LM survey indicates truckload rate increases are coming sooner than later

A big talking point in supply chain circles as of late has to do with truckload (TL) rates. The overwhelming consensus is that they’re going up—but by how much is the question. Supply chain and freight transportation planning depends on this type of knowledge in a big way, especially at this time of year.

With this in mind, I figured that a data-driven approach through a quick Logistics Management reader survey would give us a better idea of what shippers are currently experiencing and what’s on the horizon. Indeed, the feedback from roughly 240 buyers of freight transportation and logistics services, specifically truckload shippers, is pretty telling.

Taking a bit of a retrospective approach, the data showed that 63.8% of respondents saw contract truckload rates head up from 2016 to 2017, with 32.1% indicating that they remained the same, and 4.1% citing rates decreasing for that period.

As for the range of rate increases from 2016 to 2017, 30.6% of respondents said it was less than 5%; 36.3% said it was 5% to 9%; 19.4% said it was 10% to 14%; and 13.7% said it was 15% or higher.

While these ranges seem typical for a normal year, what may be going down in 2018 can be viewed as anything but typical. Case in point: 84.7% of responding shippers told us that they expect rate increases from 2017 to 2018; 14.3% expect rates to remain the same; and a mere 1% anticipate a rate decrease.

For the wide majority who can sense rate increases, the expected jumps are somewhat more wide-ranging than what our respondents reported from 2016 to 2017. Our new data indicated 31.9% expect rate increases of less than 5%, while 42.8% are pegging increases to range from 5% to 9%, with 18.7% preparing for hikes in the range of 10% to 14% range, and 6.6% expecting it to be 15% or higher.

Feedback related to the biggest drivers for expected rate gains was somewhat consistent, with some wildcards submitted as well.

Some of the key reasons were tight capacity and the driver shortage; the pending December 18 electronic logging device (ELD) mandate; increased costs due to fuel, tolls, insurance, and natural disasters; supply and demand; greedy brokers and carriers wanting larger margins for increased profits; an over all increase in demand and higher volumes; competition for top-tier capacity; and wait times that go unpaid.

One respondent called the current situation a “perfect storm,” a theme that has been echoed a fair amount in recent months. In this case, the respondent said the elements of the storm are comprised of fewer drivers and increased demand coupled with less capacity, higher fuel costs and concerns related to the ELD mandate.

Another rate-related topic addressed in the survey focused on the truckload spot market, an area that’s been setting various records for rates and loads in recent weeks. According to our survey, 69.8% of respondents secure loads and capacity through the spot market, with 30.2% saying they don’t.

In many respects, industry experts have verified this data. A recent research report issued by Jason Seidl, analyst at Cowen and Co., citing a recent conference call his firm did with private trucking and 3PL executives, stated that he’s “bullish,” with many expecting truckload contract rates to head up between 5% to 15% in 2018. Seidl noted that rate hikes in this range are more than expected at this point.

“Since the advent of contract rates and agreements, we have advocated negotiating for multi-year agreements,” said Chuck Clowdis, managing director for transportation, economics and risk for IHS Markit. “Even so, there are many one-year contracts, some two-year, and fewer two-plus-year contracts in effect. Shippers have been able to ignore those contracts without volume guarantee clauses and turn to the spot market when rates drop.”

But today, Clowdis contends that the carriers clearly have the advantage. “As contracts expire, look for more attention being paid to negotiating skills,” he said. “Fortunately both sides are neither well prepared nor skilled in rate negotiations. This makes for even more interesting times.”

In case you did not pick up on it, Clowdis is a pretty straight shooter. But any way you slice it, the perfect storm is brewing and moving into the path of 2018 freight spend forecasting models. In fact, shippers need to understand the size of the deluge that’s coming in the form of expected rate gains—if you don’t, then it’s at least time to grab an umbrella and hope for the best.