01 Mar Why Are Truckload Prices so High in 2018?
Posted at 19:52h in Truckload
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Have you, like many dealing with moving full truckload freight, been wondering- what the heck is going on with these truckload prices? We work on 100’s of truckload moves daily, across many market verticals, each having their own unique requirements. During this time of skyrocketing prices and market instability, we believe education and deepening partnerships are critical to the long-term success and health of our customers.
National Media Coverage:
Bloomberg – The U.S. Is Running Out of Truckers
WSJ – A Shortage of Trucks Is Forcing Companies to Cut Shipments or Pay Up
DAT – Year Ends with Record Rates and Ratios
To help better understand the reason for rising prices- here are 4 major reasons why…
Reason # 1 The FMCSA DOT ELD mandate.
On Dec. 18th, 2017 phase 2 of the US DOT’s Electronic Logging Devices (ELD) mandate became effective (Riveting Reading on FMCSA Implementation Plan). This mandate was heavily combated by the trucking industry at large, right until the date it was implemented. While those in the trucking industry thought there would be a negative impact on distributors, manufacturers, carriers, and at the end of the day the general public – the extent was much greater than anticipated.
The ELD mandate becoming effective wasn’t a speed bump for those in the industry as the lawmakers had hoped…it was a cliff. Within 2 weeks of the mandate, the industry saw an unprecedented increase in spot market price on a national level. The price average climbed to an all-time high… let me repeat ALL-TIME HIGH. We saw the effects almost immediately.
But why? One reason is the ELD in many ways significantly shortened drivers work days. Meaning drivers now needed two days to complete the work previously accomplished in one. This change lead to a sizeable contraction in the marketplace and caused pricing on undesirable lanes to increase at a higher multiple. Those in the market adjusted prices to make sure they could cover the additional operating costs of the ELD compliance, both from an equipment and time-loss standpoint.
Reason # 2 It all about timing.
If you are moving truckloads and there is more of a focus on special requirements, whether it is multi-stop, expedited, trade show, or specialized equipment, you have been hit the hardest. These loads have become even less desirable for drivers to handle. The market had to adjust to compensate the lost revenue to the carriers and drivers.
Here are some general rules to combat timing related issues:
– Communicate – Be clear with your vendor. Demand they understand your needs and what is most important.
– Honesty – It can be enticing to try and get a lower price by leaving out some details… This doesn’t help any party involved and will usually force a cost to be adjusted and possibly damage a relationship.
– Details – The devil is in the details. Providing good, complete information to make sure all the parties have the right contacts, times, and locations.
Reason # 3 Market Contraction
At the heart of this issue is the basic principle of supply and demand. Current economic growth is not being met by the number of trucks available. While the ELD mandate exacerbated the problem, it wasn’t the catalyst. For many years the industry has been facing an aging workforce with fewer people into the marketplace to take the jobs of those retiring. This reduction in workforce is requiring carriers to get creative with drivers, offering better incentives and salaries. This has been a growing problem, and at the beginning of 2018 many carriers further attempted to adjust rates to make sure they could retain and attract new talent. With the truckload industry average turnover rate at ~95%, carriers need to hold on to their talent.
Average driver turnover in the industry is 95%.
ATA – Large Truckload Driver Turnover Rate Rose in Third Quarter
Reason # 4 Bidding against yourself.
Priceline, Travelocity and let’s not forget Google have all helped us look for the best price when traveling. There are even sites that let you compare those sites to differentiate and get the best rate. So, in many ways it would seem this method of thinking should translate to searching for truckload capacity. The more companies I ask for a quote, I should uncover the lowest price, right? Not really… here’s a little peek behind the curtain… there are only so many trucks on the road, and the truckload markets share most of them. With multiple parties attempting to secure the same truck in a specific lane, an upward bidding war will ensue, causing the exact opposite outcome the customer is hoping to achieve.
General ways to combat:
– Create a true partnership with a company you trust. – Depend on them to demonstrate the current market and provide feedback when things change.
– Know who you are working with – Understand the structure of the company you are working with. A larger company does not translate to better pricing and certainly not results.
– Don’t compete against yourself.
The good news is, it’s not all doom and gloom. As a shipper in this new climate, the important thing to realize is the success of your strategy is more closely tied to the company you keep. Simplify your strategy and do less hair pulling. Dealing with an honest partner adds value outside of just the cost of shipping and extends to many other areas of your business.