The Difference Between Retail Freight And Wholesale Freight
Supply Chain and Freight Challenges Leading to Shipping Changes
During the past few years, global challenges have led to disruptions in the supply chain. Closures around the world have slowed the production and distribution of goods, leading many retailers to explore alternatives.
The pandemic led many Americans to turn to e-commerce sites to order products, placing increased pressure on brick-and-mortar stores. Shutdowns have also caused problems. For example, the recent shutdown of Shanghai has disrupted major U.S. companies like Apple and G.E.
While congestion at U.S. ports and the resulting supply chain issues was widely reported during the 2021 holiday season, the problem is ongoing. Recently, a study by the Royal Bank of Canada found that 20% of all of the container ships in the world are currently waiting in congested ports.
With these issues in mind, freight brokers must understand the role that freight and shipping play in both retail and wholesale distribution and how retailers are changing the ways they operate to manage the supply chain and distribution problems. Understanding the current supply chain issues and their impact might also help you to comply with the law and avoid claims against your freight broker bond.
Changes in Retail Supply Chains
Starting in the 1980s, the costs involved for retailers when shipping freight was relatively low. There were numerous carriers that were available and willing to transport goods from distribution centers to retail stores. Shippers have frequently worked with freight brokers to identify and connect with carriers to get their freight shipped to its destination in a timely manner and at low freight rates.
However, shipping options have changed and faced numerous challenges in the last five years. Some large retailers have turned to buying private fleets instead of outsourcing shipping to third-party carriers.
There is currently a nationwide shortage of truck drivers. According to the American Trucking Association, transportation carriers had a shortage of 80,000 drivers in 2021. Since the U.S. relies on trucks to transport 72% of goods, the driver shortage poses a major challenge to companies requiring prompt shipments. Trucking carriers have high rates of turnover, and the driver population is also aging.
Retailers that have purchased their own private fleets pay higher average wages to their drivers and have lower turnover. Buying transportation companies and logistics firms and bringing the transportation operations in-house has also helped retailers deal with capacity problems.
The supply chain crisis has also caused freight shipping rates to skyrocket. Large retailers that contract with third-party transportation companies are frequently at the mercy of market conditions since their contract rates do not provide a guarantee the transportation companies will be able to provide the needed capacity to transport freight to destination stores. Transportation companies might instead offer the capacity to different, higher-paying shippers instead of the retailers with which they have contracts, leaving the retailers to pay much higher spot market rates to ensure they get their goods where they are needed.
Brick-and-mortar big-box stores have also faced increased competition from e-commerce giants like Amazon that promise fast delivery, making shipping even more critical. All of these challenges have led some large retailers to bring their transportation needs in-house and manage them on their own. Retailers with private fleets can quickly move freight from company-owned distribution centers to destination stores while also drop-shipping products customers order online to ensure they receive their parcels on time.
Large retailers are also turning to bulk shipping to help ease the issues they face with supply and demand. While large retailers can purchase transportation and logistics companies to establish private fleets, this can be problematic for smaller retailers with the decline in available carriers to transport and deliver their goods.
Factors That Affect Bulk Shipping Rates
Several factors affect the rates companies might have to pay for bulk shipping, including the following:
• Class of freight – Certain types of freight, including hazardous materials or vulnerable products, have higher bulk shipping costs
• Distance – How far the freight needs to be transported also impacts shipping costs
• Freight size and weight – Heavier, bulkier items cost more to ship
• Cargo space – Items that take up more space will also cost more to ship
Freight brokers and transportation carriers must take all of these factors into account when calculating bulk shipping rates.
Role of Freight Brokers in Mitigating Risks
Outsourcing logistics to third-party freight brokers can help companies mitigate risks in several ways. Freight brokers can help shippers to reduce their shipping costs through their access to the transportation market and by identifying carriers offering the lowest freight transportation costs. They also help to reduce liability risks by ensuring the carriers with which they contract to comply with the regulations established by the Federal Motor Carrier Safety Administration (FMCSA).
Because of the fact that licensed freight brokers are required to carry freight broker bonds, this also helps to ensure the carriers will be timely paid for transporting shipments. If they don’t, claims can be filed against their bonds so that the freight brokers will be responsible for paying the carrier what is owed. Finally, freight brokers might have an easier time finding a carrier with the necessary capacity to transport the freight needed by a shipper.
The supply chain issues are expected to continue. While freight has led to a change in how some large retailers are handling freight shipments, smaller retailers must still contend with identifying and contracting with carriers with which to do business. As a freight broker, you play an important role in helping to facilitate the flow of goods across the U.S.