Good morning, and welcome to TEG Transport Insights.
Last week, UK inflation climbed to 3.1%. While far from negligible, the rate pales in comparison to the 4.5% wage increase recently handed to thousands of warehouse workers and HGV drivers at Tesco. How did the workers secure such a deal? They threatened to strike, leaving their employer stranded between a rock and a forklift.
Industrial action, it would seem, has become a hot logistics topic of late. Earlier this month, GXO lorry drivers were balloted for strike action after rejected the offer of a 4% wage increase. Meanwhile, staff at Lockwood Haulage walked out for ten days during their own recent pay dispute. With peak season approaching, the action begs a question: how much transport capacity should 3PLs keep in reserve?
Push-and-pull forces dictate how much capacity a 3PL has access to at any one time. On the one hand, 3PLs need to run an efficient operation. Slimming the number of reserve trucks and drivers on a 3PL’s books saves money. In a thin-margin industry, savings are good.
But trucks break down, drivers get sick and freight volumes waver. Having too little reserve capacity jeopardises SLAs, which can lead to fines and lost contracts. What’s a 3PL to do?
Formulas exist to resolve the tension. One model considers typical fluctuations in freight volumes alongside expected delivery hiccups. It then plans capacity to cover a percentage of loads as dictated by SLAs.
Say we typically move 100 truckloads a day, or 110 on a busy day. We expect 5% of available capacity to falter, while our SLAs require us to cover 98% of demand. We might deduce:
We need 110 trucks a day when busy. But we only need to cover 98% of our truckloads, which is 107.8 truckloads. As 5% of our trucks will fail, though, we actually need 113.47 trucks, or 114. So on a regular, 100-truckload day, we’ll have 14 reserve truckloads available, and about 4 of those will see some action.
The model works well in theory. In the real world, of course, working out such numbers is like stapling jelly to the ceiling. Meanwhile, short-termist management consultants label 10 idle trucks a day as inefficient. Oh, and should pay disputes arise, the entirety of a 3PL’s staff might decide to stop working. What then?
There is no doubt that 3PLs need a certain amount of transport capacity in reserve, and rules of thumb such as 10-15% surely help. From where I’m sitting, though, digital sourcing platforms seem a more attractive solution: As part of a trial offer I’m running at the minute, I recently found 3PLs who search for a carrier on the TEG platform receive an average of 6.3 quotes for every load they need covered during Q4, the industry’s busiest period.
Digital platform capacity isn’t infinite. Snowstorms, strikes and brutal demand peaks can tighten the whole transport capacity market at once. Plus, carrier quantity is irrelevant without carrier quality.
Even with all that said, on-tap capacity is surely better than idle trucks and guesstimation. Am I wrong? What’s your approach?
As we head into peak, let me know below – I may share some responses in a future newsletter.
