DC Velocity - October 2017

newsworthy

FOR YEARS, TRUCKING EXECUTIVES HAVE warned that ultra-tight capacity, brought about by a long-term shortage of trucks and drivers, would need only a sustained U.S. economic recovery to trigger a significant rise in freight rates. That time may finally have come.

The buzz at last month’s Council of Supply Chain Management Professionals (CSCMP) Edge 2017 conference in Atlanta was that noncon-tract, or spot, rates, which have risen throughout the summer, will continue to climb. Contract rates, which lag the spot market by three to six months, are expected to follow a similar trajectory.

In fact, contract rates are projected to climb higher in the 2017–2018 time frame than at any time since the second half of

2003 and early 2004, when the U.S. economy surged following the Iraq War, the stimulative effects of govern-ment-enacted tax cuts, and the burst in residential housing activity spurred by low interest rates and a speculative frenzy in residential development.

One rumor that made the rounds was that a large truckload carrier was prepared to increase rates by 10 percent across the board. (That carrier turned out to be Lowell, Ark.-based J.B. Hunt Transport Services Inc., according to published reports. The reports were based on a letter J.B. Hunt sent to customers urging them to be prepared for rate hikes of that magnitude.)

Derek J. Leathers, president and CEO of Werner
Enterprises Inc., an Omaha, Neb.-based truckload car-
rier and logistics service provider, said the industry is
experiencing higher freight demand than it has seen in a
long time. The growing demand is not all related to the
rebuilding efforts centered on hurricanes Harvey and
Irma, he said, noting that traffic trends remain robust
independent of the back-to-back natural disasters.

At a panel session, Leathers would not comment on what specific rate increases shippers and freight brokers would see, saying that any hikes would depend on multiple factors. However, Leathers said prevailing rates do not compensate Werner for the 17-percent increase in driver wages as well as higher input costs it is absorbing. Profit margins of 3 to 4 percent won’t cut it, The shortage of qualified truck drivers is unprecedented, Leathers added. Professional drivers are “a scarcer commodity than ever before,” he told the gathering.

Besides an ultra-tight supply situation and stronger freight demand, the trucking industry faces a reduction in capacity and productivity as it adjusts to the Dec. 18 deadline to comply with federal regulations requiring that virtually all trucks built after the year 2000 be equipped with electronic logging devices (ELDs). The devices, which are intended to prevent drivers from working beyond the federal hours-of-service legal limit, have triggered widespread concern about their potential effect on productivity.

Noël Perry, chief economist for the load board Truckstop.com as well as a truck and transportation expert for the consulting firm FTR, said large numbers of freight brokers, who manage billions of dollars of loads for shippers, are opting for contracts in an effort to lock in prices before they rise even further. Although contract rates are already escalating, brokers may still find it difficult to pass on higher prices to their shipper customers, Perry said.