US truckload and LTL rates continue to soar, causing a growing number of companies to warn of Q2 earnings risk due to rapidly rising transportation costs.
Supply Chain Digest Says...
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| The Wall Street Journal reported this week that a growing number of companies are citing rising freight costs are causing profit challenges. |
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The Cass Linehaul Index which measures US full truckload contract rates before any fuel surcharge or other accessorial fees, rose 10.1% year-over-year in March from the same month in 2020. On month-over-month basis, the seasonally adjusted index was a sharp 2.0% higher than February, in the ninth straight monthly increase.
That’s the rise in contract rates. In the broker or spot market, things are even worse.
Giant freight broker CH Robison recently reported its Q1 results, saying the cost per mile for truckload freight increased 33.5% versus the first quarter of 2020.
As always in the end, it’s about supply and demand. US freight volumes are strong, but carriers can’t add much capacity because they are unable to find enough drivers, even as many carriers raise driver pay.
As SCDigest reported a couple of weeks ago, truckload carrier C.R. England recently said that new drivers could expect to make over 35% more in compensation compared with what their counterparts made the year before. The carrier also said overall that driver wages are up 50% since 2018 after a series of rate increases.
Knight-Swift Transportation, the largest US truckload carrier, said a few weeks ago that wages for its recently certified drivers have jumped by 40% or more in recent months.
Other carriers are also taking pay for drivers much higher – costs that will inevitably result in increasing rates to account for the jump in wages.
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Carriers are now again adding new tractors to their fleets, but those moves won’t much impact supply if there are not drivers to take the seats. And new truck sales are rising much slower than demand anyway: Transportation research firm ACT Research estimates class-8 trucking capacity would grow by 3% to 3.5% this year, while C.H. Robinson expects truckload volumes to increase by a much higher 8% to 12%.
The Wall Street Journal reported this week that a growing number of companies are citing rising freight costs are causing profit challenges.
“Manufacturers and retailers including General Mills, Newell Brands, and Bed Bath & Beyond have pointed in recent quarterly earnings reports to rising transport costs and tight capacity as operational hurdles as they seek to restock inventories and meet strong consumer demand,” a Journal article noted.
The real question seems to be whether the supply-demand balance will moderate before peak season 2021 begins in Q3. If not, watch out.
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