2017: Trucking rates reached all-time highs for all three major categories- van, reefer, and deck. Robust, consumer-driven economic growth across North America and world markets propelled transportation demand in general. Conversely, several factors contributed to capacity issues meant supply was further constrained within North America. This seller\’s market drove transportation costs to record highs; a trend that will continue into 2018.
Canadian domestic and US-bound shipments saw 7 consecutive months of record-breaking volumes at Loadlink to close out the year, as well as 200% increase in the load-to-truck ratio. According to DAT, US domestic dry van loads-to-trucks ratio also soared 200%; reefer and deck moved the average to 134% year-over-year. Intermodal shipments, traditionally an alternative to over-the-road shipments saw similar increases.
Let\’s take a look at the top causes: the North American economy, natural disasters, ELDs, and fuel, the driver shortage and the driver wages.
North American (read: US) Economy
The North American economy is healthy. Strapping. Lusty, even. The US GDP rose 2.3% from 2016, Canada\’s 2.1%, and Mexico\’s 1.9%. China and India are leading a red-hot Southeast Asian economy, the Middle East, Eastern Europe, Central America and parts of Africa are doing quite well, and most of Europe and South America are coming along nicely, according to the IMF\’s much more professional-sounding information. All this simply means more global commerce, more movement of freight world-wide, and yes, greater demand for North American road transportation.
While not having passed any noteworthy legislation in 2017 (besides the defecit-funded tax reforms for the wealthy, corporations, and beneficiaries of large inheritances, at the expense of all Americans), and despite confusing the bejeesus out of politicians, business persons and everyone else alike, #45\’s administration has held firm on an isolationist \”Home Alone\” stance. NAFTA renegotiation has not yet produced any tangible result, with the exception of creating uncertainty for business executives planning or reconsidering foreign investment in the countries involved. The same can be said of the US withdrawing from the TPP (other than China stepping in to fill the void). Should business as usual be subjected to future shakeup, expect shifts in supply chains.
Forces of Nature
Two major natural disasters (Hurricanes Irma and Harvey) in the continental USA affecting Texas, Florida, and the Gulf Coast caused severe infrastructure damage and disruption in transportation, in addition to the lives and livelihoods of those affected. Major transportation and distribution hubs (such as Houston, one of the USA\’s largest in several markets, most notably energy), were incapacitated, as were tens of tousands of trucks and drivers, and businesses in the affected regions. Transportation resources had to be diverted from regions as far away as the US northwest and \”rust belt\” to provide relief to the affected areas. Shippers in faraway regions found themselves competing with the clout, reach, and unbounded purses of FEMA and other such agencies. Adding to the above the infrastructure damage in Texas, and that Houston and environs is the fossil fuel energy hub of the US, it should come as no surprise fuel prices spiked, compounding the increases in transportation cost.
The US congress passed a bill mandating Electronic Logging Devices in trucks, enforceable on December 18, 2017. For greater detail, see the previous ELD Mandate article. In the almost three months since implementation, carrier compliance has been on a slow climb from poor to adequate, enforcement patchy, and special exemptions plentiful. Consequently, any meaningful evaluation of this mandate\’s effect on safety is still in the future. Its effect on drivers\’ productivity is also cloudy, mostly due to lack of good data from the tens of thousands of smaller operators that constitute the majority of the US over the road trucking fleet. The proximity of implementation to the holiday season also muddies the waters on how much trucking capacity and productivity were affected, and if the effect on rates might have been as high as surmised. Buy on the rumor, sell on the news?
Fuel, the Driver Shortage, and Driver Wages
Fuel and driver wages, the number one and two largest expenses for carriers, respectively, have also seen above-average inflation for 2017.
A straightforward cost to measure for carriers, the pump price of diesel climbed 17% year-over-year from Jan 2017 to Jan 2018, resulting in a significant operating expense increase across the board.
The effects on driver availability and wages on transportation rates are more difficult to measure directly. Suffice to say that CNN reports year-over-year 7.8% wage growth for truck drivers from January 2017 to January 2018, mostly in Q3 and Q4. For decades now, the trucking industry has been warning of a present driver shortage in an occupation with a rapidly-aging demographic (NTI estimates average age is 52), high turnover (~95%), exacerbated by an inability to attract younger drivers. All the while, driving wages have been woefully stagnant (since 1980 they\’ve failed to even keep up with inflation). Until 2017. This will continue to play out in a hot market, in which carriers\’ demand for drivers may well outpace shippers\’ need for capacity. Look for a 2018 update on this topic in the Bullwhip Logistics blog.
In summary, though the spot market seems to have reached its zenith in the first weeks of 2018, the load-to-truck ratio is still double average, and spot rates still at record highs in trucking\’s \”lull\” period of February 2018. Healthy economic growth, rising fuel and driver costs, and still-constrained capacity point to the likelihood of rising negotiated and contract rates in 2018. Which are welcome challenges for carriers, and perhaps a shot across the bow to shippers to lock in those rates!