Let’s take a look at projections for truckload shipping rates in 2017 and discuss some of the factors driving the changes.
Overall projection for truckload in 2017: Most indicators suggest shipping rates will rise.
Uncertainty about the transportation industry is high right now (more on that in a moment), but most indicators point to rising shipping rates in 2017 due to tightening capacity and capacity corrections in the coming year.
Whether this is good or bad depends on your perspective. Noël Perry, an analyst with FTR Transportation Intelligence, told Trucks.com, “Trucking companies may be better off in 2017. As we enter 2017, expectations are low and the economy is likely to be better than expectations, at least for the first half.”
But what about shippers? Let’s look into some factors that might affect shippers’ businesses in 2017.
What’s driving the expected rate increases?
Too few drivers mean fewer truckloads can be moved.
According to the American Trucking Associations (ATA), a deficit of about 75,000 drivers is expected as we move into 2017. This represents a 56% increase from last year’s tally of 48,000, and 2017’s end-of-year projection nears 100,000. Carriers will of course pour more capital into recruiting high-quality drivers to meet demand, but in the meantime, the driver shortage will constrain overall capacity.
It’s worth noting, however, that the shortage does not affect all carriers equally – those who have proactively worked to reduce internal turnover and improve driver retention (like TSD Logistics) are facing fewer problems related to the shortage. Industry-wide, however, too few drivers simply means less capacity and higher rates.
Too many trucks ordered means carriers will be undergoing equipment correction.
To meet an expected capacity crunch in 2015-16, carriers ordered more and more trucks – maybe too manytrucks, it turns out. The Journal of Commerce reports that “the JOC Truckload Capacity Index dropped from 88.4 in the first quarter of 2016 to 87.6 in the second quarter, and was down from an eight-year peak of 90.4 in the third quarter of 2015.” From the carriers’ perspective, that means wasted space, and they’re taking steps to rightsize their fleets. Once again, this trend is not a universal problem among all carriers.
Regulations will impose expenses on carriers which will (partly) be passed onto shippers.
The trucking industry is just now beginning to see a “five to six year regulatory wave” wash over it, according to John Larkin, Managing Director and Head of Transportation Capital Markets Research at Stifel Financial Corp. For example, the mandated adoption of electronic logging devices (ELDs) is going into effect later this year, and some shippers are (reasonably) insisting that carriers install ELDs now rather than waiting until the December 2017 deadline. ELDs are a big deal: they’re the number one concern of respondents to the American Trucking Research Institute’s (ATRI) 2016 report on critical issues in the trucking industry. Other compliance issues are also at play, like restricting drivers from driving more than 11 hours per day without taking an 8-hour break. In fact, hours of service and the cumulative impact of regulations round out the top three concerns in ATRI’s study.
The Panama Canal expansion means repositioning of freight to the Gulf and East Coasts.
Infrastructure projects like the recently opened Panama Canal expansion present another factor with still-unfolding impacts. More shipments coming through the Panama Canal could easily consume – and thus constrain – more trucking capacity, particularly on the Gulf and East Coasts.
However, it should be mentioned that uncertainty is also high.
Despite a (modest) growth forecast for the global and U.S. economies, uncertainty reigns. Sean Monahan, a logistics expert with A.T. Kearney and author of The 27th Annual State of Logistics says that economic recovery is “tenuous and susceptible to domestic and global factors.” He cites possible increases in oil prices in particular as a possible drag on growth.
Additionally, President-elect Donald Trump presents some uncertainty. No one is quite sure what to expect from his administration. During the campaign, he proposed much needed infrastructural improvements. But his plans thus far would have the industry finance the work, potentially using tolls – a mechanism that the American Trucking Association opposes. There are also concerns about a potentially disruptive international trade war. That said, he has also nominated Elaine Chao as Transportation Secretary; she has served previously as a U.S. Deputy Transportation Secretary. She and Trump have reportedly discussed investing in infrastructure and reducing the regulatory burden as major priorities.
In a time of anticipated rate increases, proactivity is the solution for shippers.
In future posts, we’ll examine the implications of 2017 rate increases for both carriers and shippers. In the meantime, we invite you to review our article “5 Ways Shippers Get Low Cost and High Service” for ideas on steps you can take as a shipper to keep costs low and carrier relationships strong.