State of Freight: 2018 Review
The shipping industry is on target for a strong finish to 2018. The coupling of strong freight demand with the continued robust growth of ecommerce is resulting in upward-trending rates for all three sectors of the transportation industry — as well as both opportunities and challenges.
The August publication of the Cass Freight Index Report, a monthly study of North American freight volumes and expenditures by Cass Information Systems, found that performance for the first seven months of 2018 exceeded expectations, indicating the year overall will be a good one for carriers. Freight shipment volume has been increasing for 19 consecutive months, with expenditures having gained for 22 straight months, as of July 2018.
Over the past year, increasing demand and tighter capacity within the industry have led to shipping prices that keep going upward. Even though carriers have invested in equipment and technology, some modes of transportation are still frequently experiencing limited capacity, which is keeping rates inflated.
Less Than Truckload (LTL)
The LTL sector is experiencing market conditions that are the best for carriers in many years. The limited supply of drivers combined with ever-increasing retail demand have resulted in explosive rate growth. Carriers that have invested to expand their delivery networks have been rewarded. Last mile costs are still high, but this has not prevented many LTL carriers from capitalizing on this growth period. Increases in accessorial charges and dimensional pricing have created better margins for most LTL carriers as well.
Despite the robust state of the industry overall, however, the TL market is struggling in some ways. While the positive rate environment has benefited all TL sectors — including dry van, reefer, flats, and bulk — the driver shortage is a serious concern. This challenge of dealing with a tight and still shrinking labor pool is being compounded by new regulations that limit drivers’ time on the road.
TL carriers know that solving the problem of the driver shortage is imperative. The immediate priority is to replenish the aging driver population with younger drivers, and many carriers have started offering bonuses and other initiatives to this end. But this is not enough. Until this problem is resolved, the truckload sector will continue to have capacity issues.
The story of the last few years in the small parcel sector has been the ecommerce boom — and nothing has changed there. The number of retail customers shopping online is continuously increasing, which means that the market for small parcel delivery will continue to grow. Rates are also continuously increasing, with base rates rising about 4–5% every year and the annual GRIs from UPS® and FedEx® now being expected by shippers. The two carriers also frequently impose other new fees and surcharges — these have been coming out almost monthly so far this year — and we can expect them to announce their 2019 GRIs any day now.
Overall, despite the challenges of capacity and finding drivers, it’s a good time to be a carrier. The good carriers are busy, rates are high, and margins are solid. As the industry moves into 2019, it will be interesting to see how the industry develops and responds to the challenges and opportunities.