20.6 C
Vancouver
Tuesday, September 27, 2022

Soaring Cost Of Trucking Could Accelerate Inflation

 

The tightest trucking market in years is testing the limits of an otherwise well-functioning U.S. economic expansion. It’s also the firewood providing the burn for accelerating inflation should the tight capacity prompt moves by companies to pass on those higher delivery costs.

A shortage of drivers, new regulations and solid demand are driving up rates charged by trucking companies to haul loads. Combined with higher materials prices, partly due to the Trump administration’s tariffs, rising transportation costs are putting pressure on goods producers.

“Demand is exceeding capacity in most modes of transportation by a significant amount,” Donald Broughton, managing partner of Broughton Capital, wrote in the Cass Freight Index Report for May. “In turn, pricing power has erupted in those modes to levels that continue to spark overall inflationary concerns in the broader economy.”

Producer-price figures from the Labor Department on Wednesday showed that inflation continued to build in the sector last month, with general long-distance freight trucking costs advancing 9.4 percent in June from a year earlier. That was the largest year-over-year increase in nearly a decade. The broader producer-price index was up 3.4 percent, the most since November 2011.

Anecdotes about rising costs are piling up. The Federal Reserve’s latest Beige Book, published in late May, cited a North Carolina trucking company that said some customers were willing to pay rates that quadrupled.

The cost to haul a full truckload of finished product or materials has soared this year. Cass Information Systems’ measure of per-mile rates, excluding fuel charges, jumped 9 percent in May from a year earlier, the most in records going back 13 years.

Per-mile rates for dry vans, temperature-controlled trailers and flatbeds have roared above $2, according to data from truckstop.com.

Rates are on the move because the economy is steady-and-solid and electronic logging devices ensure drivers adhere to maximum-allowable hours on the road and duty time has effectively removed the ability to fudge paper logs. While that may make the roads safer, it’s nonetheless another capacity restraint.

A near-record number of unfilled positions across the U.S. underscore the difficulty the trucking industry has in attracting drivers. Government figures show that while long-distance freight hauling payrolls are increasing, they’re doing so slowly.

Last year, wage gains merely matched the rate of inflation in the broader economy. With the freight-transportation sector tightening and companies growing more desperate to put people behind the wheels of big rigs, that may start to change. Historically, about 30 percent of trucking companies’ rate increases are passed through in the form of wage increases, according to Bloomberg analyst Klaskow.

“The market has been much tighter this time around and they are passing at least 50 percent to drivers now, and a smaller percentage is going to the bottom line,” Klaskow said.