on that side of operations or not. The most notable responses are broken into subsections below.
Addressing the Issue and Testing Solutions Related to Cost
Most of the controllers Wasylyniuk spoke with were not leading process resolution and there was a lack of consistency from one company to another on whose responsibility it was to tackle. Everyone was aware of the issue, which speaks to the presence of communication amongst these companies and their determination to find cost-effective and timely solutions to the transportation crisis.
Many leading the effort completed a deep dive into data to determine where elevated costs were arising from. Data suggested that it would cost tremendously less to ship to one area than another, which provided a lead. After analyzing segmentation and identifying products coming from these higher-cost areas, products could be re-routed, therefore lowering the cost of the transportation of goods.
At times, other companies spoke with suppliers to strategize options and negotiate better rates, coming to a cut fair for both sides. Some noted the demand for constant checks and balances to keep a pulse on freight costs to ensure that budgeting and forecasting were accurate, which included using a third party to consolidate the growing costs.
Challenges extend to sourcing and timing inventory to develop a better plan for economic efficiency – many have shifted to rail when boats weren’t available due to the challenge of transporting goods from ports onto land or when air freight is deemed too expensive. This strategy includes having DSD and being more efficient with the routes they choose.
Unfortunately, many companies have had to absorb the increased costs when price increases don’t pass, the mark-up is already high, or vendors don’t agree to chip in on vendor credits. Most agree that passing on price increases is a necessary next step to remain competitive and stay relevant to the market, but in instances where companies believe their product is premium, it doesn’t make sense to them to raise prices.
In other cases, leaders looked for ways to lower cost through innovation by changing how the products performed to increase margin. An example was changing color to a zero-cost option and extending that to the transportation budget instead. Another approach was to incorporate co-packing to create value perception for the consumer. They weren’t always able to reduce costs, but it was certainly a start.
Another issue reported by workers in the supply chain at one of the companies was the increases in freight and warehouse. “Normally freight is 4% because of high prices; freight has been 5.5%.” The challenge transcends to whether the customer is going to accept the price increase and companies have to be sensitive in how much they request. The company hopes to pass on increases, but no decisions have been made yet
A Possible Solution for the Labor Shortage: In-Sourcing Trailers and Drivers and Working with Distributors
Logistic Coordinators working with a particular business cited having tremendous challenges in finding people to work in their 9 cross-docks. Most deliveries are done through independent contractors. The tactic they use to attract contractors is to vet them for insurance and pay warehouse workers more. As far as drivers are concerned, there is much difficulty in recruiting. With the company’s largest customer, they rent a tractor and hire drivers. Some solutions noted were the end-to-end model, which is what attracted the PE company to their business. This way, “they have a bit more leverage as well as being damage-free. There is also visibility to the customer on all tracking [information].”
With companies that have distributors with a national presence, they have been able to venture into the freight business because they have the vehicles and the ability to help distribute products, although the company noted that they haven’t actually implemented this yet. One company cited the Global supply chain as an issue due to the fact that some suppliers are only operating at 50% right now, most likely a result of the labor shortage. During the interview, this employee was drafting a proposal to the CFO about their other issue: the container shortage. “It takes a couple of weeks to find a container and then get it to the supplier. [The process] can take up to 2 months.” Combined with inventory shortages and determining when to schedule out containers irrespective of orders is a constant struggle. The current solution while awaiting price increases has been to pre-book containers to be at the dock in anticipation of products arriving.
Closing Thoughts
Logistic Coordinators working with a particular business cited having tremendous challenges in finding people to work in their 9 cross-docks. Most deliveries are done through independent contractors. The tactic they use to attract contractors is to vet them for insurance and pay warehouse workers more. As far as drivers are concerned, there is much difficulty in recruiting. With the company’s largest customer, they rent a tractor and hire drivers. Some solutions noted were the end-to-end model, which is what attracted the PE company to their business. This way, “they have a bit more leverage as well as being damage-free. There is also visibility to the customer on all tracking [information].”
Another company stated they have many drivers beyond the Mexican border, but not as many on the U.S. side. The company went from delivering one container per month 3 years ago to now 2 containers per week all because of the driver issue. To combat the problem, they have utilized double trains, which are more expensive, but more efficient. They also try to share space with other companies if available or by utilizing back trips to aid in moving more cargo with one driver. Expenses were a completely different and complicated issue that involved sending invoices to other companies and figuring out the best way to approach that.
With companies that have distributors with a national presence, they have been able to venture into the freight business because they have the vehicles and the ability to help distribute products, although the company noted that they haven’t actually implemented this yet.
One company cited the Global supply chain as an issue due to the fact that some suppliers are only operating at 50% right now, most likely a result of the labor shortage. During the interview, this employee was drafting a proposal to the CFO about their other issue: the container shortage. “It takes a couple of weeks to find a container and then get it to the supplier. [The process] can take up to 2 months.” Combined with inventory shortages and determining when to schedule out containers irrespective of orders is a constant struggle. The current solution while awaiting price increases has been to pre-book containers to be at the dock in anticipation of products arriving.
These market insights from Carpe Diem Global Partners are gathered from the firm’s extensive client work leading Board, CEO, CXO, and CHRO executive search engagements for public and private multinational companies. For deeper, custom insights, contact Fay Wasylyniuk at fwasylyniuk@carpediempartners.com.