Pendulum Swings between Freight Volumes and Capacity Shortages
Good news! The volume of freight carried by U.S. trucks has increased dramatically, helping to restore growth and profitability to the recession-battled industry. The not so good news is that significant cutbacks carriers implemented during the recession could result in insufficient capacity to meet the higher volume demands.
A recent survey by Transport Capital Partners found that roughly 92 percent of carriers expect freight volume to increase over the next 12 months – and 91 percent believe there will be rate increases in the coming year. These predictions are supported by a report by the American Trucking Association, which found that freight tonnage increased by 5.9% during January and February, despite the harsh winter weather.
While this is good news, fears abound that a capacity shortage is on the horizon. In January, the Journal of Commercereported that a sampling of the nation’s largest carriers found that all had reduced capacity, and most have either kept capacity flat, or added minimally as the economy began to improve.
Why don’t carriers add more trucks and hire new drivers to meet the demand? It is not that easy. Many carriers are still skittish about the economic recovery’s strength, choosing instead to take a “wait and see” approach. Others are concerned about the impact of proposed changes to federally-mandated “driver hours of service” rules. The Department of Transportation has raised the possibility of reducing drivers’ workdays by one hour – from 11-10 – which industry officials have estimated could cut productivity significantly.
Added to these concerns, is the steadily rising cost of fuel. With diesel prices well above $4 per gallon in several states, many carriers are struggling to put trucks on the road, even after adding a fuel surcharge to customers’ bills. As industry expert and blogger Tom Kretsinger posted recently: “When fuel prices increase many trucking companies lack sufficient working capital to finance the increases. During the extreme price increases of 2008, many carriers folded because they did not have the additional working capital needed to float this money for shippers….”
Between the economy, fuel costs, driver shortages and tightened capacity, there are many variables affecting the nation’s freight industry right now. Businesses in need of freight services in the coming months would be wise to lock in both service and rates now, rather than risk being shut out later.
What is your business doing to prepare for these costs? Have you looked into streamlining your supply chain? Tell us what you are doing and what the expectations/impacts will be to your transportation costs.