Demand and Supply
According to The Wall Street Journal, U.S. companies are spending more than ever on transportation costs, a record $1.5 trillion in 2017 alone. That’s up 6.2 percent from 2016. The culprit? Blame it on increasing demand that raises logistic services prices. No mode of transportation is immune to the rate hikes. The Council of Supply Chain Management Professionals (CSCMP) believes there isn’t anything on the horizon to reduce that demand, either.
Interestingly, while online shopping has steadily increased demand for shipping, the cost to ship those and other items may be directly linked to the weather. The CSCMP’s annual report indicates freight rates skyrocketed during and after the Gulf Coast and Puerto Rico hurricanes late last year. Relief supplies consumed transportation providers and strained logistic networks. Keep in mind, Houston suffered tremendously from Hurricane Harvey in August 2017, shutting down its major freight hubs. This reduced capacity and drove up prices across the board:
- Motor carrier costs rose 7.8%
- Rail transportation costs rose 8.2%
- Airfreight costs rose 3.1%
Related: The Florence Effect on Logistics
There is more that contributes to these growth rates, of course, motivating shippers to look for ways to reduce costs wherever they can.
While hurricanes may plague the country in the summer and fall months, it’s the winter weather that can pack an even greater punch. A hurricane is somewhat predictable and most come and go within a few days. For some parts of the United States, however, winter weather is relentless. Just as one winter storm passes, another one is often on its heels.
A FreightWaves article out today points out that these winter storms, particularly around the holidays, hit freight with a double whammy. “Truckers will be under pressure to make on-time deliveries of last-minute loads at the same time everyone else is hitting the roads for the holiday. Highways will be extra busy, and travel will probably be delayed on the ground as well as in the air,” the article says.
It’s not just the heavy rain, snow and ice drivers must navigate. High winds can impact lighter loads as well. All of these expected weather issues can cause delays, which further shrink capacity, which drive up freight costs.
A Secret Weapon
Don’t hate the weather – use it to your advantage. The weather is perhaps the most unpredictable element on the planet. It makes no sense to fight it. Instead, understand it and plan with it in mind.
It’s not a novel thought. We regularly watch weather forecasts to figure out what to wear, when to travel, and when to drip the faucets. The same premise holds true for shipping. Use data to determine how to ship your freight, when to ship it and what you need to do to protect it. In this sense, the weather isn’t something that prevents your cargo from getting to where it needs to go. You use it to plan the best ways and times to get it there to avoid delays and unexpected costs.
With freight spend at an all-time high, we thought it might be helpful to see exactly how using comprehensive weather data – as much as 14 days in advance – can give a company a strategic advantage over the competition. We aren’t talking about basic weather forecasts here. Thanks to the power of predictive and prescriptive analytics, sophisticated algorithms and traditional weather forecasts, logistics may never be the same.
4 Ways Shippers Can Reduce Freight Spend Using Weather as a Strategic Advantage
Choose the right form of transportation
When you have the tools to predict and visualize weather patterns along the entire route of your shipment, you can make better decisions on the mode of transportation that presents the least amount of risk. Maybe the majority of your freight travels by truck, but if you know a major winter weather blast is heading right for your chosen lane, perhaps there would be less risk and cost if the shipment traveled to its destination via air.
Without predictive analytics, however, freight simply travels as it always has, regardless of the risks ahead. In this instance, the truck will likely be delayed and has the potential to be in an accident, damaging the freight, the truck, and potentially lives. Simply by understanding the most likely weather scenarios along the route, smart decisions can be made to protect the freight, budgets, and reputations.
Select the right type of truck or freight car
If the freight is sensitive to temperature, the weather may be leveraged to your advantage. Certain pharmaceuticals and grocery items must be kept cold or frozen for extended periods of time. Cold chain logistics require those items to be shipped via refrigerated trucks or freight cars in order to ensure there is no break in the temperature chain. Seems simple enough, but reefer rates are expensive – much more than non-refrigerated freight.
Related: A Guide to Cold Chain Logistics
When it comes to refrigeration, the winter weather may be a shipper’s best friend. Using predictive analytics, companies can determine if the expected outdoor temperature will remain below the freight’s required minimum. Instead of paying extra for reefer trucks and railcars, they can confidently move freight along the route using a standard truck without worrying the freight will be compromised by temperature fluctuations.
Determine the best lane
Choosing the right freight lane isn’t always easy, even when the weather isn’t playing a role. Every lane introduces variables and cost is the big daddy. For companies who want to reduce costs, it may come down to choosing a lane that avoids risky weather conditions. While this shipping lane may take the freight a bit out of the way, it may end up being the fastest or most beneficial route in the end.
Using the power of data, shippers, carriers, and logistics companies can select a freight lane that avoids predicted bad weather. Flooding, blizzards and snow drifts, icy conditions, dangerous winds, and tornado outbreaks can cause major disruptions in the supply chain, preventing freight, including critical supplies, from being delivered on time. The right weather data can minimize this risk, as well as the risk of freight being damaged.
Plan the right dates
Modern logistics is all about timing. If you have reliable weather data in hand early in the process, you can schedule freight shipments around predicted weather patterns. This may mean shipping freight earlier or later than expected. Even by changing the shipment date by a day or two, freight costs can decrease significantly.
The key is to set the appropriate expectations with the customer. Keeping them informed and justifying such decisions with hard data is all most customers really want. In this way, they can plan for the change in shipment date to minimize its impact on their delivery schedule.
Use It or Lose It
You have a choice on how you approach the weather: either use it to your advantage or lose dollars being a victim of it. The technology is here, apparently, just in time.
We are living in a world where severe weather events, those that cause significant interruptions, are on the rise. While it doesn’t take a major weather event to delay shipments and increase freight costs, it’s the big ones that seem to get the most attention. The Environmental Protection Agency (EPA) predicts climate change will have immediate and long-term effects on the transportation industry. “Climate change is projected to increase the frequency and intensity of some extreme weather events,” says the EPA. “Specifically, heat waves will likely be more severe, sea level rise could amplify storm surges in coastal areas, and precipitation will likely be more intense. These changes could increase the risk of delays, disruptions, damage, and failure across our land-based, air, and marine transportation systems.”
Now is the time for shippers, carriers and logistics companies to take necessary steps to ensure freight can still be delivered on time, on budget, and in good condition as much as possible. Weather may be damned, but with the right software on your side, it can be precisely what sets your company apart.