8 November 2018
Over the past year, the American economy has been humming along at breakneck speeds. American GDP has seen at least 3 points of growth in every quarter for the last two years and according to GDP by Industry, “Real manufacturing output (value added) in the US reached an all-time record high of more than $2 trillion (in 2009 dollars) in the first quarter of this year.”
Experts forecast that current growth will continue through the end of Q4 and into 2019, which presents both challenges and opportunities for LTL shippers. Therefore, as a shipper, there are carrier trends that you should be aware of, which could affect your 2018 and 2019 bottom lines. By studying these LTL carrier trends, you can optimize your shipping operations to ensure that you are acting, rather than reacting.
LTL carrier trends
The ELD mandate
In 2012, Congress passed a bill called “Moving Ahead for Progress in the 21st Century.” One of the goals of this bill was to increase carrier accountability by updating the way carriers monitored Record of Duty Status for drivers. In the past, there were rules for drivers’ hours, but they were notoriously difficult to enforce since both drivers and carriers would often benefit from working past their allotted time.
To prevent truckers from surpassing their maximum time allotment for driving, new ELDs (electronic logging devices) would be required in every truck. These devices would log drivers’ hours and ensure that companies were complying with both federal and union regulations.
In December of 2017, the ELD (electronic logging device) mandate came into effect. So, even though shippers and carriers have been aware of its eventuality, it has affected the driver supply by putting a cap on the number of possible driver hours. According to the Federal Motor Car Safety Administration (FMCSA), hours of service regulations include the following:
- Truckers are required to take breaks and may only drive if eight hours or less have passed since the end of the driver’s last off-duty.
- Drivers have a fourteen-hour max limit for driving after coming on duty, following ten consecutive hours of off-duty.
- If the trucker drives for seven days in a row, a trucker may not drive more than sixty hours on duty in that same time period. Likewise, a driver may not drive more than seventy hours within eight consecutive days. This number can only restart after a driver takes thirty-four or more hours off duty.
- Truckers have an elven hour driving limit, and they are only allowed to drive a maximum of eleven hours after ten consecutive hours off duty.
What the ELD mandate means for LTL shippers
This decrease in max hours any given trucker can drive means that carriers will have more trouble getting packages delivered in the same amount of time. If they are to keep times consistent with what we have seen in the past, they must then have additional drivers available. Naturally, both of these factors will likely lead to increases in your shipping costs, especially if you want your goods delivered at the pace you’ve become accustomed to.
The growth of manufacturing has added pressure on freight shippers to hire more drivers. Experts fear that despite carriers having more money to invest in extra drivers and pay raises, the supply of drivers simply cannot meet the demand for their services.
According to the American Trucking Associations (ATA) Truck Driver Shortage Analysis, the LTL driver shortfall, which has been occurring for the past few years, is predicted to reach the highest levels on record. They found: “In 2016, the trucking industry was short roughly 36,500 drivers, which was down from 45,000 in 2015. However, the shortage is expected to surpass 50,000 by the end of 2017. If current trends hold, the shortage could swell to over 174,000 by 2026.”
While the United States has experienced truck driver shortages for years, these shortages had not reached panic levels until recently. Ironically, the economy is almost too good with just about every single sector expanding, leading us to a situation where demand is dangerously outpacing projected driver supply.
Reasons for this driver shortage include:
- The ELD mandate – As mentioned, regulations have placed caps on drivers’ hours, which means a shipment may require additional drivers or take longer to reach its intended destination.
- High freight volume and demand for transportation – More people are shipping things and require carrier service. Demand is far surpassing supply. As freight volumes increase, this strain only worsens.
- Carrier hiring practices – Despite the shortage, carriers have emphasized only hiring high-quality drivers. This selective nature protects them from liability but considerably narrows the driver candidate pool.
- The type of work – Transporting LTL freight is not easy work. It takes a particular kind of person—one who does not mind driving long hours, odd hours, and extreme distances. This type of lifestyle generally requires long periods spent on the road away from the family and home.
- Driver demographics – For decades, the driver demographics have remained consistent, with the majority of drivers being males over the age of thirty, with a good portion of those being white men. Even though the industry has made efforts to encourage women and minorities to pursue driving freight, these efforts have been largely in vain – with the numbers of women drivers remaining largely stagnant and minority participation only seeing marginal increases.
