The Four Biggest Freight Transportation Trends To Watch For In 2018
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Kristy Knichel is a Pittsburgh native and CEO/President of her family-owned and operated company, Knichel Logistics.
The transportation industry is entering into a new year that has the potential to be even stronger than the previous one. DAT reports a particularly robust year in shipping in 2017, especially in the second half. Based on what we have seen in the industry during that time, here are the top four trends to watch for in the freight transportation industry for 2018.
We are experiencing a market with low truck supply and high freight demand. One of the reasons for tightened capacity is the ongoing driver shortage. Year after year, older drivers are retiring with fewer younger drivers taking their places. The work is difficult — it involves working long hours, driving long distances, being away from family for long periods of time and less-than-ideal pay. Fewer drivers mean fewer trucks on the road to haul this increase in freight, which, in turn, drives up the rates because of the premium placed on securing a truck. It was a good year for the U.S. economy, and this additional freight volume combined with two major hurricanes diverting resources also greatly impacted the ability to secure trucks.
Another factor that is impacting capacity is increased government regulations such as the electronic logging devices mandate which began on December 18. The ELD mandate essentially requires all motor carriers to install electronic devices in their trucks that will automatically track drivers’ hours of service. By law, drivers are only allowed to drive for 11 hours with a mandatory, continuous rest period of 10 hours, daily. Prior to the mandate, most (but definitely not all) drivers kept manual log books to track their hours of service, while some of the larger carriers already had ELDs. Most smaller carriers have become compliant, but some are having issues with the cost of installing the devices and even more dislike the automatic tracking of their movements. Regulations such as these are implemented with the intention of creating safer roads, however, they are also perceived by drivers as an infringement on their personal space — as many consider their trucks to be a home away from home in addition to a workspace.
Spot rates were on the rise for much of 2017 and could continue to do so throughout 2018. This trend goes hand in hand with the capacity crunch. As freight demand rises and supply (available trucks) falls, rates rise. There are typically two types of rates in the transportation industry: spot market rates and contract rates. Spot rates are those that are quoted on the spot and are typically done for freight that is ready to move. Contract rates are those that are locked in with a carrier via contract with the shipper and are usually based on a year-long estimate of freight volume.
Eventually rates will stabilize, but for the time being, I expect them to rise as capacity remains tight. The likely outcome of increased truck rates will be the transition from highway transport to rail freight. Intermodal or rail is typically less expensive than truck due to the nature of the mode, and we are already seeing shippers switch to intermodal to circumvent the capacity and rate issues of the highway.