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COVID-19 in the Supply Chain- What Shippers Should Know

Posted by Neil Hersh on 4/29/20 10:05 AM
Neil Hersh
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As a mid-size trucking company that has been around for over 40 years, Keller has experienced our fair share of ups and downs in the industry. Through it all, we have been able to increase our diversification and expand our services for our customers. This diversification and expanded services have been critical in weathering the tough times. The current situation is unique in many ways and we all are affected, regardless of industry, and certainly some worse than others. With no real answers or experience on how a global pandemic will ultimately affect the supply chain in terms of longevity or what the “new normal” will look like, we can only share our experience with key patterns in uncertain financial times that diminish trucking capacity.

No one would argue the importance of a solid network of transportation partners to keep your supply chain moving. As such, it is important to understand the health and potential threats to your transportation partners as these events unfold. All businesses have a breaking point, regardless of industry, and if we can help educate our valued customers on potential threats in their supply chain, we feel that will only help our customers keep their supply chain intact throughout this crisis.

The situation at hand for the transportation community
   1. Automotive and many non-essential suppliers have ceased operations temporarily. This has created several challenges for carriers. Most notably:
          a. What do we do with our excess capacity – can we absorb these trucks and drivers into our existing customer network?
          b. Are we diversified enough in other industries to have additional options?
   2. Spot market volumes and rates have dropped considerably. Carriers running the spot board are breaking even in the best cases or operating at a loss.
   3. Back haul networks for all carriers have been demolished. While contract rates can continue to push trucks into the market, the ability for carriers to re-position them has been greatly diminished. This combined with the bottoming out of the spot market has caused formerly profitable trucks to be unprofitable. Too much deadhead, too little connecting revenue.
   4. Highway Use Tax is due between July and August. This will cause a cash drain at a critical time.
   5. Insurance costs are rising dramatically. Auto liability premiums for the first million in coverage rose by 12% on average last year. Carriers with less robust safety systems are seeing 50-100% increases this year. Premiums for Umbrella Coverage beyond the first million are increasing by 20-30%.
   6. Hiring drivers will continue to be a challenge. Robust hiring and training programs are needed to fill trucks. Keller has increased our recruiting spend by 42% to meet this challenge. Financially strong carriers will be better equipped to hire enough drivers.

We understand every industry faces these issues and are actively meeting to determine how to survive. Our goal is not to say transportation is worse off than manufacturing. To the contrary, we are partners that rely on each other. We want to help our customers to be able to anticipate supply chain problems on the horizon as we see it on the front lines.

What should customers expect?
   1. Carriers will begin parking their tractors to right size to freight demand.
   2. Carriers that are well diversified in both industry and service will find themselves on more solid ground and be able to weather this virus.
   3. Carriers will run into cash flow issues and bankruptcies will follow.

Keller sincerely hopes there are avenues developed soon that will mitigate this pandemic and eventually immunizations that will make this a thing of the past, but until that time, continue conversation with your carriers. Hopefully by understanding the carrier challenges, you can engage in conversation to assess the strength of your carrier partners and their ability to sustain operations. When we come out of this challenging time, there will be a need for increased capacity and we will all work together to strengthen our networks so we can meet that challenge head on and together!

Good luck in these times and stay safe!

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Topics: Transportation, Logistics

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