For years, trucking executives have warned that ultra-tight capacity, brought about by a long-term shortage of trucks and drivers, would need only a sustained U.S. economic recovery to lead to a significant upward movement in freight rates. That time may finally have come.
Talk around the first day of the CSCMP EDGE 2017 annual meeting in Atlanta was that noncontract, or spot, rates, which have surged throughout the summer, will continue to climb. Contract rates, which lag the spot market by three to six months, are expected to follow a similar trajectory. Contract rates are expected to climb higher in the 2017-18 time frame than at any time since the second half of 2003 and early 2004, when the U.S. economy surged following the Iraq War and the federal government enacted tax cuts, according to various experts.
One rumor making the rounds is that a large, unidentified truckload carrier is prepared to increase rates by 10 percent across the board, and plans to do so in very short order.
Derek J. Leathers, president and CEO of Werner Enterprises Inc., an Omaha-based truckload carrier and logistics service provider, said the industry is experiencing freight demand that "it hasn't seen in a long time." The growing demand is not all related to the rebuilding efforts centered on Hurricanes Harvey and Irma, he said, an indication that traffic trends remain robust independent of the back-to-back natural disasters.
At a panel session on Monday, Leathers would not comment on what specific rate increases shippers and freight brokers would see, noting that any hikes would depend on multiple factors. However, Leathers said prevailing rates do not compensate Werner for the 17 percent increase in driver wages as well as higher input costs it is absorbing. Profit margins of 3 to 4 percent won't cut it, Leathers said, noting that "the math doesn't lie."
The shortage of qualified truck drivers is unprecedented, Leathers added. Professional drivers are a "scarcer commodity than ever before," he told the gathering.
Besides an ultra-tight supply-demand situation and stronger freight demand, the trucking industry faces a reduction in capacity and productivity as it adjusts to the Dec. 18 deadline to comply with federal regulations requiring that virtually all trucks built after the year 2000 be equipped with electronic logging devices (ELDs). The equipment will bar the many independent drivers who run afoul of federal hours-of-service rules to get goods to market, thus eliminating a large source of productivity, albeit illegal.
Nöel Perry, chief economist for the load board Truckstop.com and the consulting firm FTR, said large numbers of freight brokers, who manage billions of dollars of loads for shippers, are opting for contracts in an effort to lock in current prices before they rise even further. Although contract rates are already escalating, brokers may still find it difficult to pass on higher prices to their shipper customers, Perry said.