Kristy Knichel | Knichel Logistics
The transportation industry this year has the potential to be even stronger than the previous one. DAT reported 2017 as a particularly robust year for shipping, especially in the second half. Based on what we have seen in the industry during that time, here are the top four trends to watch for in the freight transportation industry as we continue into 2018.
We are experiencing a market with low truck supply and high freight demand. One of the reasons for tightened capacity is the ongoing driver shortage. Year after year, older drivers are retiring with fewer younger drivers taking their places. The work is difficult – it involves working long hours, driving great distances, being away from family for extended periods of time and often less-than-ideal pay. Fewer drivers mean fewer trucks on the road to haul this increase in freight, which, in turn, drives up the rates because of the premium placed on securing a truck. It was a good year for the U.S. economy as well, and this additional freight volume combined with two major hurricanes diverting resources also greatly impacted the ability to secure trucks.
Another factor that is impacting capacity is increased government regulations, such as the electronic logging devices mandate (ELD) that went into effect in December 2017. The ELD mandate essentially requires all motor carriers to install electronic devices in their trucks that will automatically track drivers’ hours of service. By law, drivers are only allowed to drive for 11 hours with a mandatory, continuous rest period of 10 hours daily. Prior to the mandate, most (but definitely not all) drivers kept manual log books to track their hours of service, while some of the larger carriers already had ELDs. Most smaller carriers have become compliant, but some are having issues with the cost of installing the devices and even more dislike the automatic tracking of their movements. Regulations such as these are implemented with the intention of creating safer roads, however, they are also perceived by drivers as an infringement on their personal space as many consider their trucks to be a home away from home in addition to a workspace.
Spot rates were on the rise for much of 2017 and could continue to do so throughout 2018. This trend goes hand in hand with the capacity crunch. As freight demand rises and supply (available trucks) falls, rates rise. There are typically two types of rates in the transportation industry: spot market rates and contract rates. Spot rates are those that are quoted on the spot and are typically done for freight that is ready to move. Contract rates are those that are locked in with a carrier via contract with the shipper and are usually based on a year-long estimate of freight volume.
Eventually rates will stabilize, but for the time being, it is expected for them to rise as capacity remains tight. The likely outcome of increased truck rates will be the transition from highway transport to rail freight. Intermodal or rail is typically less expensive than truck due to the nature of the mode, and we are already seeing shippers switch to intermodal to circumvent the capacity and rate issues of the highway.
Another potential disruptor is the autonomous vehicle boom. Tesla has already unveiled their electric semi-truck, which has a range of 500 miles on one charge. Pre-orders are piling in from large asset companies, so there is clearly an interest in this technology.
More and more, we are seeing new technologies break into the transportation scene. Uber Freight launched last spring and is essentially an app for freight that operates like Uber’s ride-sharing service. Both Convoy and Amazon have apps that target on-demand freight as well. These apps operate by matching trucking companies with shippers who have freight that needs to move.
One of the areas they may have success with is capturing transactional market share. Currently, these apps are in their infancy and are in limited geographic markets, but there is potential for growth. From our end, we are seeing transactional business picking up substantially, so it’s highly probable that more shippers will become willing to embrace any solution that provides them with a truck. And carriers will be more than willing to embrace it if they feel those platforms can offer them higher – and faster – paying freight.
Another potential disruptor is the autonomous vehicle boom. Tesla has already unveiled their electric semi-truck, which has a range of 500 miles on one charge. Pre-orders are piling in from large asset companies, so there is clearly an interest in this technology. Not having to pay for diesel fuel, or the upkeep of maintaining a combustion engine while having increased visibility from the streamlined cabin of this truck are all alluring factors to many drivers. It looks like right now the only thing holding Tesla back is the 500-mile cap and current lack of charging stations.
It is likely we are a few years out from seeing autonomous trucks impact the industry in any significant way. A lot of the activity, industry chatter and pre-orders, is likely due to the fact that larger asset companies want to make sure they are not just standing around with their hands in their pockets – they want to show their shareholders that they are not ignorant of innovative technology and what may be a new era of transportation.
Both shippers and carriers will have to be flexible in this new shipping environment. Most individuals generally only change behaviors if they can no longer deal with less-than-ideal situations. With that being said, it will be interesting to see how shippers, specifically the ones that have a reputation for not being driver friendly, change their behaviors.
On the carrier side, as long as supply and demand stay relatively status quo, you will see carriers act more selectively with the business they handle. This will be realized by carriers taking significant increases for specific business or flat-out refusing to work with shippers that are no longer a strategic choice for them. A good example of this behavior would be axing shippers that make drivers wait. Now more than ever time equals money and time spent sitting at loading docks unnecessarily cuts into the bottom line for carriers.
The author, Kristy Knichel, is CEO/President of Knichel Logistics, a certified WBE & WOSB, non-asset based 3PL located in Gibsonia, PA. It is a family-run business that specializes in intermodal, LTL, full truckload, and specialty services. She may be reached at [email protected]