2018 – The Freight Transportation Year in Review

This has been a remarkable year for the Surface Freight Transportation industry in North America. Here are some of the top stories for the past 12 months.

1. The Booming Economy

The booming economy was the single biggest story in the Freight Transportation industry in 2018. After years of steady but modest growth following the Great Recession of a decade ago, the economies of North America took off. A very strong jobs market, record employment, high consumer confidence, deregulation, and a tax cut in the United States stimulated an economy that was already at full throttle. Instead of a “storm” we experienced a powerful explosion. Americans and Canadians were working and spending money, pushing freight volumes to very elevated levels.

2. Climate Change

Climate change is having a dramatic impact on North America and on the North American freight industry. Hurricanes, tropical and winter storms, higher and lower than normal temperatures, mudslides, melting ice fields, droughts and fires are among the plethora of weather events that impacted people and the freight industry in the past year. Road and airport closures, deaths, burned and destroyed homes, properties, power lines and vehicles are among the devastating results of these severe natural disasters. The aftermath of these activities is often the rebuilding of homes and infrastructure and the movement of supplies to the impacted areas. These events were a big story in 2018 and without meaningful government action, are likely to increase in severity in the years ahead.

3. The Capacity Crunch – High Demand meets Tight Supply

Freight capacity was challenged to keep pace with the demand for freight transportation services. The long-predicted driver shortage hit the freight industry hard in 2018. A strong economy meant that young people could find jobs in construction and e-fulfillment warehouses and did not have to accept positions that take them away from home for extended periods of time. Curbs on legal immigration in the United States limited the inflow of workers who could take on the vacant jobs. Many trucks sat parked throughout North America as there was an insufficient number of drivers to fill them.

4. Double Digit Freight Rate Increases

Clearly the scales tipped in favor of carriers in 2018. Dry van truckload rates, the largest single sector of the freight industry, increased by over ten percent on a year/year basis. Other sectors of the freight industry experienced similar rate hikes. These are unprecedented levels of annual rate increases. Repricing became a popular term as carriers opened pricing contracts seeking rate increases.

5. The Less than Smooth ELD Launch

Shippers and third-party logistics providers, who believed the December 2017 implementation of the ELD mandate’s impact would be “short term” and moderate, missed the mark. The mandate disrupted shipper networks where they least expected it: in the short haul. By February of 2018, shippers reported that loads that used to be routinely accepted, were being refused with regularity. Often, these were loads that would take five to seven hours to deliver. Suddenly, truckers didn’t have the additional hours to find parking, or get to the next load. The loss of those extra hours for truck drivers translated into longer transit times for shippers.

A Zipline Logistics study found a 16 percent increase in transit times on 450- to 550-mile hauls, traditionally one that drivers would complete in single day. Smaller carriers now are rejecting such freight. These runs are now often two days, so some carriers don’t want them. The smaller carrier realized that it could lose a day or a half day on that load, between staying within hours of service and getting the delivery done. To make money on the load, the rate had to go up dramatically and it did. The biggest impact of the ELD mandate on capacity hasn’t come from drivers exiting the business, but from increases in freight rates.

6. The New Breed of Freight Brokers – Mobile Apps seek control of the “Uber for Freight” Marketplace

This has been an amazing year for freight brokers, driven by two factors, capacity shortages and technology. Los Angeles-based Cargomatic pioneered mobile automated freight booking by developing the first smartphone app for truckers in June 2014, and initially focused on the less-than-truckload urban market and drayage serving Southern California ports. Convoy went further by automating every step of the largely manual, call-in freight business of long-haul trucking.

Convoy introduced services called Suggested Reloads, Request a Load, and Automated Detention, all aimed to help drivers find freight and move it faster. The Request a Load feature lets drivers or dispatchers enter when and where their trucks will be empty into the Convoy app ahead of time, along with where they want to go next. The app then alerts them to matching loads as they become available.

New technology-based startups are attempting to persuade North American shippers they can deliver immediately covered contract and spot market loads, LTL and small parcel shipments, new capacity, total rate transparency, real-time tracking and data analytics, and market intelligence that can drive supply chain decisions. While Convoy and Uber Freight, are the investment darlings, there are numerous other companies such as Freighera and Freightcom that have entered the space.

