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Friday, April 23, 2021

Freight Rates Will Inevitably Be Rising Soon

 

 

For years, industry insiders have warned that tight capacity, due to a long-term shortage of drivers, would lead to increased freight rates once a sustained U.S. economic recovery took place. Now some think that time is now.

At the CSCMP EDGE 2017 annual meeting in Atlanta was that spot rates, which have surged throughout the summer, will continue to climb. Contract rates are expected to follow a similar trajectory. Contract rates are expected to climb higher this year and next than at any time since the second half of 2003 and early 2004, when the U.S. economy surged.

Derek J. Leathers, president and CEO of Werner Enterprises Inc., a truckload carrier and logistics service provider, said the industry is experiencing freight demand that “it hasn’t seen in a long time.” The growing demand is not completely due to the rebuilding efforts of Hurricanes Harvey and Irma, he said, an indication that trends remain robust independent of the back-to-back natural disasters.

At a panel session on Monday, Leathers would not comment on what specific rate increases shippers and freight brokers would see, noting that any hikes would depend on multiple factors. But he did say current rates do not compensate Werner for the 17 percent increase in driver wages as well as other costs it is absorbing. Profit margins of 3 to 4 percent won’t cut it, Leathers said, noting that “the math doesn’t lie.”

The shortage of qualified truck drivers is unprecedented, Leathers added. Professional drivers are a “scarcer commodity than ever before,” he told the gathering.

In addition to the aforementioned shortage of drivers, the Dec. 18 deadline to comply with federal regulations requiring that virtually all trucks built after the year 2000 be equipped with electronic logging devices is also a serious threat to future available capacity. The required equipment will prevent the many independent drivers who run afoul of federal hours-of-service rules to get goods to market, thus eliminating a large source of productivity, albeit illegal.

Nöel Perry, chief economist for the load board Truckstop.com and the consulting firm FTR, said large numbers of freight brokers, who manage billions of dollars of loads for shippers, are opting for contracts in an effort to lock in current prices before they rise even further. Although contract rates are already escalating, brokers may still find it difficult to pass on higher prices to their shipper customers, Perry said.