Frequent news coverage and recent trips to the gas station have shown a steady decline in gasoline prices, and even the price of diesel fuel has dropped this year. In addition, the fuel surcharge we have all been paying has dropped on truckload and less than truckload shipments.
So, why are we are all paying more for freight?
The issue behind climbing freight costs is capacity shortage. This chart from Morgan Stanley shows what has happened compared to the last few years. The old equation of supply and demand is driving prices up.
So, why is demand higher than supply?
There are many factors, but here are the four key drivers behind this critical imbalance:
I. Shortage of Truck Drivers
The trucking industry is currently short about 35,000 drivers according to the American Trucking Association (ATA). This driver shortage has helped push the rate per mile shipped on long term contracts up by 8%, and rates in the spot market (no contract) have increased by 14%.
Unfortunately, this shortfall is expected to grow to around 240,000 drivers by 2020 if not addressed in some fashion. To combat this problem, trucking companies are offering incentives to lure truck drivers according to DAT Solutions, which provides data to the transportation sector.
II. Federal Regulations
Beginning in 2013, drivers have new, lower limits for the number of hours they can drive. In addition, the government has instituted a national system to track driver records since December 2010 which has deterred drivers with checkered safety records.
III. Demographic Changes of Truck Drivers
The average truck driver is 55 years old with more drivers retiring, but not enough younger driver candidates are entering this field.
IV. Improving US Economy
As the U.S. economy continues to improves, expanding consumer demand and rising housing starts will put even more stress on over-the-road transportation to move these higher levels of freight in the future.
So, what can we expect next?
Regrettably, it does not appear that this capacity issue will get any relief anytime soon. This situation will continue to impact Skidmore’s cost to bring in material and also to get it to you.
Ultimately, we all need to work smarter to help manage how we purchase efficiently and not let the capacity issue negatively impact service levels.
V.P. of Supply Chain