In a Volatile Drayage Market, Shippers Demand Accuracy

After a turbulent year, the first quarter of 2024 ushered in a period of stability in the drayage market. Yet, it’s almost as if the more things change, the more they stay the same. There remains a carrier supply and demand imbalance, persistent economic headwinds, and geopolitical factors that only appear to be worsening, not to mention an important bridge collapsing in the middle of the night.

Everything’s connected in the supply chain, and drayage’s “first-mile” status is also at the front line of global disturbances. For instance, recent turmoil in the Red Sea has forced shippers to take lengthy detours around Africa instead of passing through the Suez Canal, leading to increased transit times and higher shipping costs, forcing the drayage and ocean freight markets to adjust. So, with more volatility likely on the horizon and so many wild cards impacting the drayage market, shippers demand accuracy, plain and simple.

Understanding Drayage Volatility

Drayage is the critical link in intermodal transportation, shuttling goods over short distances from ports to nearby logistics hubs. Essential yet volatile, this sector is the supply chain’s first mile and first line of defense against global trade volatility. Every little thing around the world can impact drayage rates and more.

Drayage Market: What Causes Volatility

Drayage market volatility stems from many factors that sway the cost and availability of short-distance transportation of goods, particularly from ports to nearby logistics hubs. Economic signals, as pinpointed by a Massachusetts Institute of Technology study, directly shape the drayage market. Such indicators include retail sales, housing starts, vehicle sales, unemployment rates, and fuel prices.

Beyond economics, unexpected global events and geopolitical crises profoundly disrupt major trade routes and, consequently, drayage operations. For instance, the COVID-19 pandemic and the recent collapse of the Francis Scott Key Bridge in Baltimore led to significant rerouting of shipments and adjustments in logistical strategies. Such “black swan” events cause abrupt spikes in volatility, impacting everything from individual port operations to the broader supply chains that hinge on stable and predictable drayage services. Moreover, geopolitical tensions affecting critical passageways like the Black Sea, Red Sea, and the Strait of Hormuz further complicate the picture, as they can lead to increased security measures, shipping delays, and escalated operational costs.

The Economic Impact of Volatility on the Drayage Market

Want to see how volatility directly impacts the drayage market? Consider the current upheaval in the Middle East. This turmoil has spiked shipping costs by an astonishing 150% this year, which could push core inflation up by .5%. Such soaring costs compel shippers to rethink their financial plans and adjust their logistics strategies to cope with the sudden increases.

Moreover, the disruption has forced hundreds of vessels to bypass the Suez Canal, adding 4,000 miles to each journey. This major detour not only stretches delivery times but also ramps up freight costs, straining the efficiency and predictability of drayage operations.  

Regulatory Changes and Industry Response

With more volatility comes more regulations. Recent legislative changes aim to stabilize the drayage sector and improve transparency and accuracy.

Ocean Shipping Reform Act of 2022

The Ocean Shipping Reform Act (OSRA) of 2022 significantly reshapes the drayage market, particularly by reforming the handling of per diem fees. This act proactively protects shippers from weighty penalties previously imposed for late container returns and tightens oversight. By doing so, OSRA reduces both the frequency and size of these fees and creates a fairer, more transparent billing process that simplifies dispute resolution for shippers.

Beyond penalties, OSRA also enhances transparency across the board. It mandates that port operators and chassis owners provide detailed data on equipment availability and empowers shippers with the information needed to optimize their operations. At the same time, this greater visibility helps prevent delays and streamline scheduling to make drayage operations more efficient and cost-effective.

Industry Adaptations

Carriers and shippers are urgently adjusting to the new realities of the drayage market, driven by recent changes in regulations and market conditions. For instance, OSRA has prompted a proactive shift in the management of fees. Now, shippers are choosing to partner with carriers that can effectively advocate for them, navigating the tighter dispute resolution deadlines and stricter detention and demurrage rules enforced by the OSRA. Carriers and shippers are also adapting to other regulations, such as those in Mexico aimed at reducing contraband and smuggling and laws limiting the use of independent contractors, which impact operating costs.

Meanwhile, the drayage market in 2024 is challenging carriers and shippers to find new equilibriums. The influx of carriers during COVID has left a supply-demand imbalance, pushing both parties to innovate and adapt. The collapse of Baltimore’s Key Bridge has also forced a rethink of logistics routes and schedules. Carriers and shippers are not only adjusting their strategies to bypass these new bottlenecks but are also gearing up for seasonal fluctuations like the upcoming produce season so they can meet demands without compromising on efficiency or accuracy.

Strategic Moves by Shippers

Shippers in the drayage market are taking decisive steps to confront the volatility challenges head-on. Here’s a glimpse at how:

• Integrating Real-Time Tracking and Advanced TMS: Shippers utilize real-time tracking systems to gain better control and visibility. For example, Hapag-Lloyd now equips all its containers with live trackers for global monitoring. Additionally, more shippers are leveraging Drayage TMS to better predict and manage logistical challenges.
• Adopting Just-In-Time (JIT) Shipping Practices: By adopting JIT shipping practices, shippers minimize their reliance on unpredictable drayage services, so goods arrive just as they are needed. Doing so streamlines operations and reduces holding costs.
• Strategically Positioning Inventory: More companies are diversifying their production sites to lessen the impact of port delays and congestion. A survey by Accenture revealed that 78% of companies plan to use multiple production sites in the next three years, compared to 41% in 2023.
• Partnering with Proven Drayage Providers: Shippers are carefully selecting drayage partners that not only comply with industry standards but also excel in operational efficiency.  
• Managing Accessorial Charges Proactively: Shippers pay closer attention to accessorial charges to avoid unexpected costs. In 2024, many see charges such as the residential surcharge by FedEx and UPS increasing by over 7.5%, prompting shippers to adopt more vigilant financial strategies.

Mastering Market Dynamics with Draying.io

The drayage market continues to deal with the brunt of turbulent times. But instead of staying complacent, shippers are stepping up with smart, strategic responses to keep their operations stable and efficient. Not only are they facing the challenges head-on but are also setting new standards in managing logistics seamlessly.

So, as companies increasingly leverage the power of advanced technologies and strategic partnerships to stay ahead, Draying.io emerges as the all-in-one drayage solution. With real-time tracking capabilities and advanced drayage TMS features, shippers can lean on Draying.io to optimize their operations dynamically, anticipate disruptions, manage costs effectively, and ensure timely delivery of goods despite the volatile market conditions. Draying.io’s patent-pending, innovative algorithms further take pricing and capacity management to the next level, so shippers can unprecedentedly predict prices and bypass traditional carrier quotes.

Ready to experience how Draying.io can elevate your shipping operations? Schedule a demo today and discover powerful ways to optimize your logistics, even in the most challenging conditions.

‍