Rising spot rates, decreased capacity, peak season and impending ELDs have created the perfect storm
It’s not just a change of seasons, it’s a change in the market … one that will potentially impact every shipper in the U.S. It no longer matters if you have contract rates or spot rates; when there is more freight than there are trucks, Houston, we have a problem.
And speaking of Houston, the weather has played a large role in the lack of current truck capacity. Shipments going to hurricane-ravaged areas like Texas and Florida commanded top dollar to deliver relief supplies over the last few weeks. The estimated damage, cited by Moody Analytics, was a jaw dropping $50B - $100B. And now comes the rebuild in these areas which will require supplies and construction materials by the truckload. Add to that the recent wild fires in California that have annihilated an estimated 2,000 stuctures, and we will see an additional strain on shipping capacity.
Seasonality also plays a part in pricing. We are approaching what the industry calls “peak season” with the holidays right around the corner. According to a McKinsey Global Survey September release, “...economic optimism has reached a six-year high.” Big box stores like Wal-mart, Target and Home Depot are all ordering stock to be ready for Halloween, Thanksgiving and Christmas. These products are picked up from busy distribution centers and shipped weekly by truckload to the retail destinations, making capacity even tighter.
“It is simple supply and demand,” said Steve Covey, executive vice president at Choptank Transport. “National load count indexes have shown load to truck ratios of 2.5 to 1 early on in the year – that doubled in late spring and a repeat surge happened again in September to historic levels. The forecast shows that metric may be here for the long haul.”
Driver shortages continue to be an issue with an aging workforce and little signs of new drivers flocking to the industry. The pool of experienced drivers on the road is expected to dwindle as more government rules and regulations are introduced for either safety or environmental reasons. The time away from home and solitary nature of the job make it selectively appealing.
Add the impending ELD mandate that has threatened to affect capacity by as much as 3-5 percent with hefty fines and citations facing those not willing to comply. No one knows what the exact impact will be, but even as little as 2 percent could make a huge difference on how quickly and costly freight shipments become. In August, the Journal of Commerce reported that on a recent survey of truck fleets “46.5 percent … were not yet underway with implementation (re: ELDs). Incredibly, 11 percent of the fleet operations surveyed said they were not even investigating how to comply with the mandate.” With so many possibly unprepared, the consequences may be even larger than anticipated. (Related Articles: Will the ELD mandate remain in place in a Trump administration)
We have seen spot rates soaring over the last month. According to DAT, the September load to truck ratio increased by 28% to 6.6 van loads per truck. This is up 120 percent compared to the same time frame in 2016.
Graph courtesy of DAT
Between now and the end of the year shippers can expect to pay higher rates due to a heavier than usual seasonal surge, issues created by catastrophic weather events, driver shortages and an impending ELD mandate backlash. (Related Articles: What shippers need to know about the ELD mandate)