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The Issue: Rising Freight Costs

Supply chain leaders face the same dilemma: freight costs are squeezing profits.

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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.

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.

Volume

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.

Price Hikes

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%.

Capacity

“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

Reasons why freight costs have risen:

A tale of a driver shortage and increased demand.

“The biggest companies in America face the same dilemma: A truck driver shortage is squeezing profits.” - CNN

Economic Growth

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 Issues

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.

Increased Demand

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.

Driver Shortage

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).

A solution to the problem:

The proven value of a TMS

Implementing a transportation management solution has proven to be an effective strategy in helping companies reduce their transportation costs, gain visibility, and streamline shipment processes. Plus a TMS provides a cross-departmental collaborative platform for your documents, data, and conversations.

  • According to a recent Ohio State study 89 percent of companies that implemented a TMS system were able to get to their break even point between months 6 and 18.

  • In the 27th Annual Logistics and Transportation Trends Survey, 15.1% of responders said the primary driver for digitization is to reduce costs.

  • Research has shown that on average companies achieve 8.5% in cost reduction when they have implemented a TMS.

  • An ARC study indicates that a TMS reduced freight spend by 6 percent or more for 63% of companies. 65% of companies also showed service level improvements.

One screen for all your rates

With all your rates instantly loaded on one screen — shippers can save hours of their days by eliminating the need to log into multiple carrier sites to compare rates.

Save money in your processes - from knowing you are choosing the least cost provider to reconciling carrier invoices.

Propel TMS

Are freight costs an issue for your organization? We would love to have a short market interview with you to find out more about your pain points and ways software could help you become more efficient.