The long-established freight brokers are pursuing their own tech capabilities. C.H. Robinson Worldwide, the biggest non-asset provider of truckload services in North America, accounting for 3 percent of the total truckload market in the hemisphere, started booking freight online in 1999 and added a load-searching mobile phone app to its Navisphere platform in 2011. “We have 800 people in information technology, 600 people developing software applications, but we also interact with carriers and customers the way they prefer,” Chief Information Officer Chad Lindbloom said.

7. The Rail Industry - Record Profits and Record Poor Service

This has been a great year for the bottom lines of the class 1 railroads but a bad year for many of their customers. Intermodal has long served as the backup capacity option for truckload customers needing seasonal or surge capacity. Service is typically a day or two slower, but the freight still moves. With driver shortages, ELDs and other trucking challenges, this should have been the year that the railroads took market share from truckers. Why didn’t this happen?

This was a year of frustration for shippers with rail service performance and capacity. Faced with pressure from activists and the impact of the Hunter Harrison era, railroads have shifted their focus away from customers. The Union Pacific announcement that it is embarking on a similar “precision scheduled railroad” journey has shareholders rejoicing but customers wondering if they will relive the CSX service debacle of earlier this year. This new focus on share price and operating ratios has eroded transit quality, resulting in inconsistent service and inadequate capacity that is priced at premium levels.

Intermodal services generally have been running at a disappointing 70% to 90% of their scheduled times, while trucks have consistently been operating at usually more than a 90% an on-time service level. Intermodal volume is growing because customers don’t have an alternative. The intermodal industry needs to decide if it is the customer service business before long-term damage is done to its image.

Canada has its own rail challenges. Earlier in the year, Canadian grain farmers were only getting about 20 percent of the cars they needed in the week that they were requested. One spokesman stated “We’ve got shipping orders that are two months old and we’ve got some elevators that haven’t seen a train in two months…. Like all companies, we’ve got customers, globally, who are very upset, and it’s not good for Western Canada.”

According to the Western Grain Elevators Association, the difference between the number of rail cars requested and the number of rail cars spotted at country locations surpassed 55,000 cars in a particular week. The solution for Canadian and American rail and intermodal shippers will either begin and end with consistent rail service or government regulations.

8. Becoming a Shipper of Choice

This has been a sobering year for shippers. As the pendulum swung over to the carrier side, shippers had to adjust. To secure capacity, manufacturers and retailers had to learn how to be a “shipper of choice (https://dantranscon.com/index.php/blog/entry/time-to-become-a-shipper-of-choice).” To win over a carrier, a shipper has to initially focus on the driver. A driver will look more favorably on a shipper that provides a bathroom and a vending machine. The next thing a driver wants is to keep moving. Easy access, “drop and hook loads” as compared to live loads, and a minimum of waiting time go a long way. With HOS being such a critical variable, overnight parking is another differentiator. To keep the management team happy at the carrier, volume commitments and “quick pay” programs have also become characteristics of a “shipper of choice.”

9. Technological Evolution

Shippers and carriers are trying to adapt to the remarkable changes under way in supply chains across North America. The Amazon effect is forcing companies to become more agile and to increase speed to market. Ecommerce, Blockchain, Connected Trucks, Electric and Automated Vehicles, Big Data and Predictive Analytics, Artificial Intelligence and Robotics are all works in progress and are transforming long established logistics processes.

10. The Year of the Truck Driver

A shortage of qualified truck drivers became one of the defining stories of the freight world in 2018. This had a significant impact on driver pay. To recruit qualified drivers and retain them, carriers came up with an array of compensation schemes (https://dantranscon.com/index.php/blog/entry/what-are-trucking-companies-doing-to-solve-the-driver-shortage, https://dantranscon.com/index.php/blog/entry/driver-compensation-the-devil-is-in-the-details). Multiple pay raises become the norm as did a variety of bonuses for everything from signing to safety to performance to referrals of other drivers. Some companies got creative by offering lifestyle enhancements (in-cab TV services), hourly versus per mile pay and activity-based compensation tied to the data generated by their ELD devices. The question is how long with the freight boom continue and the driver shortage last? Drivers have been underpaid for decades. With the first sign of economic weakness, shippers will begin pushing back on rate increases. The driver is the first one to feel the impact of rate erosion.

This was a truly landmark year in Freight Transportation. In many respects, this was the inverse of the Great Recession. There was too much freight chasing too few trucks. Happy Holidays!

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