Much the same as how the trucking industry itself is going through a radical shift, the LTL market is about to enter into a brand new age. Demand for LTL shipments is building due largely to the drastic rise in e-commerce deliveries which is driving capacity to a premium. Other factors such as increased regulations, ever-pervasive driver shortage, and inclement weather all of which caused a considerable amount of destruction throughout the United States and have put a hurting on available capacity.
For LTL shippers this could mean some of the steepest rates we’ve seen in a decade as well as a surge in demand for less-than-truckload shipments. For LTL shippers, industry experts have issued a word of warning that drastically higher rates are on the way. Core pricing (fuel surcharges) has risen 4 percent over the course of the last year according to analysts’ estimates and carriers’ financial reports. This year, shippers might be facing at least that much of an increase, if not more.
The Great Driver Shortage
E-commerce is certainly having an impact on freight industry. Spot rates are at an all-time high according to DAT: “Spot rates hit an all-time record the last week of December, according to the closely watched DAT Trendlines. Load-to-truck ratios surged, setting a new all-time record-high of 12.2 loads per truck for vans.”
While the increase in demand is a great thing for the industry, it will inevitably mean a capacity crunch. The driver shortage, while nothing new, could mean dire straights for shippers when there’s an even higher demand. When you consider the fact that there is already a shortage of drivers behind the wheels and that the median age of drivers is approaching retirement this could spell big trouble for carriers and consequently also for shippers. Shippers are going to have to buckle down and prepare themselves for the road ahead if they want to keep their supply chains flowing smoothly while still turning a decent profit. A report from the American Trucking Associations says more than 70 percent of goods consumed in the U.S. is moved by truck, but the industry needs to hire almost 900,000 more drivers to meet rising demand according to an article from NPR. The driver shortage could reach a crisis point shortly. “In addition to the sheer lack of drivers, fleets are also suffering from a lack of qualified drivers, which amplifies the effects of the shortage on carriers,” says ATA Chief Economist Bob Costello. “This means that even as the shortage numbers fluctuate, it remains a serious concern for our industry, for the supply chain and the economy at large.”
Guarding Against The Impact
This is a proverbial double-edged sword for the industry. On the one hand, an increase in demand means more business for the industry. On the other hand, the capacity crunch will undoubtedly cause issues for shippers. Spot rates are going to climb, and congestion will increase as the demand surges while capacity tightens. So what can be done to help soften the blow? Many within the industry are saying that collaboration and cooperation is the way to go. “Expect calls for collaboration throughout the supply chain, but especially between shippers and their trucking partners, to grow louder as the year progresses, especially if quarterly GDP expands at a 3 percent clip or better this spring. Such collaboration is the best way for shippers to mitigate higher transportation costs, which are likely to be inevitable in 2018, shipping, logistics, and transportation executives say,” according to a recent JOC article.
A strong relationship, whether directly or brokered through a 3PL can help ease both the tension and confusion that is sure to come soon. Strong communication and an even stronger working relationship will make the coming capacity crunch more bearable for both parties, especially when deadlines get tight.