The 2000 movie The Perfect Storm is based on the true story of men and women braving life at sea at a time when three major storms converged to form “the perfect storm.” Now, three critical market factors in the freight shipping industry have formed a perfect storm of supply and demand, raising freight shipping costs beyond predicted levels and causing financial burdens for shippers of all types.
These three market factors are:
- Increased demand for shipping services
- Lack of trucks and trailers
- Shortage of truck drivers
We’ll look at each of these market factors individually in an effort to discern when the storm might break and what shippers can do about it until it does.
Increased Demand for Shipping Services
Continuing growth of ecommerce is a major reason for the rise in demand for shipping services. Increasingly, goods that used to be purchased in retail stores are being sold online and delivered directly to homes and businesses. This trend shows no signs of abating. Already in 2018 we have seen the closing of once-dominant retailer Toys”R”Us. Other major retailers that have announced store closures for 2018 include Bon-Ton (256 stores), GNC (200 stores), Foot Locker (110 stores) and so on.
Another reason for the recent increased demand in freight shipping has been the strength of the economy, which grew at a 3% annual rate in the last nine months of 2017 after having averaged growth of 2.2% since the end of the Great Recession in 2009.
While increased demand is raising freight shipping costs, only those in the bricks-and-mortar retail sector are hoping for less ecommerce activity, and the modestly-increased growth rate holds the promise of improving economic fortunes without triggering an inflationary spiral. Basically, nothing to fix here.
Lack of Trucks and Trailers
Today, some logistics experts estimate that 99% of trucks nationwide are in use every day. That’s up from 92% in October 2015.
According to the American Trucking Associations (ATA) Chief Economist, Bob Costello, “We’ve probably never had a situation like we have today, where the demand is strong and capacity is constrained.”
Capacity is constrained for several reasons. The spike in economic growth mentioned above took many analysts by surprise, leaving truck and trailer orders lagging behind growth.
Another major contributor to the capacity shortage has been the mandatory implementation of Electronic Logging Devices (ELDs) which effectively regulate how many hours and miles a driver can operate their vehicle. Development and implementation of ELDs happened to reduce accidents involving tired truck drivers, but they also have the very real effect of adding days to the transit time of medium-haul and long-haul shipments. And every additional day that a truck and trailer are being used to deliver one load is a day they are not delivering their next load.
The shortage of trucks and trailers is one factor that can be addressed directly, simply by building more of them. And that’s just what is happening.
In March 2018, economic research firm FTR announced that it was “significantly” boosting its forecast for 2018 truck and trailer deliveries. FTR now expects Class 8 truck (heavy trucks, including semi-trailer trucks) orders to reach 330,000, which is 50,000 more than were delivered in 2017 and 80,000 more than in 2016.
Trailer deliveries are projected to reach 334,000 in 2018.
With another 330,000 freight trucks expected to be on the road, one might expect the perfect storm to end soon, but the third of our three market factors, the shortage of drivers, is the toughest of all to solve.
Shortage of Drivers
A shortage of drivers is not a new phenomenon in the freight industry, but it has become more pronounced as the demand for freight shipping has risen.
ATA Estimates of Nationwide Truck Driver Shortages
2013 – 20,000
2016 – 36,500
2018 – 51,000
Part of the dilemma is generational. Baby boomers are retiring, and few millennials want to drive trucks. ELDs have reduced driver productivity, cutting into the profits of independent truckers and making a career as a truck driver is less attractive to young people today who are searching for better ways to take care of themselves and their families. The need to be away from home for long stretches of time has been cited as a major deterrent.
ATA says the driver shortage will approach 100,000 by 2021. That’s enough to affect the national economy, not just the freight industry.
Industry futurists envision the day when driverless trucks rule the roads. But until that day arrives, either the industry is going to have to figure out how to make truck driving more appealing, or freight shipping costs will continue to rise.
This problem is not going to end soon.
Shippers Need to Ride out the Storm
Over the past year, carriers have raised the costs of their shipping contracts on average from 6% to 10%. Spot rates, which change daily, have seen spikes of 30% to 80%.
The one sure way for shippers who do not have minimum-volume freight-shipping contracts with specific carriers to ride out the storm without paying exorbitant freight shipping costs is to use 3PLs (3rd Party Logistics provider) and freight brokers like FreightCenter. While freight shipping costs have also risen for 3PLs and freight brokers, they are still significantly less than the astronomical spot rates one-time and intermittent shippers can face.
How FreightCenter Can Help
As a major shipper that also handles all facets of customer communication for carriers, FreightCenter is able to negotiate freight shipping contracts at extremely deep discounts. By booking their orders through FreightCenter, our customers save up to 95% versus paying the carrier’s spot rate.
Have something to ship? Use our instant freight rate tool to compare shipping costs of multiple carriers at once and see how much you can save.