Rising Transportation Demand: Too much of a Good Thing?
The demand for trucking has increased over the past few quarters. While this is good news for some carriers, others are beginning to worry about the effects on total capacity, especially with the ELD mandate being implemented. We have discussed the potential of a capacity crunch as well as analyzed the potential effects of the ELD mandate in previous articles. This post will focus on rising demand, and the effects it can have on the U.S trucking industry in 2018.
As always, our main goal at LTX is to provide our customers with the best service and information available. Providing you with the proper tools to make informed strategic decisions is what we work toward every day. With that out of the way, let’s get into the details.
Where are Current Demand Levels?
Taking a macro view to start, the US Bank reported unusual second-quarter gains at nearly 6% from year-to-year in the National Shipment Index. More narrowly, some of the largest national carriers’ brokered freight volumes were up 20% and revenue gains rose almost 10%. However, costs also increased substantially, especially in purchased transportation costs. These increased costs largely offset revenue gains and the brokerage market lost upwards of $200,000 on operating revenue.
What is Fueling Demand Increases?
There are perhaps countless factors contributing to the upwards trend in demand, but to keep things simple, we will focus on increased growth in the economy and more specifically in e-commerce. Manufacturing and other industrial production sectors all experienced growth in the last six months. Furthermore, U.S GDP has increased at a steady 3.2% over the last few quarters. Both factors contribute heavily to freight demand and volume. Increases in consumer purchasing through growth in e-commerce are also contributing to the rise in freight demand. Compared to more traditional retail, e-commerce has grown at an explosive 15% compound annual growth rate. E-commerce will continue to reshape many of the logistical operations of U.S business. Even traditional retail giants such as Wal-Mart and Sam’s Club are reshaping their supply chains to compensate for e-commerce growth.
Other Factors to Consider
One of the more important secondary factors to consider is the driver shortage. We have discussed this topic extensively in many other articles, and we have an e-book on the topic that will soon be released to our subscribers. So, if you are interested in more analysis on this topic than please take the time to subscribe. We like to reward our most loyal followers with greater sources of analysis and information, and these e-books are one method of it. Shameless plugs aside, the driver shortage is important in its effect on industry capacity. The shortage is acting as a constraining mechanism, and the upper limit of freight capacity is continuing to shrink because of its downward pressure. Another related external factor that is going to affect capacity is the new ELD mandate. The question on many industry expert’s minds is how this new regulation will affect the already problematic driver shortage as well as overall freight capacity.
What Does This Mean for the Industry?
So now that we’ve discussed some of the factors driving demand, what does this mean for the industry, and how could this potentially be troubling? The truth is in the numbers, capacity constraints are already as high as 99% and are expected to rise even further due to the increase in demand. This will result in transportation costs becoming even more expensive. Experts are predicting increases at 10% or even more. This increase in costs could potentially become overly burdensome for many carriers and cut even further into their bottom-lines. Will shippers continue to buy at higher rates? Many shippers are holding their rates lower despite capacity crunches for third-party brokers and carriers. Industry authorities suspect that the capacity crunch will get much worse before shippers adjust their rates accordingly.
How Can the Industry Adapt?
As capacities continue to tighten and costs increase, industry players will have to take steps to adapt and remain viable within the shifting market. Carriers can take steps such as streamlining routing and backhaul movements. They can accomplish this by employing sophisticated TMS systems to increase transparency and collaboration between all segments of their freight network. High-quality TMSs can be very expensive to lease and very time-consuming to develop in-house. A great way to gain the benefits of an excellent TMS is to partner with a reputable 3PL such as LTX. At LTX we utilize some of the most advanced freight management technology available. Along with the tech, we also have the expertise and knowledge to pinpoint areas of your supply chain network that can be further improved. As capacities continue to tighten, this partnership can be incredibly valuable to companies looking to maintain and even increase their market share.
If you have any more questions regarding capacity, increasing freight demand or supply chain optimization than please do not hesitate to contact us today. If you would like to take the next step and partner with LTX and revolutionize your supply chain, we would love to talk with you. Stay tuned for our e-books being released soon on Last Mile/White Glove Delivery and the Driver Shortage. Subscribe today to gain access!