HIGHER RATES AHEAD?

For some time now we have been reading about what could happen to freight costs as the economy improves. Most forecasts have suggested that capacity will become tight, which in turn will result in higher rates. The ironic point here is that economic conditions don’t have to get much better for that to happen. The new hours of service rules, CSA 2010, ELD mandates, driver shortages, and deteriorating infrastructure all are contributing to lower productivity in the industry. When these conditions are combined with other pressures such as the cost of fuel and new equipment, carriers will quickly find themselves between the proverbial rock and hard place.

Last month, the Council of Supply Chain Management Professionals published its annual State of Logistics report. While there are many reports issued on conditions in the industry, over the years this one has proven to be one of the most comprehensive (and accurate) predictions of things to come. This year’s SOL report predicted that from a freight perspective, 2014 will be the best year we have seen in the last 8 years. Already the first five months have shown the strongest performance since the end of the recession. Freight shipments are up 13% for this period, and since freight charges paid are up only 11% it would appear that rates are relatively stable. This may be about to change.

Manufacturing and industrial production have continued to grow, and Rosalyn Wilson, the author of the report, believes these trends will continue. She also predicts that this growth and the other conditions mentioned above will result in capacity problems and the higher rates that tend to follow. Increases are projected to be between 5 and 8% for the year. (Already we have seen LTL increases of 5 – 6 %, effective in March.)

I believe we also will see carriers become much more selective in picking their customers. As we have seen in years past, when the balance of power is with the carriers they tend to seek out the most profitable business and the freight of customers who are not “high maintenance”. Also, as I wrote a few weeks ago in Freight Rate Game Changer on the Horizon, I believe carriers are waiting for an opportunity to implement dimensional pricing. If we do have a capacity shortage and the carriers have the upper hand, it will be much easier for them to make this change.

This would be a good time for shippers to try to lock in whatever desirable contracts and agreements they currently enjoy. For those who have not done so, a look at intermodal would be a good idea. While it won’t work for everyone, transit times and consistency have improved dramatically over the past few years.

Written By: Clifford F. Lynch