2014 Trucking Outlook – Q2 Update

Spend Matters welcomes another guest post from Jim Haller of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.

The trucking industry is in a state of flux, giving many shippers a reason to keep a close eye on the forces affecting future costs for small parcel, less-than-truckload (LTL), and full truckload (FTL). Here are some facts and figures that highlight cost-related changes and trends.

Fuel prices defy predictions. Diesel prices were predicted to fall approximately 2 percent to 4 percent in the first quarter of 2014. Instead, prices have increased by approximately 2 percent as of March 24, 2014 when compared to December 30, 2013.

Fleet size is shrinking. The average fleet size in the trucking industry is down 10 percent to 15 percent, squeezing the headroom out of capacity.

Price increases continue to occur outside of end-of-year rate hikes. FTL pricing is expected to increase by 1 percent to 2 percent, while LTL pricing is expected to increase by 1 percent to 3 percent.  Recently, the industry’s largest LTL carriers have announced new rate increases, including FedEx Freight at 3.9 percent, and UPS Freight and Con-Way Freight at 5.4 percent. Some shippers will be insulated from mid-year rate hikes by their contract terms, but many will not. Depending on specific lanes and shipments, actual rate increases may be higher.

Regulatory changes and driver turnover are creating driver shortages. Carriers are still adjusting to 2013 changes to the U.S. Hours-of-Service (HOS) rules for truck drivers and continued driver shortages. There is estimated to be a 3.5-5.0 percent reduction in driver pay, and driver turnover at large U.S. truckload fleets remained above 90 percent. The current driver shortage is around 30,000 unfilled jobs, and as volumes go up because of demand, 100,000 drivers will be needed on an annual basis to keep up. The industry has to find new demographics to pull from and improve their image to make it more attractive to become a driver.

Capacity may tighten in months ahead. Current trucking capacity is where it needs to be for today’s volume levels, but may tighten in the near-term. Manufacturing output in the U.S. picked up more than expected in recent months, and industrial production and industry capacity utilization also increased.

The message to shippers is clear – the cost of shipping will increase as the year progresses. Higher fuel costs, mid-term rate increase announcements, HOS effects, driver shortages, driver turnover and capacity issues will give carriers leverage to increase rates, surcharges, and accessorials. Each shipper has a unique profile, and carriers are adept at padding margin in specific elements. It’s more important than ever for shippers to identify those pockets of overspending and negotiate their carrier contracts accordingly.

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