When shipping millions of tons of material from coast to coast, contractors can’t afford to get derailed by details. But recent changes to shipping rules and labor availability are creating headaches for suppliers of all sizes — and if they don’t get solved quickly, they could lead to bigger problems down the road.
Here are three tactical shipping challenges that will impact the construction industry in 2018, and possibly well into the future.
HIGHER SHIPPING RATES DUE TO MANDATORY ELD COMPLIANCE
In 2015, FMCSA established a new electronic logging device (ELD) mandate that clarifies how drivers are required to log and report their hours. The mandate’s goal is to improve road safety and efficiency while minimizing driver exhaustion.
However, to comply with this mandate, many operators must install new ELDs fleet-wide. While these devices can also measure driver data such as speed and braking and provide real-time routing assistance — all of which arguably helps improve driver performance while reducing wear and tear on machine and driver alike — the cost of implementing all these new devices is finally affecting shipping rates.
December 2017 was the ELD mandate’s first compliance deadline, with an expected “hard deadline” of April 1. This means if a truck isn’t equipped to pass the mandate today, it could start to incur fines until it’s proven to be compliant. One exception is that if the fleet already has Automatic Onboard Recording Devices (AOBRD) installed, their use has been grandfathered in under the mandate until December 2019… at which time they’ll need to be replaced with fully-compliant ELDs.
The cost of all of these new digital investments will need to be recouped, which means shippers need to find creative ways to fund their fleet’s ELD mandate compliance without hurting their bottom line.
DRIVER SHORTAGES CREATE DEMAND — AND WAGE HIKES
Until the robotic or autonomous truck revolution arrives, America still runs on human power.
More than two million truck drivers across the country are responsible for delivering over 70 percent of all goods consumed in the U.S., which could lead a data lover to believe that trucking is a booming career path.
Instead, they might be confused by the reality of the numbers.
Despite ATA job projections that the trucking industry needs to find nearly one million new drivers to meet rising industry demand, there’s still a shortage of qualified applicants that could lead to a shortfall of over 150,000 drivers by 2026.
Whether the absence of new drivers is due to increased interested in other fields or because potential entrants are finally starting to believe all the “AI is about to make drivers obsolete” hype is anyone’s guess. However, the impact of this labor shortage on wages and shipping rates is very real. Some companies are even delaying shipments to avoid paying premium wages, hoping that an influx of new drivers will bring prices down.
In the meantime, experienced drivers often find themselves competing for better wages in a top-heavy market. This creates an expensive vacuum in the middle of the industry and a dangerously narrow pipeline of new talent arriving to fill it.
MABD AND OTIF RIPPLE EFFECTS
Although Walmart and Amazon don’t sell concrete (yet), the choices they make in their perpetual efficiency war often have long-term effects on other industries.
In this case, a tweak to Walmart’s supply chain rules will now penalize its suppliers for delivering early or late, as well as for delivering less than 100 percent of an expected shipment. Starting in February 2018, Walmart’s FTL suppliers must arrive exactly on the Must Arrive-By Date (MABD) 95 percent of the time or face a penalty, while LTL suppliers must arrive on the MABD at least 36 percent of the time, with performance improvements expected over time.
Non-compliance with the 100 percent accuracy rule will result in a fine (or chargeback) of 3 percent of the shipment’s “missing case” value and early shipments will also incur additional penalties.
Walmart is tired of absorbing its suppliers’ time management and supply chain issues, so it’s going to fine them until they get things right — and because shipping logistics can already be a nightmare for some suppliers, Walmart expects to make a lot of profit from levying all these fines.
In fact, Walmart’s new On Time In Full (OTIF) policy is projected to create up to a billion dollars in new revenue via penalties for its suppliers. If this revenue-creation strategy works for the world’s largest retailer, other industries will quickly adopt these rules too.
HOW SHOULD SMART COMPANIES PREPARE TO MEET THESE CHALLENGES?
While all three of these issues have their own causes and effects, there are several choices a company can make today to help defend itself from spiraling costs across the board.
First, evaluate the efficiency of the company’s entire supply chain. Which segments consistently operate without a hitch? Where are the biggest headaches? What can reliable systems teach about the components that obviously need improvement?
Second, invest in the best people. The stars of an organization who maximize their own productivity, develop new initiatives and help keep employees, customers and vendors happy are the best defense against any challenge. Equipment and processes are guaranteed to change over time, but hiring and retaining star employees never goes out of style.
Lastly, ally with experts who can solve problems before they start. Don’t let new changes in technology, logistics or surprises in the labor market break the focus on long-term success. By staying on top of market trends and investing in tomorrow’s solutions today, contractors can avoid the sudden challenges that keep the competition awake at night.