- Fewer young people are taking up driving – as more and more older truckers are retiring, fewer and fewer young men and women are taking their place.
In the future, one possible solution to the supply problem is the introduction of autonomous trucks to the market. While the upfront cost in capital expenditure of such trucks would be far higher initially, over time, they would positively affect the industry in the following ways:
- Dramatically reduce a carrier’s labor costs.
- Increase supply since autonomous trucks would not be limited by human hourly constraints or ELD mandates. They would be able to drive exponentially longer, around the clock.
- Decrease shipping rates since the supply of trucks would be far less limited.
What the driver shortage means for LTL shippers
Since autonomous drivers are still not viable in the immediate future, the driver shortage is a mounting problem for the whole supply chain, seeing as almost two-thirds of all freight tonnage is moved via trucks. The driver shortage has created a capacity crunch, which has resulted in delayed deliveries, higher shipping costs, and higher costs of goods.
In recent months, carrier companies have become so needy for drivers that they have begun offering major pay bumps, bonuses, and other perks in order to incentivize people into joining the industry. Driver salaries, which already made up more than 40% of a carrier’s costs, are expected to surpass 50% by the end of 2019. Carrier services fees are expected to rise correspondingly to pay for these raises, thus increasing an LTL shipper’s total costs.
Trends in global fuel prices
Very few trends have a more significant impact on shipping rates than the global and domestic prices of fuel. Since 2016, we have witnessed a trend of rising fuel costs, with fuel prices up nearly 50%. And this trend is not looking like it will slow down anytime soon.
According to the Department of Energy‘s most recent forecasts regarding the average cost for fuel this year and the following, gasoline is expected to average $2.79 per gallon for the rest of 2018 and rise to $2.85 in 2019. Similarly, diesel is expected to average $3.20 for the rest of 2018 and rise a cent in 2019, if not more.
In May of 2018, the Washington Post released an article discussing how these trends of rising fuel prices and dwindling driver supplies were affecting shippers. Heather Long wrote: “Higher transportation costs are beginning to cause prices of anything that spends time on a truck to rise. Amazon, for example, just implemented a 20% price hike for its Prime program that delivers goods to customers in two days, and General Mills, the maker of Cheerios and Betty Crocker, said prices of some of its cereals and snacks are going up because of an “unprecedented” rise in freight costs. Tyson Foods, a large meat seller, and John Deere, a farm and construction equipment, also recently announced they will increase prices, blaming higher shipping costs.”
What rising fuel costs mean for shippers
If trends continue with fuel costs rising, rates are likely to increase. While prices will eventually stabilize, capacity will probably remain tight throughout 2019 and into 2020. As a result of these rising LTL freight rates, it would not be surprising to see some shippers shift at least a portion of their freight from highway LTL transport to rail freight.
In recent times, intermodal freight has become a viable, if not altogether cheaper option for shippers, especially if your freight routes are optimally positioned along rail lines. We have already seen a significant minority of shippers shift at least a portion of their freight into intermodal shipping in order to avoid capacity issues and rising LTL carrier rates.
Automation’s effect on the freight industry
Although the trends we are witnessing may seem all doom and gloom, not all these trends affecting LTL shippers are negative. Increased technological advances and pushes towards automation have and will continue to optimize supply chains and the shipping process. Whether it’s virtual reality, robotics, or other innovations, automation will work to cut down both labor and transportation costs.
Such technology helps shippers and carriers in various ways, such as:
- The ability to enhance routes
- Increase visibility of the entire supply chain, thus increasing accountability and trust shippers can place in carriers
- Capacity to respond to weather, supply chain disruptions, or cybersecurity threats
What automation means for shippers
The goal of most technological advancements is to increase efficiency. For both shippers and carriers, automation represents possible dollars saved. LTL shippers should always seek to embrace such technology, seeing as it tends to lower shipping costs on the whole.
2018 has been a record-setting year for the LTL freight industry, and early forecasts predict the same for 2019. With expected rate hikes due to driver shortages and fuel price increases, shippers would be wise to look for ways to optimize their supply chain and prepare for a wild year in the LTL freight shipping industry.