How Will 2018’s Peak Trucking Season Impact Shippers?
The trucking industry has several capacity constraints which are pushing manufacturers to get shipments to their destination in other ways. There are two sides to the transportation industry – the manufacturers and the freight companies. Because of capacity constraints, both sides of the industry are forced to adapt. The commercial shipping landscape is changing as the American economy booms from various macroeconomic factors. Companies are combining trucking and rail to make on-time deliveries while trucking companies are able to be more selective in the companies they agree to work with. Peak season in trucking is fast approaching and it will impact commercial shipping in a variety of way.
Peak Season for Commercial Shipping is Approaching
As businesses begin preparing for the winter holidays, the number of imports and domestic shipments boom. For 2018, The National Retail Federation and Hackett Associates estimate August and September will hit all-time highs of 1.8 and 1.9 million shipments respectively. If these numbers are reached, the strain on ports and trucking capacity may go jeven higher than expected.
Because of this surge, companies must prepare for shipping during this volatile time and freight providers find themselves consistently strained. A few issues commonly faced during peak season include:
- Increased trucking costs
- Busier roads and highways
- Increased rail and air costs
- Common trucking delays
- Drivers taking fewer loads
- Higher fuel costs
- Overburdened railways
With Trucking at Capacity, Railroads Are Busy
One of the primary reasons shipping companies do not use rail when trucks are available is the inconvenience. Rail is restrictive in the routes that must be chosen, so it gets complicated and takes a long time. When trucks are overburdened, railroads come out as big winners when it comes to revenue.
Railroads are getting more efficient with serious technology upgrades and infrastructure improvements going online throughout the United States. Rail can run at a lower operating ratio thank truck, simply because of their ability to invest in capital upgrades. Shippers might need to rely on railroads for more of their goods but rail companies are also working to keep up with the demand.
It’s no secret that the trucking industry is plagued with driver and equipment issues. If trucks could be manufactured more quickly and experienced drivers were available the economy could add an immediate 55,00 new trucks just to keep up with current demand. The country is working at a capacity deficit which only leaves rail and air as viable options. It comes down to cost – which is cheaper and nearly as reliable that won’t impact the bottom line?
A New Trend in Peak Shipping Seasons
Freight companies are turning to a new strategy during peak trucking season. Transportation companies now select which manufacturers and companies they want to work with. For example, companies more willing to pay higher rates, more likely to pay on time, or with higher order volumes get favorable status. This tactic is beyond the traditional price increase and favors larger corporations as a general rule.
In the State of Logistics Report, it was found that “Strong demand gives Class I Operators more pricing power, particularly in intermodal. Corporate tax cuts boost cash flow, rising fuel prices drive incremental fuel surcharge revenue, and improved productivity increases profit margins.” It is only good business for carriers to increase their prices.
Rates for special services like spot deliveries, dry-van, and refrigerated have also all increased in 2018. These parties are in a more advantageous position than standard carriers.
Truckers Don’t Need to Work as Much
When wages for one route are higher, Owner Operators and small fleets don’t need to work as frequently to make the same amount of money. This trend is occurring as the power shifts to the hands of the carriers. According to the president and CEO of Little John Transportation, “trucks are making so much money that they are working short weeks and that makes problems even worse.” Currently, this tends to be a minor (but impactful) trend in trucking, as many drivers also choose to work more but at escalated wages.
Uncertain Variables That Could Impact Transportation
There are several political variables for the rest of 2018 which could impact the way the industry works for the next few years. Recent tariffs on steel and proposed future tariffs may drive up the cost of consumer goods which would counterbalance the booming industry.
The Trump Administration announced a proposed 10% tariff on certain Chinese imports. On the other hand, larger companies could turn to other countries or within the United States for their supply chain needs. We won’t know if manufacturers will adjust suppliers or try to beat the tariff price before it becomes a reality in the global marketplace.
Tariffs rapidly impact both global trade and supply chain planning. If passed or implemented, the peak season of this year could slightly dip below forecasted numbers.
Transportation is Notoriously a Cyclical Industry
More than anything, we know the transportation industry is highly cyclical and prone to ups-and-downs. Just as the United States experiences economic shifts, so does the transportation industry. Conditions are currently strong for carriers because of increased freight volume, the forced use of electronic logging devices, and a low overall unemployment rate will keep carriers at an advantage.
Prepare for Commercial Shipping During Peak Season
Peak season is upon us, so changes in shipping are sure to occur. Ports are taking in more imports and domestic shipments are also growing in 2018. This will impact commercial shipping and result in increased pricing, more strain on the railroad industry, and exposure to tariffs if issued by the United States government. Trucking companies reserve the right to be more selective in choosing which manufacturers to work for and which long-term contracts to sign.
The issues plaguing trucking and limiting its capacity will not be solved during this peak season. Because of this, manufacturers and freight companies must find ways to make do in this complicated environment. As the year continues, and peak season winds down, changes to commercial shipping will ultimately increase the price of goods.