5 Reasons Your Freight Rates Are Up
If you've booked any trucking freight in the past quarter you've probably noticed you're paying a lot more money in 2018 than you were in 2017. In the spot rate market, high rates have strained your finances and finding capacity to get your freight moving has become a challenge. So, what is causing this rapid spike in trucking rates?
" The wide spread between freight and capacity additions bodes well for continued strength in freight rates into the new year," said Tim Denoyer
, ACT vice president and senior analyst at the truck market research firm.
"Clearly, truckers are entering 2018 in the best negotiating position in many years."
5 reasons why your trucking rates are up :
1. Weather
Hurricane season may be in the rear-view mirror of 2017 but the rate increases they've caused continue to pave the road ahead. The capacity crunch created when trucks were diverted for relief efforts foreshadowed the shortage shippers are seeing now. While they can initially be blamed for causing spot rates to soar to 2-year highs , we've since learned that weather was only the beginning of a much larger issue.
2. ELD's
When the ELD ( Electronic Logging Device) mandate went into effect in mid-December it couldn't have come at a worse time. With rates already soaring due to storms, a Holiday season that saw sales surge , and new regulations, shippers bore the brunt of the cost burden. Although all trucking companies were now on an even playing field, many industry standard practices had to be abandoned. This meant the operators and carriers were forced to add costly upgrades to their trucks and can now make fewer turns in a day. Simply put, truckers can now deliver less freight per day leaving fewer empty loads waiting to add new freight.
3. Capacity
When rates sky rocketed due to hurricane season an ominous feeling swelled up within the industry. If diverting trucks to aid in relief efforts could have such an impact on capacity it only serves to underscore a much greater issue. There is simply more freight than there are trucks to put it on. While trucking firms are hiring at their highest rate since 2015 the problem is far from solved. Even though rates have stabilized there's no sign of them receding in the near future. Fortunately, carriers recognize the issue and big rig orders were up 76% in the month of February.
4. Economy
Strong American and Global economies are fueling demand. "We have three years in our back pocket now when world trade grew slower than global economic activity," economist Donald Ratajczak said. "This year, however, I'm expecting 4.5 percent growth in global trade. The IMF just raised its forecast for global economic growth to 3.9 percent. They'll get to 4 percent." Growth in global
trade will fill more US trucks. This growth and demand has not only roiled the spot rate market, "We're hearing anecdotal reports of contract renewals at 10 percent. If volume growth does accelerate, we could get into a situation in the spring where if there are capacity issues and intermodal service problems, there's suddenly no relief valve" for shippers. "warns Benjamin Hartford, senior research analyst at investment firm Robert W. Baird & Co.
5. Intermodal
Smart shippers who caught on to the capacity crunch early on almost immediately began seeking intermodal options which caused a 4 th quarter boon in bookings for shipments by rail. However, unlike in previous years, there wasn't the typical dip in volume that carriers see in January. As more and more shippers switched to intermodal options some real limitations of the mode of transportation came to light. "[Rail carriers] were supposed to have an opportunity to compete for additional volumes as trucks coped with the electronic logging mandate that went into effect last month," Todd Tranausky, a senior transportation analyst for FTR Transportation Intelligence in Bloomington, Ind. said , "but their service may not allow them to capitalize on it." High rates, slow speeds, and overbooked trains have caused a once attractive alternative to lose its luster.
Are you paying too much for freight in 2018 ? Contact a trusted adviser at Aborn & Co. and celebrate our 30 th Anniversary with a complimentary freight audit and consultation.
