How are Shippers Handling Overflow Freight?
The continual impacts of COVID-19 have made 2020 a year with little consistency for most industries, including shipping and logistics. While the beginning of the pandemic and the ensuing shutdowns and restrictions caused a dramatic shipping volume drop in both March and early April. The bounce-back from those at home relying more on e-commerce has caused a near-continual surge ever since, resulting in overflow freight issues.
Major parcel shippers FedEx and UPS have been reporting daily volumes at or above peak holiday levels for several months, and volume increases can only be expected to continue as the actual holiday season approaches.
Let’s take a look at a few of these hurdles…
As a result of this dramatic increase in volume, capacity concerns have become apparent across the industry. In some cases, high-volume shippers have been asked by carriers to scale back, with daily capacity limits put in place, and service guarantees suspended. Both FedEx and UPS have added significant surcharges as a result of the pandemic, a cost that can be devastating for many smaller businesses already struggling with costs associated with the COVID-19 pandemic.
With the vast majority of retail sales now online, the surge in B2C volume has been significant for carriers. The additional stress placed on shipping networks as a result of this increase can cause delivery delays, customer complaints, and general slowdowns. In many cases, placing capacity limits is the simplest solution to get ahead of the issue, especially as the holiday season approaches. As shippers face these capacity limits, they have a few options. One is to divert overflow volume to alternative carriers.
This can, of course, lead to cost increases, but as this overflow volume isn’t likely to be permanent, it’s a viable solution.
Freight consolidation, utilizing NVO’s (Non-vessel operating common carriers) who specialize in less-than-container load shipment handling, and tapping USPS and DHL as alternatives to FedEx and UPS are also options.
In fact, NVOs have seen a considerable increase in market share since the beginning of the pandemic, thanks to the overflow routinely being booked with them, in order for shippers to avoid high spot-rates when carriers hit volume caps.
Another option for shippers is to look at non-traditional pickup times. Some carriers have available capacity on weekends, rather than on weekdays. For example, as a traditional week of work is accumulated and orders processed for a shipper, there may be an accumulation of overflow moved to a trailer or trailers that are then scheduled for pickup on the weekend, allowing for the traditional work-week start on Monday to get “caught up.”
Costs are rising
Costs are up across the industry thanks to volume flood and COVID-19 related expenses, so some shippers are attempting to renegotiate pricing and volume caps to alleviate overflow pressures. The companies that primarily deal with B2B freight are at an advantage here, as carriers prioritize business that is more profitable for them.
Traditionally, the profit margins are much higher for B2B over B2C volumes, almost three times higher. This has led to rising rates to offset the costs associated with the needed safety precautions put in place to counteract potential COVID-19 infections, overtime for drivers, etc.
Overflow freight is causing massive backups
In addition to the overflow of shipment volumes in the e-commerce realm, the global impacts of the pandemic have also caused a backup in shipping hubs and ports as large-volume international freight has accumulated. Slowdowns caused by shutdowns, limited workers available to process shipments, limited customs agents, lack of available storage, and so on have led to some potential issues.
Some available locations for overflow cargo when warehouses are full could face security risks, with theft of goods being a prominent concern. While theft of goods presents a significant issue, there is also the potential for the build-up of potentially hazardous cargo as well.
However, freight-forwarders have been working overtime to alleviate some of this congestion, and while there are still issues getting cargo and goods to and from docks in ports that are struggling with higher volumes, many freight-forwarders report that operations are running fairly smoothly.
The dust will eventually settle
As the industry adjusts to the restrictions and volume increases, it’s reasonable to expect that systems will be put in place to better manage the overflows. While restrictions begin to ease up in some regions, and additional staff is hired to respond to the dramatic volume in e-commerce, we will likely see a smoother overall response as we move into early to mid 2021.
Price increases, while perhaps temporary, may stick around to reflect these additional costs for carriers, and shippers should adjust their budgets accordingly. Reach out to the team at Redwood Logistics and let us help you keep your costs down.