Search By Topic The Green Supply Chain Distribution Digest
Supply Chain Digest Logo

Category: Transportation and Logistics

Supply Chain News: US Freight Rates, and Driver Pay, May be Head Much Higher

 

Be Careful Budgeting for 2018 in Market with Strong Freight Demand and not Enough Drivers

Dec. 4, 2017
SCDigest Editorial Staff

With strong economic growth - Q3 US real GDP was revised upward to 3.3% last week - and continued issues with a lack of drivers, US shippers may soon see freight rates headed sharply up as we head into the new year.

The ATA freight tonnage index for October was up 3.3% versus September and a robust 9.6% over October of 2016, which was the largest year-over-year increase since December 2013.

Supply Chain Digest Says...

YRC Worldwide CEO James Welch told recently told an investor conference that "Capacity is tight, the freight environment is strong," leaving more room to raise prices.

What do you say?

Click here to send us your comments
Click here to see reader feedback

John Larkin, noted transportation sector analyst for Wall Street form Stiffel, issued a research note in which he said it likely will be "a trucker's market" in 2018.

"The primary driver of the supply/demand tightness is the economy-wide shortage of skilled, blue collar labor," he says. "It has become very challenging to find drug free, compliant drivers given today's driver wages. While driver pay scales began to rise in the 2nd half of 2017, the starting point for wages was so low, that it may take multiple wage hikes before we see any alleviation of this chronic challenge."

And driver pay is indeed heading up, which ultimately must in turn send freight rates higher as well. Gordon Klemp, president the National Transportation Institute, recently noted that rates per mile in the third quarter rose a penny to 2 cents, but some outlier carriers took them up 4 cents to 7 cents, and those higher jumps will become more widespread in 2018.

As reported in the ATA's Transport Topics magazine, Shaver said demand for drivers is so strong in the Midwest and Northeast that "you see pay gaps of up to a few cents a mile, sometimes even a little bit more."

Klemp added that the tortoise-like rise in hourly pay rates today will likely become a fast-moving hare in 2018. Many carriers have also recently initiated large signing bonuses for new drivers.

For example, new drivers hired before the end of the year at Minnesota-based carrier J&R Schugel Trucking will received a $15,000 sign-on bonus. Drivers can also receive a $250 bonus for 7,500 to 9,999 dispatched miles driven in a month, or $500 for 10,000-plus dispatched miles driven.

Klemp said conditions are similar to those in 2004-2005, when turnover jumped as high as 121%, the GDP hit 3% and freight rates rose. "Pay increased 21% and drivers were happy, but they were almost impossible to recruit. This is our pay model now," Klemp said.

 

(See More Below)

CATEGORY SPONSOR: SOFTEON

Learn More about Softeon's Innovative Supply Chain Solutions

 

 

Now ELD Deadline Approaching

On top of all that, Stiffel's Larkin notes that on December 18, 2017 the Electronic Logging Devices (ELD) mandate will be fully implemented, and that this may "add insult to injury," further compressing an already tight market, as drivers at smaller firms and independents can no longer cheat on hours of service rules, effectively reducing industry capacity.

Meanwhile, truckload rates are soaring. Larkin recalls that he first witnessed "an inflection" in spot rates in mid-2016. He adds that normally contract rate increases follow with a six-month lag. Recently however, this cycle extended for over a year.

"The 3Q17 hurricanes were the catalyst that tightened an already tightening market," he says, "giving carriers the confidence to push for and receive upper single digit rate increases. And, with the advent of the ELD mandate, additional rate increases may be forthcoming."

Rising rates will be seen across all the truckload sectors (i.e., dry van, reefer, flats, bulk, etc.) and could have staying power, Larkin says.

Meanwhile, YRC Worldwide CEO James Welch told recently told an investor conference that "Capacity is tight, the freight environment is strong," leaving more room to raise prices.

 

Do you see freight rates headed higher? Let us know your thoughts at the Feedback section below.

 

Your Comments/Feedback

 
 

Features

Resources

Follow Us

Supply Chain Digest news is available via RSS
RSS facebook twitter youtube
bloglines my yahoo
news gator

Newsletter

Subscribe to our insightful weekly newsletter. Get immediate access to premium contents. Its's easy and free
Enter your email below to subscribe:
submit
Join the thousands of supply chain, logistics, technology and marketing professionals who rely on Supply Chain Digest for the best in insight, news, tools, opinion, education and solution.
 
a
Home | Subscribe | Advertise | Contact Us | Sitemap | Privacy Policy
© Supply Chain Digest 2006-2013 - All rights reserved
.