Rising freight costs: A tale of a driver shortage and increased demand.
Supply chain leaders face the same dilemma: freight costs are squeezing profits.
Rising freight spend
For the first several quarters last year there was a ground swell of leaders recognizing that transportation costs were becoming a major issue for their company. 148 companies in the S&P 500 mentioned “freight,” “shipping,” or “trucking” during their earnings calls in Q1 2018. This was twice the amount those terms were talked about from a year ago financial research platform Sentieo found.
The rising costs was a compounded issue of quickening economic growth, driver shortage, fear of trade wars and new tariffs, reduced capacity and higher volumes, and fuel prices driving up spot rates.
In August 2018, spot truck rates had increased 20% from a year previous to an average of $2.14 per mile, the highest average on record for the month.
Freight shipment volume by all modes of transportation surged 10.2% in April 2018 compared to April a year ago, according to the Cass Freight Index.
From January to July long-distance truckload prices increased at a 7.8% rate compared to 2017. LTL rates were up 7.4% and prices for the whole U.S. trucking industry were up 6.2%.
“Industry capacity for truck drivers remains extremely tight. This is driving third-party hauling rates to record levels, up 26% versus prior year,” – Ralph Scozzafava, CEO of Dean Foods
6 Reasons why freight costs have risen:
“The biggest companies in America face the same dilemma: A truck driver shortage is squeezing profits.” – CNN
The current outlook for U.S. manufacturing growth points to the best output performance in more than a decade. Manufacturing growth is forecasted at 2.8% for 2018-2021. That’s good news for the economy, but means capacity will continue to be an issue during 2019.
Carrier bankruptcies and consolidations have reduced capacity, while demand has been increasing by almost 7% year over year, according to industry sources.
2018 U.S. E-commerce Sales
Through the first three quarters of 2018, online sales grew 15.5%, according to analysis of U.S. Commerce Dept. figures. On Black Friday alone in 2018 there was $6.2B in US online sales. Deloitte predicted e-commerce sales to reach $128 billion to $134 billion during the 2018 holiday season.
At the beginning of 2018, according to online truck freight marketplace and industry analyst DAT Solutions, only one truck was available for every 12 loads that needed to be moved.
There is currently a driver shortage of roughly 50,000 drivers which is expected to grow rapidly to nearly 174,000 by 2024, according to the American Trucking Association (ATA). The trucking industry will need to bring on close to 1 million new drivers within the next 6 years to keep pace with the growing demand.
Total Truck Utilization
During early 2018, FTR’s measurement of Total Truck Utilization was 97% (meaning 97% of all trucks were in use) and at points hit 100%. During the first few months of 2019 however active truck utilization has fallen to about 94 percent, which is the lowest percentage since 2016.
These are just a few reason freight costs were such a big problem last years for shippers. Recent headlines, especially in the food sector, have shown 2018 costs are still impacting companies and are being passed along to consumers. While capacity has remained loose so far in early 2019, be prepared as we enter Spring for capacity to tighten and volume to increase again.