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EYE ON LOGISTICS BLOG

State of the Market Report: Freight Transportation Rates, May 2018

Jess Johnson

03 May 2018

2018's transportation market is one of the most dynamic in history. Find out why in our latest State of the Market Report on freight transportation rates in 2018.

Since we published our last State of the Market Report in February of 2018, capacity has remained constrained and freight transportation rates have remained high. In fact, that correlation was the #1 topic discussed at the Transportation Intermediaries Association (TIA) Capital Ideas Conference we attended in April. DC Velocity reported the "Capacity crisis (surprise!) hogs the spotlight at TIA annual conference," stating "A 'bad situation' seems like an apt description of the status quo. Some folks at the conference forecast truck rate hikes of 15 to 20 percent over the next 18 months. Moreover, they did so with a tone of acceptance and resignation that made one feel there was certainty behind the projections."

What's behind the hike? Read on.

Manufacturing & Construction Continue to Grow

A strong US economy continues to inspire strong manufacturing and construction sectors, increasing the demand for capacity, and therefore, increasing freight transportation rates. While trucking companies are scrambling to grow their fleets to keep up with this increase in demand, they remain inhibited by the ongoing, nationwide driver shortage and the ELD Mandate.

Nationwide Driver Shortage

“We believe the real supply constraint in the industry is truck drivers,” reported research analyst, Brad Delco, to Transport Topics. According to the Annual Employment Screening Benchmark survey of 2017, experienced drivers from the baby boomer generation are retiring, causing the driver retirement rate to jump to 33 percent in 2017, up from 22 percent in 2014.

While many trucking companies have optimized recruiting practices and increased pay to attract new drivers (a decision reflected in shippers' freight transportation rates), only about 15 percent of new drivers last beyond their second year in the business and - despite optimized recruiting efforts - younger generations remain disinterested in truck driving as a career.

As long as trucking companies lack the drivers necessary to operate their expanding fleets, capacity will remain low and transportation rates will remain high.

Prior to the ELD Mandate, many truck drivers ignored hours-of-service regulations, driving more hours and resting for fewer hours than allowed.

ELD Mandate

The Federal Motor Carrier Safety Administration's ELD Mandate is in full effect, stringently enforcing hours-of-service regulations on truck drivers with the intention of improving road safety. Prior to the ELD Mandate, many truck drivers ignored hours-of-service regulations, driving more hours and resting for fewer hours than allowed. Since the ELD Mandate, these drivers are forced to respect hours-of-service regulations, causing them to spend less time in transit, reducing capacity and, therefore, increasing transportation rates.

ELDs have decreased the productivity of drivers who respected hours-of-service regulations prior to the ELD Mandate, as well. With an increased number of resting drivers, available parking spaces have decreased, causing all drivers to begin looking for parking well before their service window ends to avoid being stuck roadside, further decreasing capacity and time spent in transit and increasing transportation rates.

Demand for Oil Higher than Supply, Causes Fuel Surcharges to Skyrocket

“Global demand looks to grow between 1.4 million barrels and 1.6 million barrels per day, while the oil surplus that hung over producers at this time last year has disappeared - despite the fact that U.S. shale oil production grew by more than 900,000 barrels per day over the course of the year,” reports Logistics Management’s Oil and Fuel columnist, Derik Andreoli, Ph.D.c.

Without 2017’s oil surplus to support this year’s increased transportation demand, fuel surcharges have skyrocketed, raising trucking companies’ overhead and, resultantly, shippers’ transportation rates.

Extreme Weather Increases Capacity Demand and Driver Shortage

2018's winter has been long and wrought with extreme weather like March's bomb cyclone on the East Coast and April's snowstorms in the Midwest, delaying transportation throughout the United States and backing up supply chains in turn. When supply chains back up, freight volume bottlenecks, impacting capacity and therefore, transportation rates

Bottom Line

“This is one of the most turbulent logistics climates that we’ve seen in our 30+ years of business and we don’t see it stabilizing any time soon. We will ride this out with you, committed to securing the lowest transportation rates possible for you amidst the current market conditions. That being said, we advise you to prepare your transportation budget to accommodate cost increases that could reach 10 percent or higher. The bottom line is that if you want capacity, you’re going to have to pay for it.” -Charles Miller, Evans’ Vice President of Solutions.

Jess Johnson

Jess is the Director of Marketing & Communications at Evans Transportation.

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