North American freight markets are witnessing the strongest demand for transportation services in decades. Contract and spot freight rates continue to soar. The contract rate average revenue per mile rose 3.5 percent in 2017. Through the first two months of this year, contract truckload freight rates have jumped 15 percent per mile! “We’ve never seen numbers like this,” according to Bob Costello, the American Trucking Associations’ chief economist. So far in 2018, the total number of loads is up 5.4 percent compared with the same period a year ago.
Supply chains are also changing. The number of miles driven per load continues to decrease for full truckload carriers. The average miles driven per haul in the United States fell 34 percent last year to 524 miles, down from nearly 800 miles about 15 years ago. A changing supply chain is behind the decline, Costello said. Online and big box retailers have increased their number of distribution centers across the country, shortening distances for deliveries. The number of miles truckers are driving annually also has fallen and now stands at about 100,000, roughly 35,000 miles less than 15 years ago. Sales of trucks in the heaviest Class 8 weight segment continue to be strong as demand grows from both leasing companies and motor carriers.
CEOs are taking notice and are highlighting the impact of freight costs on their financial results. What are the drivers of this rapid escalation in freight rates? The industry is benefitting from low unemployment, booming housing starts and strong online sales growth, according to Mr. Costello. America is still feeling the impact of the three hurricanes last year and the difficult winter storms.
Truck fleets are also having difficulty supplying the needed capacity. Market demand indices show that capacity is very tight. The load to truck ratio in most parts of the United States is at a very robust 5.5. loads per piece of equipment. There are 10 flatbed loads for every flatbed driver. The impact of the ELD mandate has also contributed to driver shortages. The ELD mandate has increased the time to move loads from 1.05 days to 1.22 days on loads traveling 450 to 550 miles. Trucking companies are not expanding their fleet sizes since they cannot find drivers to fill their trucks. Even with the significant increases in driver pay, trucking networks are 100% full or higher. Truck fleets are allocating their precious assets to shippers that have speedy pick up and delivery requirements and pay compensatory rates.
The railways are not able to provide relief to shippers. Service problems have increased turnaround times on equipment by about ten percent. It currently takes 15.5 days to turn a box; normally there is a 14 day turn on intermodal equipment. Where do we go from here?
Expectations are that these conditions will continue through next year and possibly into 2020. The budget passed by the President and U.S. Congress is having a stimulative effect. GDP projections for next year surpass this year's strong numbers.
There are expectations that a new NAFTA agreement, at least agreement on a set of principles, that will drive the completion of a full agreement, may be in the works for May of this year. “NAFTA trade is hugely important to trucking,” stated Mr. Costello. The majority of goods going across the Canadian and Mexican borders are moved by truck. NAFTA trade supports about $6.6 billion U.S. per year in revenue for the trucking industry and supports about 31,000 truck driver jobs annually. A new NAFTA deal would be very uplifting to shippers and carriers in the three countries.
U.S. officials are in the process of enforcing the utilization of electronic logging devices in America. One can expect some further erosion of truck capacity over the next few months. It has been a wild drive so far this year and it is likely to get wilder. In the next blog I will outline some strategies that shippers can employ to ensure they have the capacity to meet their needs.
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