As we close the first quarter of 2018, one of the largest challenges facing companies revolves around transportation capacity & availability.
2017 ended with what was estimated to be a 248,000 driver shortage for the commercial trucking industry. The compliance requirements around e – logs and a large population of CDL drivers at or near retirement age were the leading factor in the short fall. Compliance around reporting driving hours caused a significant portion of independent owner operators to exit the market. With tighter tracking and enforcement, independent drivers would no longer be able to operate their trucks profitably. Drivers near or in retirement age years were quick to exit the market.
As we look at first quarter data from sources such as Bloomberg and Morningstar we see additional CDL drivers exiting the market. This will give transportation companies additional pricing power, selectivity in choosing what freight they carry and selectivity as to where they pick up & deliver. Additionally, driver wages are escalating rapidly with a tightening labor pool.
Tilley is forecasting demand for trucking to exceed the overall supply in North America for all of 2018. Morningstar estimates Demand is 120% of Supply to start the year. This means that 1 in 5 shipments will not be fulfilled as required.
This supply demand imbalance will cause freight rates to continue to rise in 2018. If rates continue to rise expect product costs to increase, fuel surcharges to increase, and if not managed properly profit margins to erode.
- Develop Stocking & Delivery Agreements with your Distributors
- Keep Updated on Lead Time Estimates for Critical Materials
- Hold Larger Inventories of Critical Raw Materials
- Understand the Cost of a Shut Down vs. Holding More Inventory and vs. Stocking & Delivery Agreements with Distributors
- Work with Distributors who have Company Owned Delivery Fleets
- Understand the Impact of Freight Costs on your Product/Svc Offering
Sources & Articles to Read: