Logistics is under pressure. Shortages have led to higher freight rates, and there are no signs of relief in sight while capacity increases expected later in the year won’t offer much in the way of a breather. Customers are left with trying to pass along rate increases to customers as best they can while trying to find other avenues of relief. On a positive note, the truck driver pool is finally increasing, and increasing rail capacity may help reduce some pressure.
According to the Bureau of Labor Statistics, truck transportation jobs were up by 6,600 in May 2018, accounting for the eighth monthly gain in the previous nine months. Overall, the trucking sector has expanded employment by almost 25,000 since the start of the third quarter of 2017.
In spite of driver increases, the magnitude of those gains has not been great enough to ease pressure. Freightwaves, a news provider for the trucking industry, noted that while trucking employment is up 1.7% over the last year, it is just keeping up with overall economic activity gains. With lower unemployment and growth in manufacturing and elsewhere, there is more freight to move and more competition for workers.
Double Whammy: More Freight and More Competition for Jobs
“Given the demand in the market, you might think that trucking should be adding more jobs, but let’s consider what trucking is up against,” noted Avery Vise, vice president of trucking research at FTR, a publisher and consulting firm serving the transportation sector.
“Two of the biggest competitors are construction and manufacturing,” Vise said in a June FTR webinar. “Between them, those sectors in the last year have added 37% of the entire payroll employment of the trucking industry. These are two of the most important sectors for freight so it’s a bit of a double whammy in the driver shortage arena.”
The capacity issue has been heightened by electronic logging device (ELD) requirements which ensure that drivers only operate for the legally mandated number of hours. The ELD mandate has impacted allowable driving hours and acted to reduce capacity.
Additionally, ELD has been poorly received by many drivers, according to Business Insider, and has resulted in drivers leaving the occupation. Because drivers are typically paid by the mile, fewer driving hours translates into lower wages. With driving time curtailed, it is also now harder to find places to park and sleep. Not surprisingly, the greatest driver shortfall is in the “over the road” or longhaul category, characterized by many days away from home and sleeping in the truck.
Flatbed Rates Set New Record
The DAT North American Freight Index reached new heights for spot market truckload shipments in May, and June numbers are tracking even higher. Freight rates for dry van, refrigerated (reefer) loads were at their highest level since January, while flatbed rates set a new record.
Flatbed demand has been unprecedented this year, bolstered by increased activity in the energy and construction sectors, and compounded by ELD. As a result, flatbed rates have set new records. The national average flatbed rate for May was $2.73 per mile, an 8-cent increase over the April average and an all-time high. The national flatbed rate was 63 cents higher than in May 2017, which included a 14-cent increase in the average fuel surcharge from a year ago.
Vise apologized for sounding like a broken record. He stated, “We’re seeing full utilization, and project continuing to for the remainder of the year with only possible modest softening toward the end of the year, but not because of lower demand but because of increased infrastructural capacity.”
Rail Capacity Improvements
In Canada, capacity improvements are being made for rail to resolve issues that impeded lumber shipments last winter. CN recently announced moves aimed at resolving its ongoing rail congestion and capacity challenges. The railroad is bringing aboard 1,250 new conductors and plans to spend $3.4 billion on new sidings, larger yards and 200 new locomotives. It is also purchasing 350 new lumber cars and 350 box cars to better service forestry and metals customers.
According to the Railway Supply Institute, North American railcar orders have more than doubled in the first quarter of 2018 versus the same period in 2017.
So, while there will be some relief later in the year through capacity increases, availability will continue to be tight.
Becoming as Efficient as Possible While Improving Transportation Relationships
While advice pertaining to freight management has been freely offered over the last several years, it is well worth frequently revisiting in light of current conditions. Approaches such as building solid carrier relationships, effective communications, providing adequate lead time, collaborating to identify and exploit under-utilized lanes, and being a good customer are important if you want to get your products delivered. It also doesn’t hurt if you have superior loading/unloading experience, flexibility and prompt payment. These capabilities can all help get you through the current crunch and beyond.
As logistics remains tight, smart pallet and lumber companies are doing what they can to reduce cost and maintain critical relationships.
