How Industry Is Dealing With Climbing Trucking Prices

Truck driving on highway with sunset in background

Trucking prices continue to indicate a robust economy, despite leveling off from the “scorching pace” of earlier this year, as reported in the Cass Freight Index® Report for October 2018.

This index measures the flow of goods, a predictive indicator of what is happening in the freight markets, which ultimately impact the supply chain and economic growth. Shipments are up 6.2% over 2017, indicating a continued robust economy, and shipment expenditures are up 12% over 2017, with prices increasing due to limited capacity.

The report went on to note that since World War II, there has never been a contraction in the economy without there first being a reduction in freight flows. The reverse has also proven true: A growing economy cannot come about without a related increase in freight flows.

The American Trucking Association reported on the strength of the trucking industry within the supply chain. Trucks move over 70% of all domestic freight tonnage and generate over $700 billion in revenue. In 2018, trucks moved nearly 70% of all trade between the U.S. and Mexico and nearly 58% between the U.S. and Canada. The trucking industry employs over 7.7 million people and approximately 3.5 million drivers.

Rising Trucking Demand: By the Numbers

Today, as consumer demand rises amid limited capacity, carriers are charging more. How much more? Knight Transportation, headquartered in Phoenix, says its revenue per loaded mile is up nearly 20% over last year, increasing revenue by $31 million. Similarly, Covenant Trucking reported a third-quarter increase of 16.4% per loaded mile, with revenue up over 36%.

Is it just robust demand that’s driving up shipping prices? Higher wages and a lack of qualified drivers are also increasing costs for freight companies, which in turn pass on those costs to customers. JB Hunt Transport services has reported increasing wages by double-digit percentages just to keep up with demand.

Schneider trucking, meanwhile, clearly outlines pay incentives, costs per mile, and pay increases on their website. In 2014, their average pay per mile was $.38, and for 2018, it’s $.52 per mile — a 37% increase within the last three and a half years. Performance pay, sign-on bonuses, and referrals can also add to drivers’ pay.

Manufacturers and Retailers Respond to Rising Trucking Prices

Decreased capacity, increased demand, and higher wages are all contributing to higher shipping prices. So how are leading manufacturers and retailers coping?

On November 15, Tesla announced that the company had bought a trucking company so it could have control over the delivery of cars, being unable to rely on rail deliveries. Walmart has over 6,000 trucks on the road and is focusing efforts on effective driver techniques, efficient loading and unloading processes, and advanced trailer technologies.

Ultimately, retailers will bear the impact of the transportation crunch, especially as the holiday season nears, and there is some concern that the transportation crunch may bite into retailers’ ability to get consumers the products they want on time.

In response, retailers are pursuing three main tactics. In addition to bringing transportation functions in-house, they’re also striving to optimize shipments from distribution centers in order to get more product into stores. (This may be a challenge for smaller retailers.) Finally, many retailers are also exploring alternative, intermodal shipments that make use of multiple transportation methods.

Looking Ahead

Are self-driving trucks a viable solution for reducing trucking costs and easing the shortage of drivers? Plagued by legal issues, including lagging consumer laws that prevent manufacturers from being sued in the event of an accident, it’s doubtful that human truck drivers will be completely replaced anytime soon. But in the meantime, manufacturers like Tesla and Mercedes-Benz are busy working to develop driverless vehicles that will reduce costs — disrupting the industry as we know it.

 

Image credit: Milos Muller / Shutterstock.com

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