Industry Update: The Current State of the Freight Capacity Crunch

As we head into the final (and likely the busiest) part of the year, we thought we'd give small and mid-sized business (SMB) shippers an inside look at the state of the freight shipping industry — specifically, the market's current freight capacity. You probably know that tight capacity can mean trouble for your business. While increased shipping rates and late deliveries impact businesses of all sizes, SMBs tend to be hit the hardest when it comes to capacity constraints. That's why SMB shippers need to be proactive by following the latest industry trends and optimizing their strategy accordingly.

With the peak holiday shipping season right around the corner, now's the time to make sure you understand all the factors impacting your freight shipping rates and delivery speeds this year. Plus, we'll give you tips for getting your shipments out the door during constrained capacity — on time and on budget. So what are you waiting for? Let's get you up to speed!

What is a freight capacity crunch?

A freight capacity crunch occurs when there aren't enough freight drivers or equipment to keep up with current demands. This can happen for a number of reasons (more on that later), but the main takeaway is this: when carriers can't keep up with demand, shipping prices will increase and whatever capacity is available will typically go to big-volume shippers — delaying deliveries for SMBs who may not get access to the space due to priority. Download our helpful guide, Understanding Freight Carrier Capacity, to learn all the ins and outs of a capacity crunch.

What are the current factors impacting freight capacity?

Freight capacity concerns are nothing new. In fact, if you manage your company's shipping, you may have already heard about the capacity crunch when the Electronic Logging Device (ELD) mandate went into effect back in 2018. These capacity constraints only intensified in 2020 as the COVID-19 pandemic shook up the transportation industry, causing shutdowns and supply chain disruptions before e-commerce drastically increased demand on an already strained market.

Now, as we begin to approach a post-pandemic world, many are wondering what impact current trends will have on freight capacity for the upcoming peak season and beyond. Here's a look at some of the main factors impacting capacity that you should be aware of this season:

Inflation

You're probably already feeling the impacts of inflation in most areas of your business, so you may be wondering — are freight rates going to increase with inflation as well? In recent years, freight shippers have already experienced rising base shipping rates (as well as increases to other accessorial fees), so rising shipping costs are a valid concern. This year, fuel surcharges in particular were impacted as U.S. diesel prices climbed. And with current sanctions against Russia (the third-largest oil supplier in the world), these increased fuel costs likely aren't going away any time soon. However, we have some good news! As of July, U.S. freight rates have started to slowly trend down. While other capacity factors may still impact shipping costs, this is a hopeful sign that inflated freight rates have already hit their peak and will continue to decrease. Read our blog to learn more about what inflation means for SMB shippers like you.

Driver shortage

As you've likely heard in recent years, the transportation industry is experiencing a driver shortage — and this shortage continues to be an issue for current and future freight capacity. High industry turnover rates, plus the fact that nearly 23% of all drivers are over the age of 55 and approaching retirement, mean that it will continue to be a struggle for carriers to replace their drivers and keep up with staffing demands. Of course, this growing staffing issue means tighter capacity and (you guessed it) increased rates. Less-than-truckload (LTL) freight rates will be especially impacted, since it's more labor-intensive than truckload shipping.

Container shortage

In addition to our ongoing truck driver shortage, the industry is also experiencing a container shortage. This issue began in Asia (where the majority of shipping containers are manufactured) with the shut-down in early 2020 and continues as global shipping volumes keep rising. Due to this shortage, ocean freight costs have skyrocketed to more than four times higher than pre-pandemic rates.¹ While the industry did experience a 6% price drop in July (due to rate decreases on ex-Asia to US West Coast and European lanes), this trend isn't likely to continue. Recent labor issues in North America and Europe (not to mention continued port congestion) may end up pushing ocean freight rates back up. And if you think increased ocean freight rates won't affect you, don't forget — even if your business doesn't ship internationally, your supply chain may still be impacted if you rely on international vendors!

Shipping congestion

When it comes to shipping, increased volume means increased congestion. And boy, can shipping congestion cause headaches! The major ramifications of shipping congestion became mainstream news last year when a container ship got stuck and blocked access through the Suez Canal, holding up an estimated $9.6b of trade each day. While this is an extreme example, any time the number of ships trying to enter a port exceed the port's capacity, it's going to cause delays. You've probably already experienced the impact of some of these delays — and unfortunately, these challenges will likely continue in the months and years to come. In fact, average transit times for trans-Pacific ocean freight are double that of pre-COVID levels.

Just like freight container ships at a port, freight trucks can also become congested on the road — especially at international gateways and domestic transfer points. Roads can become particularly congested after short-term hold-ups (such as an equipment shortage or labor dispute) or after long periods of constrained capacity, like we're seeing now. In the short-term, carriers have been managing high shipping volumes and congestion with freight embargoes (when carriers stop accepting freight based on a certain geography or product type). Looking at a more long-term solution, forecasts predict substantial fleet growth in 2023 and 2024, which will hopefully help ease some of the strain caused by equipment shortages.² However, other factors (such as the driver shortage and infrastructure limitations) could still lead to future road congestion.

Continued e-commerce growth

The rapid growth of online retail sales during the pandemic caused shipping volumes to increase exponentially as more product needed to be moved across the country (not to mention the increase in reverse logistics necessary to keep up with online returns). This increased demand for shipping services only added to the freight capacity crunch, utilizing any available drivers and filling all available trucks to total capacity. And while e-commerce growth has slowed slightly since its initial surge in 2020, it shows no signs of going back to pre-pandemic levels.

Fight Capacity Concerns with Shipping Resources

If you've made it this far, you might be feeling a bit overwhelmed about just how crowded the current freight market is. Especially for SMB shippers, the capacity crunch (and the raised rates that come with it) can feel like a losing battle. That's where a third-party logistics (3PL) partner comes in! A 3PL can help you navigate current capacity concerns by offering their customers:

• Competitive shipping rates. Unishippers leverages the combined shipping volume of our customers to obtain the most competitive rates with top freight carriers — passing along these discounted rates to SMB customers like you.
• Increased network capacity. We leverage our deep and long standing relationships with the best freight carriers across the country to ensure your freight makes it on the truck.
• Industry-leading tools and resources. With resources like our easy-to-use transportation management system (TMS), Unishippers provides you with top-notch service to help you manage your shipping more efficiently.

Learn more about how Unishippers can help you navigate the capacity crunch with our free guide.

Your Capacity Crunch Coaches

Navigating the freight capacity crunch on a budget can be one of the top challenges for SMB shippers. But "out of sight, out of mind" won't solve your capacity concerns! It's time to bite the bullet and be proactive about your freight shipping strategy — and luckily, Unishippers makes it easy. Our team of shipping experts can review your shipping strategy and provide customized recommendations for your business. Contact us today and start combatting the freight capacity crunch!

Last Updated 9/23/22

1. Freightos (2022). Shipping & Freight Cost Increases, Current Shipping Issues, and Shipping Container Shortage.
2. Sobel Network Shipping Co., Inc. (2022). Supply Chain Forecast: Ongoing Chaos Into 2023.