Top 5 reasons shipping rates are changing & what to expect

Transportation and logistics never stays the same for long. The increases we have seen in 2018 is not larger than expected but it is occurring earlier in the year. Although there are several factors shifting the costs of shipping we will focus on the TOP 5 REASONS SHIPPING RATES ARE CHANGING & WHAT TO EXPECT.

1. Driver Shortage

According to All Trucking there are only around 3.5 million professional truck drivers in the country.  While finding new truckers has been proven difficult. The turnover is estimated to be 90%. Millennial’s are opting to pursue other careers. 

While the aging trucking population, low wages, and a new federal safety regulation that restricts hours on the road have contributed a small capacity. 

Drivers have reported making less pay because of ELDs—less time to work, less money. DAT reports that nearly 71 percent of drivers reported earning less money because they must stop driving after 11 hours. Without an influx of new drivers, the industry group predicts it will be 110,000 drivers short by the end of the year. To attract new truckers, businesses are increasing pay and benefits, further raising shipping rates.

2. Healthy Economy

According to the ISM index, the manufacturing sector shows nine consecutive months of expansion. That means more transportation, for both the raw materials used in the manufacturing process as well as for the finished product that’s being moved to distribution centers (DCs) and customers. A healthy economy equals high freight demand (increased imports) and tight capacity translates to higher prices.

3. E-Commerce

Amazon.com has become the gold standard for rating the quality of supply chains worldwide, consumers expect to get their products delivered within two or three days. 

Since products sold online ship directly to consumers’ homes rather than to brick and mortar stores, there’s more emphasis on the final mile than ever. And all of these small shipments are adding demand in the LTL space.

4. Retailers

Large retailers are more than ever competing with e-commerce. They are focusing on their online presence and doing everything it takes to ship their products as quickly as Amazon. In order to compete they are paying the price and booking  truckloads regardless of the cost. Large shippers are willing to pay above market rates to guarantee capacity.

5. Fuel 

Diesel price increases have dramatically affected shipping rates recently. It’s no secret that fuel is a costly expense for any transportation service, especially those hauling oversize loads. Heavy-duty trucks are lucky to get around 5 mpg on the road, even with recent improvements in fuel-efficient technology.

Fuel alone makes up over 20 percent of operating costs for carriers according to the American Transportation Research Institute. A spike in diesel prices can be catastrophic to a carrier and dramatically limits their ability to operate.

Over the last six months, we’ve experienced a steep increase in diesel prices. Since July 2017, diesel fuel prices have increased 22 percent or $0.53 to an average of $3.02 per gallon according to the U.S. Energy Information Administration.

How you can ease the burden of shipping rates? 

It’s safe to say that rate increases are inevitable and oftentimes unavoidable. That’s not to say that it’s impossible to soften the blow.

Businesses with the largest logistics expenses, such as retail, agriculture, consumer goods and manufacturing, will come under the most pressure from Wall Street to raise prices, AllianceBernstein analysts estimated in a report earlier this year.

That won’t be easy: Big suppliers have lost some pricing power in the Amazon era. Retailers and grocers are already under pressure to match Amazon, Walmart and discounters on price and will probably resist their efforts

If changes to your shipping rates are significant, consider finding a third party logistics provider (3PL) to work with. At CargoBarn we use our knowledge, combined with a consultative approach to uncover other ways to affect your supply chain. We will be able to help you with your best shipping options.