How Rising Trucking Expenses are Driving Price Increases for Shippers
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Estimated reading time: 3 minutes
The trucking industry is facing a number of challenges in 2018, making it a tough year for moving freight. Rising operational costs are largely to blame. According to an analysis by PLG Consulting, trucking expenses are expected to rise 8% to 10% this year (FleetOwner), and as a result, shippers’ prices are increasing as well. Below are several factors impacting rates:
The United States is approximately 60,000 truck drivers short right now, which is due to many factors including driver pay. PLG Senior Consultant, Michael Muhich believes, “the current driver shortage will continue for the next eight years, as an aging driver workforce heads for retirement, regulations push out other drivers, and the trucking lifestyle dissuades younger folks from joining the industry” (FleetOwner). To combat this, the “driver experience” must change. “Right now entry pay is about $48,000 a year; that translates to about $16 per hour. That makes being an Uber driver more attractive. So, we need to get closer to $100,000” (FleetOwner). By improving pay in the trucking industry, more drivers will have an incentive to stay in the field for longer and younger generations will be more inclined to enter the industry. Roehl Transport Inc. is just one of many carriers using an increase in pay as an incentive to join the company. “We know how hard truck drivers work to provide excellent service to our customers, and it is well-deserved,” said vice president of driver employment, Tim Norlin. “Paired with our $10,000 sign-on bonus for experienced drivers joining our fleet, there’s never been a better time to join Team Roehl” (RefrigeratedTransporter).
Full Enforcement of ELD
With the full enforcement of the FMCSA’s Electronic Logging Device (ELD) Mandate that began on April 1st of this year, it is likely that shippers’ businesses will be impacted due to delayed shipments, overtime for warehouse workers, chargebacks, and drops in productivity. The full enforcement causes an increase in operational costs for truckers, not only because of the cost of the ELD devices themselves, but because of costs associated with reduced productivity. With stricter enforcement of Hours of Service (HOS) limits, drivers can no longer (illegally) surpass 11 hours of driving per day, which causes them to miss out on revenue. The mandate also impacts on-time deliveries, making loading and unloading efficiency more important than ever before. Every minute spent sitting idle costs a trucking company money, and many are increasing driver detention fees to make up for it.
Healthcare represents 17% of total trucking costs and is continuing to increase (FleetOwner). In addition, out-of-pocket expenses for truck drivers are also experiencing a jump due to rising health care deductible levels (American Trucker).
According to Statista, the monthly retail prices of diesel fuel in the U.S. increased approximately 14.5% from March 2017 to March 2018. Fuel makes up 13% of total trucking costs and the increase in cost means “inflation is on its way in 2018 and beyond” (FleetOwner).
Graph from: Statista
Rising Freight Demand
According to The Wall Street Journal, the ratio of loads to the number of trucks on the spot market increased by more than 120% in February year-over year. This made it difficult for shippers to find good, reliable carriers (DAT). Capacity on the spot market was also down 8.5% (WSJ). A higher demand for freight decreases the supply of available capacity, and rates inevitably rise. You can read more about the increase in rates our previous blog post.
What Shippers Can Do to Navigate a Volatile Market
As carriers raise rates in response to rising operational costs, it’s important for shippers to adapt and find creative ways to mitigate high costs. Below are a few suggestions.
- When choosing transportation providers, analyze and align a carrier or broker’s core competencies to your network so that you get the best cost and service possible.
- Dissect pain points or areas of volatility and provide as much information to your carriers up front during the RFP process so that there are no surprises that will impact the tendering, resource allocation, etc. mid-RFP.
- Be willing to pay extra for reliable service to ensure products make it onto shelves safely; doing so may be less expensive than the alternative—missed deliveries, chargebacks, or a tarnished customer relationship.
- Develop routing guides that consist of more than one carrier per lane to improve tender acceptance on your most critical routes.
- When allocating freight, determine whether annual, bi-annual, or quarterly commitments are best when considering volatile inbound or outbound markets.
- Be flexible with fixed rates on file, and the duration and depth of your routing guide to avoid paying much higher spot market rates.
- Become a true shipper of choice and work to be the kind of company carriers want to work with.
You can read more tips on what shippers can do to reduce transportation costs and avoid disruptions here.
Economic change is inevitable in any marketplace and LoadDelivered has experience in providing a blend of capacity services, ranging from dedicated to backup to surge. Contact us to get the most out of your shipping dollars in 2018 and beyond.