0.6 C
Vancouver
Tuesday, January 31, 2023

Soaring Cost Of Trucking Could Accelerate Inflation

ย 

The tightest trucking market in years is testing the limits of an otherwise well-functioning U.S. economic expansion. Itโ€™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 administrationโ€™s tariffs, rising transportation costs are putting pressure on goods producers.

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

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 Reserveโ€™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 Systemsโ€™ 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, itโ€™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, theyโ€™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 companiesโ€™ rate increases are passed through in the form of wage increases, according to Bloomberg analyst Klaskow.

โ€œThe 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,โ€ Klaskow said.