Knowledge of the existing trends can also provide insight into what one may expect from the trucking industry in the coming year.
As the new year begins, all these questions and many more are on the minds of shippers. While no one can accurately predict the changes in the business environment or how the trucking industry will respond to those changes, deliberation on the current year’s performance can help form a more reasonable line of thinking. Knowledge of the existing trends can also provide insight into what one may expect from the trucking industry in the coming year.
Here’s a look at some of the crucial parameters of the trucking industry that can impact shippers.
Rates: According to Logistics Management’s recent trucking rate analysis, the US trucking industry showed a rate increase of 6.2 percent. Long-distance full truckload rates showed a growth rate of 7.8 percent in the first half of the year, while Less-than-truckload (LTL) rates increased by 7.4 percent. The report forecasts a rate increase of around 3.6 percent in the coming year.
A JOC.com article stated 3 differing opinions of what one can expect from the trucking market in terms of rates. It has a bullish rate increase prediction between 5 and 8 percent, a bearish rate hike forecast between 0 and 3 percent, and a median rate increase prediction in the range of 3 and 5 percent.
While there isn’t a consensus on by how much the rates could increase, given the forecasts, shippers might fare better by building in at least the average rate increase in their trucking budgets for the coming year.
While there isn’t a consensus on by how much the rates could increase, given the forecasts, shippers might fare better by building in at least the average rate increase in their trucking budgets for the coming year. These predictions and forecasts can also help them better negotiate their rate contracts with trucking companies or 3PLs.
Capacity: This is the holy grail of the trucking industry for both the truckers and the shippers. Availability of drivers and vehicles, the manufacturing industry’s performance, and legal compliances laid down for the industry all have a bearing on carrying capacity. Capacity, in turn, has a strong impact on the rates. When there’s a capacity crunch, rates increase. When it is in surplus, rates decrease.
This increase in trucking volume may lead to capacity constraints in the coming year.
Looking back at 2019, a Reuters report on ATA freight forecasts predicted a 2.3 percent annual increase in trucking volume through 2024, warning it could lead to severe capacity constraints. However, a contrasting view from JOC.com and Freightwaves.com noted that while truck utilization had peaked at full capacity earlier that year, it eventually leveled off to 94-95 percent heading into the start of 2019.
The Freightwave article also points out that the capacity might also be influenced by the availability of drivers rather than the availability of trucks. So even if the vans are available, a shortage in capacity may be experienced due to the lack of drivers.
Given the unpredictable nature of the industry, for shippers who have regular freight, it would make better business sense to work with 3PLs or professional trucking companies instead of individual truck contractors or vendors with smaller fleets to avoid getting short supplied in the event demand increases.
The Economy:
How the economy performs has a huge impact on the transportation industry. According to the GDP forecast shared at the Federal Open Market Committee meeting, as reported by The Balance, the GDP is expected to be 3 percent in 2018. In 2019 and 2020, it is predicted to be slightly lower at 2.3 percent and 2 percent, respectively. The fall is being considered an outcome of the ongoing trade war with China. The trade war has also created some skepticism in the freight market.
However, the release also forecasts a decent growth rate for the U.S manufacturing sector. It pegs production to increase at 2.8 percent in 2018. A slight decrease in momentum in growth is projected in 2019 and 2020, with rates at 2.6 percent and 2 percent, respectively. Even if the manufacturing growth rates slow down slightly, it is not expected to have too much of a negative impact on the local freight market.
The other trend that seems to be picking up and is expected to continue is shorter-distance freight movement.
Apart from these factors, the other trend that seems to be picking up and is expected to continue is shorter-distance freight movement. According to this article in Freightwaves.com, which quotes Bob Costello, Chief Economist, ATA, “the average length-of-haul for dry van truckloads fell to just around 500 miles for the year-to-date period, down from an average of 800 miles in 2005”. The article highlights that this trend is being attributed to shippers basing their fulfillment centers nearer the customers.
Going by the reports and views expressed by industry experts, 2019 seems to look positive for the industry vis-à-vis economic performance and rates. Shippers may fare better by factoring in a freight rate increase. For both the vendors and the shippers, there may, however, be some ambiguity on capacity, as it is to an extent dependent on the trucking industry’s capacity to attract professional drivers to fulfill the current shortage.
For a 3PL perspective on historical market shifts and logistics trends, watch our free, on-demand State of the Logistics Union webinar. We discuss the major concerns for shippers and explore the next frontier in supply chain transparency.
You can also speak to one of our experts and find out more about BlueGrace by filling out the form below or contacting us at 800.MYSHIPPING
Login