Factors that Contribute to the General Rate Increase in LTL
Shipping companies need to set their rates in a manner that assures that they earn a profit on their services. When less-than-truckload (LTL) carriers increase their base shipping rates it is known as a General Rate Increase (GRI). These periodic adjustments are usually made once a year, although there have been exceptions when either no increase was announced or more than one was imposed by a particular carrier in a calendar year.
Generally, industry leaders are the first to announce their GRI’s with smaller carriers following suit and increasing their rates as well. Most of the smaller shippers will institute the same GRI as the industry leaders. The rate increase indicated by the GRI mostly impacts small to medium customers as larger companies often negotiate special rates that are left unchanged by the carrier demanding a General Rate Increase.
The increases usually are announced in the fall, but this year’s increases are already in effect. Increases for most carriers in 2018 are between 4.9% and 5.9%. Carriers are also increasing prices for extras like Saturday and inside delivery.
There are a number of factors that impact the GRI that a carrier feels it needs to maintain its profitability. Let’s take a look at some of the reasons for LTL general rates to increase.
Many carriers are reporting dramatically increased equipment costs, according to freightquote.com. These cost increases are driven by the need for shipping companies to invest in technology. Examples of technological advances that have come to the world of shipping include new and more efficient devices to measure and weigh packages as well as the advanced tracking mechanisms that consumers demand. Over time these investments can potentially help lower costs, but the upfront investment is a factor in a carrier’s GRI.
Shippers are now mandated to have Electronic Logging Devices (ELD) installed in their fleet. These track the hours a driver has been working and is meant to enforce safety by limiting the driving time between enforced breaks. The combination of outfitting their vehicles with the ELD’s and the shortened hours of operation that a driver can perform have contributed to the GRI’s in 2018.
The Rise of e-Commerce
The increasing appetite of Americans to shop online has drastically increased the demand for LTL shipping. With companies such as Amazon and Chewy offering free shipping for orders over $49, there has been a tremendous increase in the number of small packages that need to be shipped by LTL carriers. The increased demand for these types of shipments has caused shipping companies to increase rates and contribute to the yearly GRI seen across the industry.
One of the major issues with the e-Commerce paradigm is the distance that needs to be driven to deliver a single package with no backhaul opportunities to offset the cost. Free shipping to the consumer is far from free for the merchant or the carrier. Without the ability to have full trucks traveling in each direction, rates will necessarily need to increase.
According to bloomberg.com, the trucking industry needs to hire at least 50,000 drivers in order to take full advantage of their fleets. The shortage can be explained in some degree by the fear of autonomous trucks eliminating jobs in the not too distant future. This apprehension had convinced some would-be truck drivers to find another occupation. Additional safety regulations, while extremely important for drivers and the general public, have shortened the potential hours that a trucker can work in a given week.
These factors are making it harder for shipping companies to adequately staff all of their vehicles. Other issues that contribute to the driver shortage are a lack of parking spaces, especially in the Northeast. This forces truckers to park further from their destination and reduces the availability of the driver to make another run.
Manufacturing Industry Growth
The manufacturing industry is experiencing growth in the United States which leads to increased demand for LTL services both in providing raw materials to manufacturers and shipping finished products to warehouses and distribution centers. This drives up the demand for trucking services which then allows the trucking companies to raise their rates. While increased shipping rates can hurt an enterprise’s bottom line, it’s preferable to not getting their products to the market in a timely manner, so they will be forced to pay the new, higher rates.
Fuel prices have been gradually increased during the course of the year and add a further burden to the finances of shipping carriers and trucking companies. While this is not an overwhelming reason for the GRI, it is a contributing factor that cannot be ignored.
These are some of the reasons behind this year’s GRI in the trucking industry. Increased demand in any market segment can lead to increased prices, and the LTL industry is not exempt from this fact. Since almost all carriers have increased their rates, there is no getting around this issue if your business depends on the LTL freight industry to get your goods to your customers.