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Supply Chain News: TranzAct Technologies' Mike Regan Says Truckload Rates are Headed Much Higher in 2017

 

After Soft 2016, Carriers will have Advantage This Year, Regan Says, While Avondale Partners Sees Rates Much Lower

Jan. 31, 2017

SCDigest recently asked Mike Regan of TranzAct Technlogies for his  predictions on where the trucking sector was headed in 2017.

Regan is a keen observer of transportation and the truckingsector, well-known for his active participation in the NASSTRAC organization, his own "Two Minute Warning" weekly video commentaries, and many appearances on our Supply Chain Television Channel's weekly video news broadcast with CSCMP.

 

Supply Chain Digest Says...

As retailers (and others) refine their delivery requirements (e.g. Walmart's On Time-In Full program), companies will be looking for real time data on their shipments.

 

Mike Regan


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The full text predictions from Regan are published below. The bottom line: after a soft market in 2016 and falling truckload rates for much of the year, expect the sitution toreverse itself this year, Regan says.

 

His comments start here:

 

Here's our bold prediction: For those of us who grew up watching I Love Lucy, 2017 will be the "Ricki Ricardo Year" where, just like Lucy, shippers will have, "a lot of explaining to do."

In 2014, Dan Gilmore wrote an article, "The Coming US Logistics Cost Crack-Up?" The point of that article was to highlight factors that could cause significant increases in carrier rates in the upcoming years. Those increases did not materialize in 2015 or 2016. But 2017 will be the year that people experience the beginning of the consequences foretold in that article.

In 2016, we predicted that shippers would take advantage of a soft transportation market and adopt a more aggressive posture in their rate negotiations with carriers. In 2017, the proverbial shoe will be on the other foot, and carriers will be taking advantage of tight capacity and looking for higher rates.

 

The impact on transportation budgets will be determined by just how quickly these new contracts and pricing go in to effect. Consequently, increases of 5% to 7% from truckload carriers may not be immediately reflected in year-to-date budget numbers, but monthly trend numbers could result in transportation and logistics executives having to explain significant budget variances to their C-Level executives.

In 2017, we predict that more shippers will begin to apply Lean Principles to address the significant waste and inefficient processes involved in managing their transportation spend. As prices come down, the interest in using technology to streamline logistics processes will go up.

As we get closer to the December timeline for ELD's, the market will get a better understanding on how the ELD mandate will affect productivity and capacity. This will increase pressure on carriers to look into technologies that enable them to maximize the value of their assets (drivers and trucks).


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As retailers (and others) refine their delivery requirements (e.g. Walmart's On Time-In Full program), companies will be looking for real time data on their shipments. That is why we predict continued interest in development/advancement of communication technologies that provide information to carriers and shippers about the location of their trucks and freight.

There will continue to be development of the "technology of the future" (e.g. driverless trucks and the "Uberization" of trucking), but in 2017 the impact of these technologies will be minimal.

So if you are a shipper, begin looking at what processes you need to tighten up and what technologies can help you become more efficient. If you wait until rates have already risen, and your budget is severely impacted, you will be left with a lot of explaining to do.


 

SCDigest will note that not everyone is as confident rates will head higher in the coming year.

 

In last month's Cass Linehaul Index report, the analysts at Avondale Parterns, who follow the trucking industry, commented that ""the current strength being reported in spot rates is leading us to believe that our current -3% to 1% truckload pricing forecast may need to be improved/moved to a slightly more positive outlook if the strength in spot rates continues long enough to move contract rates back into positive territory."

 

The key of coure will be the demand for freight movement. Demand was generally weak for most of 2016, but varied dramatically month to month.

 

The ATA freight tonnage index found that for all of 2016, freight tonnage was up a lukewarm 2.5%. Conversely, the Cass Freight Index, which measures shipment activity, found that shipment volumes in 2016 were below 2015 levels in 10 of the 12 months of the year, though one of the two months in which shipments in 2016 exceeded volumes in 2015 was in fact December, heading into the new year.

 

What will volumes be like in 2017? The answer to that will be the difference between whether Regan's forecast of a likely 5-7% change in rates will prevail, or Avondale's current much more subdued estimate.


Where do you think truckload rates are headed in 2017? Let us know your thoughts at the Feedback section below or the link above to send an email.

 

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