LM survey drives home the fact that truckload rate increases are coming sooner than later

A big talking point in supply chain circles of late has to do with truckload rates. The overwhelming consensus says they are going up. By how much is the question everyone is asking and for good reason. Supply chain and freight transportation planning depends on this type of knowledge in a big way.

Those thoughts, as well as some others that are related, got me thinking that a data-driven approach to what may on the horizon, in terms of the level of rate increases and what may be in store.

Based on the feedback and numbers from a recent LM reader study based on feedback from roughly 240 buyers of freight transportation and logistics services, specifically truckload shippers, the data 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 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%-9%, 19.4% said it was 10%-14%, and 13.7% said it was 15% or higher.

While these ranges seemed in a typical range for a normal year, what the data is saying about what may be going down in 2018 can certainly be viewed as anything but typical.

Case in point: 84.7% expect rate increases from 2017 to 2018; 14.3% expect rates to remain the same; and a mere 1.0% anticipate a rate decrease.

For the wide majority that expects rate increases, it is fair to say the expected rate increase are somewhat more wide-ranging than what our respondents reported from 2016 to 2017.

Our data indicated 31.9% expect rate increases of less than 5%, and 42.8% are pegging increases in the 5%-to-9% range, with 18.7% preparing for hikes in the 10%-14% range, and 6.6% expecting it to be 15% or higher.

Feedback related to the biggest drivers for expected rate gains were somewhat consistent, with some wildcards submitted as well. Some of the key reasons were things like: tight capacity and the driver shortage; the pending December 18 ELD (electronic logging device) mandate; increased costs due to fuel, tolls, insurance, and natural disasters; supply and demand; greedy brokers and carriers wanting larger margins for increased profits; fear of the unknown; an over all increase in demand and higher volumes; competition for top-tier capacity; and wait times that go unpaid, among others.

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, 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 has been setting various records for rates and loads in recent weeks. According to the survey 69.8% of respondents secure loads and capacity through the spot market, with 30.2% saying they do not.

When looking at the percentage of freight that moves via the spot market, the findings were fairly consistent, with: 14% at less than 10%; 16% at 10%-19%; 17% at 20%-29%; 15% at 30%-49%; 13% at 50%-74%; 24% at 75%-99%; and 7% at 100%.

In many respects, this data is verified by analysis by industry experts.

A recent research report issued by Jason Seidl, analyst at Cowen and Co., citing a conference call his firm with private trucking and 3PL executives, was “bullish,” with may expecting truckload contract rates to head up between 5%-15% in 2018. Seidl noted that rate hikes in this range are more than expected at this point.

And Chuck Clowdis, Managing Director - Transportation, Economics & Country Risk, for IHS Markit, put it to me this way:

“Since the advent of contract rates and agreements (after the demise of the old six contract limit prior to the Motor Carrier Act in 1980) we have advocated negotiating for multi-year agreements. Even so, there are many 1-year contracts, some 2, and fewer 2+ year contracts in effect. Shippers have been able to ignore those contracts without volume guarantee clauses (not many have them) and turn to spot market when rates drop. Now, however the advantage is all carrier. As contracts expire, look for more attention being paid to negotiating skills, give & take, than in the history of freedom for carriers (post ICC) to set their own rates. 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, Chuck is a pretty straight shooter.

Back to the perfect storm theme for a minute: it certainly looks like it is brewing and moving in the path of 2018 freight spend forecasting models for shippers. If they don’t have a handle on the deluge that is coming in the form of expected rate gains, now is the time to do so. And if they don’t, then it is at least time to grab an umbrella.