LM’s “2015 Rate Outlook” webcast generates compelling questions

I recently had the pleasure of participating in Logistics Management’s 2015 Rate Outlook webcast.  During the 45 minute discussion our panel of top economic and transportation market analysts examined the current state of transportation rate structures, and where we are likely to see them head in 2015.

Click here to listen to the webcast. 

Judging by some of the follow-up questions we received from attendees, we’ve hit only the tip of the ice berg.  John Larkin of Stifel Nicolaus Transportation and Logistics Research Group provided a comprehensive look at the Truckload and Less-Than-Truckload sectors. Here are some of the most interesting questions posed to John and his responses.

Q: Can private fleet operators benefit from using common carriers?

A: Yes – provided you can access the common carrier capacity you need at reasonable prices.  Often common carriers have lower cost and can offer lower rates.  However a blended strategy of handling your base load volume with your private fleet and handling the peaks with a common carrier or broker might allow you to sleep better at night.

Q: Can you give us some idea about trucking prices in the oil fields?

A: Would say that prices will likely decline and potentially quite a bit as activity levels in the shales are lower due to lower oil prices and that makes it tough to drill new wells economically.

Q: How about rate increases in 2015 if you use a 3PL?

A: Good question.  Would say that rates will go up less say 1-4% (vs 3-5%) with 3PL’s as they have better market knowledge and more purchasing power than any individual shipper.

Q: What does job growth look like in Logistics and Transportation in the coming years - A good industry to stay in?

A: Would say that if anything, more good people are needed.  It isn’t the raw number of people that will grow as much as the demand for experienced folks with significant expertise.  So, yes I think it is a good place to stay. 

Q: How many LTL carriers should one be using? How to determine how many and who?

A: Most folks probably use between 3 and 5.  They may select them based on pre-existing relationships or a formal “bake-off” or competition in response to an RFP/RFQ.  However an increasing number of shippers are accessing the LTL industry more broadly by using a 3PL partner.  They have great software that allows you to pick the right value proposition for your needs on any given day.  This is probably the low cost way to go.  ECHO and Freightquote.com offer this service and you might check them out. 

Q: What impact will CNG or LNG have on the rates for trucking?

A: CNG and LNG are still in the experimental phases for the longer haul truckload market.  With oil prices dropping to $40/bbl the economic trade-offs vs diesel get even more challenging.  The issues are distribution and the fuel tanks, which are very expensive.  For now, CNG will do well in short haul urban markets. 

Q: How will the industry replace an aging driver workforce?

A: We could spend the rest of the day discussing this complex issue, but my sense is that may millennials have no interest in driving a truck at any wage.  After all they have a college degree (doesn’t everyone need one?).  Blue collar work is no longer valued.  That is what Uncle Floyd used to do.  We deserve better.  Plus, most carriers won’t hire drivers until their pre-frontal cortexes are fully mature (say by age 25).  By then, most of the good candidates have gone to college or are gainfully employed in another career.  There are no simple solutions to this perplexing problem. 

Q: Many think that tractor production has increased beyond fleet replacement levels in the national fleet. Are carriers confident now that they can hire drivers and fill these added trucks in the fleet? How will this effect overall network capacity?

A: My sense is that the big tractor production numbers are still associated mostly with replacements of older equipment.  Some fleets are endeavoring to add some incremental units but that is a function of how many incremental drivers they can recruit and retain.  The driver market is still tough out there.  The big carriers are shortening their trade cycles to access a more fuel efficient fleet, to keep maintenance costs in check, to keep drivers happy, and to provide reliable service levels.  As long as the late model used tractor prices hold up, this move to the more rapid trade cycle should continue and should inflate the production numbers. 

Next up: Philip Damas, Director Drewry Supply Chain Advisors, answers questions regarding ocean cargo shipping.