Is the Transportation Market Heading into Unprecedented Territory?

If you’ve attended any logistics conferences lately, or just tried covering a load in recent weeks, you know that the tide is turning in the transportation market. Capacity is tightening and rates are going up. Will these trends continue in 2018? What impact will the Electronic Logging Devices (ELD) mandate have on the market? How should shippers respond?

Those were just some of the questions I discussed with Mike Finn, VP of Transportation at Kenco Group in a recent episode of Talking Logistics. So, what is Mike seeing and hearing from shippers and carriers in the transportation market?

“Those of us in the transportation industry can always tell when the economy is really [strengthening],” said Finn. “You can see that GDP is going up; it increased [at an annual rate of 3.0 percent in the third quarter]. We are seeing a sustained $2+ per mile spot price. Traditionally, there’s a good gap between contracted rates and spot rates, but the gap is very narrow right now, with spot maybe slightly above contracted rates. Usually you can get some savings by going to the spot market, but right now shippers are looking to lock in [rates], looking at getting creative, looking at dedicated fleets to mitigate the risks, looking at scenario planning…We’re seeing all of the above approaches to offset these [trends in capacity and rates].”

Finn also commented on the lingering impacts from Hurricanes Harvey and Irma:

I think a lot of people have underestimated the impact of the hurricanes. At the CSCMP conference in late September, I heard a lot of speakers talking about the aggregate equipment loss — 50,000 to 70,000 units were taken out of service. When you take that much equipment out of the market, there’s going to be an impact. You also have FEMA entering the market with a mandate to buy transportation for critical goods, which is also having an impact, and you’re certainly seeing it in the load boards and spot pricing.

I encourage you to watch the rest of my conversation with Mike for additional insights and advice on this topic, including other factors that are affecting the transportation market, such as ELDs, fuel prices, and driver shortage.

Is the transportation market heading into unprecedented territory? Well, it all depends on how you define unprecedented. Certainly, there have been other periods of time when “perfect storm” conditions have existed in the market, leading to tight capacity and rate increases — such as in 2004, when the new (at the time) Hours of Service rules went into effect, coupled with strong GDP growth, high fuel prices, and the ever-present driver shortage. So, from that perspective, what we’re seeing today is not new or even as bad (yet) as what has happened in the past.

But nobody knows for sure yet what impact the ELD mandate will have on capacity and productivity — it could be negligible or it could be very significant, especially if a relatively large number of owner-operators decide to exit the market (according to various surveys, anywhere between 38 and 60 percent of owner-operators and small carriers are currently not ELD-compliant). And although the driver shortage problem has existed for many years, the fact remains that every year, more drivers are retiring, more drivers are nearing retirement, and fewer young people are entering the industry. And as reported by Reuters last week, “the consolidation of the U.S. trucking industry is picking up speed [44 publicly announced freight movement and logistics deals within the U.S. so far this year, according to Thomson Reuters data, topping the 38 deals announced in 2016], with big trucking companies and private equity funds scooping up smaller firms as [the ELD] mandate is set to go into effect and as drivers push for higher wages.” So, from that perspective, perhaps we are indeed moving into unprecedented territory!

What do you think? After watching the episode, post a comment and share your perspective!