REEFER MADNESSCurrent Transportation Trends:

An Executive Briefing

Updated April 2018

Originally Published February 2018

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“This capacity crunch is real

and it’s getting tighter.” -- Colby Beland, VP/Sales and Marketing CaseStack

”Our full year outlook has been impacted by an

increase in supply chain costs…”-- Jeff Harmening, CEO General Mills

“I am not sure owner-operators will get detention

pay – they’ll just refuse to haul for those that

detain them if the rate of the load

doesn’t pay for their detention.”-- Todd Amen, CEO ATBS

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Reefer and Van Rate Run Up

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Tanker Freight Sharply Higher

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Anyone moving product any distance at all is paying more, no matter the mode – and that is if they can find trucks. A strong economy, weather disruptions, chronic driver shortages, and the ELD mandate have combined to make an already tight trucking market even tighter. And it’s not just trucks. Rail freight is strained, too.

National average data from DAT put April spot reefer freight at $2.44 per mile, down a 26-cents from January but up 26% ($0.52) year-over-year. Dry van freight averaged $2.19, up 31%. Dairy.com data shows contract food grade tanker rates peaking in March but still up 14% over last year. Higher shipping costs are spurring changes – from Walmart opening up delivery windows to be more accommodating, burgeoning digital tools and services, and a bill introduced in Congress to allow truck drivers younger than 21 to cross state lines to help put more truck drivers on the road.

The Perfect Storm

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What does a 26% year-to-date increase in reefer freight translate to in a pound of cheese moving from West to East? Trucks taking cheese from plants in Twin Falls, ID to converters in Plymouth, WI travel 1,600 miles. Finished products (shreds, chunks, slices) moving from Plymouth to consumers in New York City go on a 930 mile journey.

At the peak in January, using national average rates, those moves cost at least 4-cents per pound more than the year prior. Keep in mind that milk moving from farm to plant and from plant to plant also costs more. Plus, diesel fuel prices are now up 75 cents per gallon – adding expense.

Adding Up the Impact

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Strong Demand for FreightAccelerating economic growth, solid global trade and booming e-commerce sales are combining to boost demand for truck freight. The American Trucking Association Tonnage Index readings for November through January topped year-prior levels by 7%. The Cass Freight Index increased 12% during the first quarter. US Bank’s measures of shipments and spend both increased dramatically in the fourth quarter of 2017 versus 2016: +15% and +25%, respectively.

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Going back to as early as 1937, the Federal Motor Carrier Safety Administration (FMCSA) has crafted numerous regulations aimed at reducing driver fatigue and increasing safety.

What’s different now: stricter enforcement tied to evolving technology and new regulations. Electronic Logging Devices (ELDs) more precisely measure driver “hours of service” and “records of duty status.” They have become mandatory for many categories of trucks and operators. No more paper log books written in pencil after the fact. Truck operation time is now electronically tracked and can be transmitted via Bluetooth to law enforcement.

In short, it is going to be more difficult for carriers and drivers to finagle extra minutes – or even hours – to move freight from point A to point B. Multiplied over the nation’s fleet and operator pool, losing off-the-radar “extra” time translates to a cutback in capacity. That is especially true after the enforcement phase started in early April.

Electronic Logging Devices

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Labor: Some Improvement?The trucking workforce is expanding but long-term demand still outpaces supply. US Department of Labor data showed truck driver employment at 1.4788 million people in March, up nearly 23,000 from last year and up 6,700 head from February. Turnover remains high, but trucking firms continue to entice new and existing drivers with improved benefits, pay increases (hourly and per-mile), and bonuses related to fuel economy, productivity and safety goals.

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Truck Sales ReboundingAfter falling amidst softer freight demand in 2016, heavy truck sales are rebounding. The US Bureau of Economic Analysis estimated March sales at 38,000 units, up 19% year-over-year, and Q1 orders up 21%.

So: operators are bolstering supply. Over time, that should relieve some pressure. But, the new trucks won’t arrive overnight and carriers still have to find drivers for all the seats.

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Diesel Prices HigherCrude oil prices are at multi-year highs, with the market moving to $68 per barrel. OPEC supply discipline, good global demand and geopolitical tension are contributing to the firmer tone.

US diesel fuel prices remain elevated. US DOE data showed April prices averaging $3.10 per gallon, up 51 cents (+20%) year-over-year. Unless and until stocks rebound or demand slows, prices may remain firm.

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Money and time fix most problems. The current freight shortage is not likely any different. Stronger revenues will persuade operators to add capacity. Higher pay will put more drivers in seats. Increased expenses will compel freight buyers to optimize, trimming demand.

It won’t happen overnight, though. According to The Wall Street Journal, many new trucks ordered in January won’t roll until the second half of the year. Driver shortages will continue to flare up. It’s not a coveted profession. The existing driver population is aging. And new recruits have trouble passing drug or other health screens. Finally, things could get worse before they get better as ELD rule violations and penalties start being realized. That could take drivers and rigs off the road.

Rates are off early 2018 highs. They could remain stable or even drift a little lower amidst aggressive hiring and fleet expansion. But we expect rates to remain well above 2017 levels.

Outlook/Expectations

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The US is Running Out of Truckers

A Shortage of Trucks Is Forcing Companies to Cut Shipments or Pay Up

Trucking Companies Race to Add Capacity, Drivers as Market Heats Up

Tight Trucking Market Has Retailers, Manufacturers Paying Steep Prices

Trucking Firms Offer Up to $8,000 Bonus and Other Deals to Lure Drivers

Tight Trucks, Rising Rates Rattle Supply Chain

More and More Truckers Say They Are Running Out of Capacity

Trucking Industry Struggles With Growing Driver Shortage

Tyson: ‘Ultimately, the Consumer’s Going to Pay’

There Aren’t Enough Truckers and That’s Pinching US Profits

Truckers Fetching Higher Rates for Hauling

Heavy-Duty Truck Orders Hit a Record Pace

Trucking Rates Come Down a Bit but Problems Persist for Shippers

Truckers Boosted Hiring at Fastest Pace Since 2015

Trucking Companies Are Struggling to Attract Drivers to the Big-Rig Life

Truck Driver Salaries Rising on Surging Freight Demand

Relevant Articles

A better way of doing business.

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