The analysts’ predictions are in: a blend of supply chain components have set the conditions for truck transportation rates to continue upward right through the end of this decade, with 2018 possibly being another record year. Here at Next Exit Logistics, we excel at taking the pain out of truck shipping, but no one can ignore that the unrelenting acceleration of rising rates can cause sticker shock.
Confirmation of this outlook will be in the rates produced by the March through May semi-annual truckload contract bid cycle. Until then, the truckload spot market is leading the way, with January rates still higher than at any time in 2017 despite the effects of typical seasonal rate moderation.
“I look at freight transportation statistics all day long, and I am astonished,” wrote Peggy Dorf this January, an analyst for DAT, which watches truck market trends. “It seems as though every week sets a new record for something: highest-ever rate or load-to-truck ratio for vans, greatest-ever number of load posts, one after another, until we run out of superlatives.”
What’s Going On?
The years-long qualified logistics labor shortage is intensifying. The American Trucking Association reported in the third quarter of 2017 that big motor carriers saw their qualified driver turnover rate rise to 95 percent. Bear in mind that turnover does not equate filling the empty position behind the wheel.
Over the next decade, 60 million employees will leave the US supply chain industry, from warehouse to trucking, but only 40 million were expected to join, as reported in the 19th Annual Third-Party Logistics Study. Carriers are responding by offering qualified drivers sign-on bonuses that start at a $1,000 for newbies to tens of thousands of dollars for experience, with promises of better at-home time to sweeten the deal.
What’s more, with consumers making the majority of their purchases online coupled with the digitization of shipping, from picking to driving the last mile, the term “qualified” will force carriers to seek drivers with digital skills. Alone, the labor shortage would drive up shipping rates, but unfortunately, that’s not the full story.
DAT and trade publication analysts are unanimous that the ELD Mandate, otherwise known as the federal rule requiring drivers to record their Record of Duty Status (RODS) through the use of electronic logging devices, is heating up competition for available capacity. More competition for a resource means that resource becomes more expensive.
Again, despite the seasonal downward trend for van rates and loads, DAT reports that the average January rate of $2.26 per mile is roughly a 74 percent jump over last year’s $1.67 per mile. The recent rise in fuel costs have certainly played a role, but analysts squarely place the blame of the climbing rates on the ELD mandate.
ELD compliance forces drivers off of fudgeable paper logs, upon which they could manually record their hours of service and hide hours they should have logged, onto an unforgiving electronic device. It reduces driver productivity while increasing road safety.
Since December when the rule came into full effect, drivers can no longer be in service for more hours than the law allows. Violations of the guidelines can result in drivers and their trucks being placed out of service for up to 10 hours per violation as well as fines. On April 1, Safety Measurement System points will start to be deducted, affecting a carrier’s overall Compliance, Safety, Accountability score. That only pressurizes the capacity crunch further.
Above we have already explored how the labor shortage along with the implementation of the ELD mandate has crunched capacity. What has and will continue to have a compounding effect is the consumer shift from the traditional retail experience to an Amazon-style shopping.
Cyber Monday 2017 sales hit fresh records, nearing $7 billion, but the year saw big name brick and mortar stores collectively announce the closure of 6,985 stores, a 229 percent increase over 2016, according to CNBC. While some have termed this shift in consumer preference to e-commerce, the “retail Apocalypse,” it will fuel increased demand for all aspects of the supply chain industry, including truckload capacity.
The Journal of Commerce polled shippers and logistics providers and found that while both agree that truck transportation rates will continue to rise, there is a perception gap between just how high the rates will go and how much capacity will be available. Most shippers believe capacity will remain flat, while logistics providers, including Next Exit, see that the trends in e-commerce, labor, the ELD mandate, and year-over-year freight volume growth are making capacity even more finite for all truckload classes.
FTR Transportation Intelligence Chairman and CEO Eric Starks said, “We have essentially hit the 100 percent capacity mark; there is little if any excess truck capacity.”
What Shippers Can Do About It
Plan. Plan early. And work with a reputable logistics brokerage with a well-established network of carriers. The requirements of every business are different, but for certain businesses, re-examining their shipping strategy may be the best way to weather these rate hikes.
In the past, many shippers relied on the spot market to cut costs, as its rates were traditionally less expensive. Because that has now been turned on its head, shippers are pursuing dedicated transportation solutions to not only assure their needed capacity but also to lock in rates, typically for a year.
This is where shippers need to form solid partnerships with logistics providers that have multiples of transportation providers who they can enlist at a moments notice. In addition to market rate volatility, there are also the unknowns, such as the string of hurricanes last year. Those natural, yet destructive, events take trucks off the road and will leave the unprepared with their shipments waiting on the loading dock.
At Next Exit Logistics, we relieve shippers of planning for the unknowns as well as battling for the best rate for the best possible service now, in the coming year, and in the future. We can arrange the shipping of any item; we specialize in providing freight services for unusual and impossible oversize or overweight shipments! Our customers say that time and time again, Next Exit Logistics eliminates frustration by managing the freight shipping process from beginning to end.
Our seasoned background as a freight management brokerage is backed by our safety and on time track record for organizing the movement of heavy haul freight quickly and efficiently. What’s more, we are certified to arrange the shipment of hazardous materials.