January 28, 2018
The current freight market is one for the books. Extreme weather, E-Logs, increased volumes, higher fuel prices, and numerous other economic factors have all contributed to an increase in rates and a capacity shortage.
The Wall St. Journal explains “a nationwide truck shortage is forcing thousands of shippers into a tough choice: postpone all but the most important deliveries, or pay dearly to jump to the front of the line.”
We don’t anticipate this level of volatility to continue all year, in fact, rates are already coming down off the recent peaks due to seasonality. However, until we settle into a “new normal” there will continue to be challenges and uncertainty in freight markets.
Active truck utilization – how many trucks are needed versus the number available – is at 100%, and spot rates are hovering near record highs.
Here is a load/truck ratio map for a selection of ten U.S. cities. L/T = the number of shipments posted from a city, divided by the number of available dry vans in that area. Any ratio that exceeds 5.5 indicates an incredibly tight market.
Looking at the map, you can see that some of the cities exceed the 5.5 threshold. Yet, when compared to ratios two weeks prior, you’ll notice that capacity has improved in nearly all locations. We hope this positive trend continues.
ELDs are affecting the trucking market in a big way. On the DAT blog, a carrier shared that drivers are shortening their days because of ELDs and delaying deliveries to avoid running out of hours and the risk of being caught by law enforcement.
In a recent blog post, we dive deep into the impacts. To summarize, most carriers are charging more because their capacity has decreased, others are rejecting loads they used to take, and some have even decided to close their doors. And overall, shipments of 450+ miles that used to take one day, now take two. Everyone is being forced to adjust.
ELDs in April
Full ELD enforcement doesn’t start until April 1, 2018. We are predicting that a myriad of things could occur around that important date.
There are many carriers still running non-compliant, meaning without ELDs. The general expectation is that they will exit the marketplace prior to 4/1 rather than make the investment to update equipment. On the other hand, some analysts predict that with the market as robust as it is, carriers will be motivated to become compliant and stay on the road.
Shipper and receiver operations are having an influence on carrier pricing, too. Lengthy loading times or inflexible hours are forcing carriers to reconsider their pricing into various locations. This is a direct result of ELDs. Carriers simply can’t afford to wait around.
Some shippers and receivers are starting to shift, adding more hours – weekend or evening – and improving their overall operations. We expect more facilities to follow suit or risk the reputation of an undesirable location.
Being flexible and accommodating to drivers will be imperative for the current market.
There has been an uptick in used truck purchasing. ACT Vice President Steve Tam told Transport Topics that “there is just not a lot of reasons not to buy, not to modernize, not to upgrade.” Strong freight demand and rising rates, paired with a need for more capacity, means many trucking companies are looking to add equipment.
While a positive market indicator, the impact on capacity is yet to be seen. It will take a long time for those investments to yield results and short-term benefits could be outweighed by rising driver pay and insurance costs.
American Trucking Association has proposed the Build America Fund – a 20-cent-per-gallon user fee — phased in over 4 years and applied at the wholesale terminal rack — on all transportation fuels, including diesel, gasoline and natural gas. The estimated $340 billion generated from the tax over a decade would cover the current highway funding gap.
Year over year, diesel fuel is already up 39 cents per gallon. An additional increase would significantly impact rates. Yet, everyone can agree that infrastructure spending is necessary.
Infrastructure and Tolls
The American Society of Civil Engineers’ 2017 Infrastructure Report Card gave the U.S. an overall infrastructure grade of D-plus. The country is in dire need of road and bridge updates.
To fund these investments, the alleged Trump infrastructure plan calls for expanding interstate tolling. Commercial Carrier Journal reports that the leaked plan calls for “allow[ing] states flexibility to toll on interstates and reinvest toll revenues in infrastructure” and allowing states to commercialize public rest areas as a means to drum up highway funding. Current law forbids adding tolls to existing Interstate lanes. The Trump plan hints it would remove that ban.
Some states are already moving forward with new tolls. NPR reports that toll roads/lanes are opening this year in Texas, Colorado, Florida, North Carolina and Virginia.
Other states are adding congestion pricing to to help manage traffic in and around major cities. Oregon and New York are making headlines for pricing that could go into effect later this year.
There simply aren’t enough drivers to meet current freight demands. Trucking wages haven’t kept up with inflation and companies have struggled to attract able-bodied workers to the industry.
To appeal to more potential drivers, American Trucking Association’s President and CEO Chris Spear said that 50 percent of surveyed carriers plan to either increase wages or offer bonuses. Some reports share that the increase in driver wages could be as much as 12%.
Employment in construction, manufacturing, and even warehousing will continue to put pressure on the driver shortage as well. Many would-be drivers may choose these localized professions so they are closer to home.
As the food and beverage industry continues to respond to consumer demands for fresh products, both the temperature-controlled and frozen markets are growing. Capacity is significantly tighter for these modes, and we are anticipating issues this coming produce season.
Shippers will be forced to try non-traditional practices – solutions other than truckload – for refrigerated freight. This may include a surge in intermodal/rail utilization or insulated boxes and pallet covers.
Retailer Demands and Trends
Retailers are getting stricter with their inventory and delivery demands. In 2017, Kroger instated at $500 charge for each late delivery, and Walmart unrolled its On Time In Full (OTIF) protocols. We anticipate other chains to follow suit if not already engaging in a charge-back program.
Additionally, the trend toward “order-to-shelf” is growing. Whole Foods and Target are among the latest to adopt the practice. Essentially, stores are working to keep as little as possible in inventory without having empty shelves. Under this model, suppliers are being held accountable to stricter Must Arrive By Dates (MABDs) and quicker order turnaround.
With an already demanding and tight freight market, consumer good brands will need to make transportation a priority in 2018. Otherwise, they face a plethora of fees from customers, lost sales, and damaged relationships.
Maintaining Service Levels in a Tight Transportation Market
Shippers who have trouble securing capacity are often looking for below-market rates. In such a tight market, this strategy will make getting goods where they need to go, and on time, nearly impossible.
At Zipline, we are doing all that we can to keep costs down while still maintaining expected service levels, even in these tough conditions.
We are suggesting to all customers that they:
- Be flexible with appointments
- Consider adding evening and/or weekend hours
- Increase communication with transportation partners
- Provide partners with adequate lead time
- Act quickly – trucks move (get booked) fast
Have a question about rates? Reach out to us today for counsel.