Shippers — Our Capacity Expectations for 2017

Nearly half way through the calendar year there are still only vague predictions as to how the remainder of 2017 will unravel. The ELD time crunch is upon us, which will only further the current driver shortage. A new Presidential administration has already begun to stir the market place. Most major carriers are continuing to either cut or slowly control the growth of their capacity in order to rebound from the almost 2 yearlong “shippers market”. Each of these items will contribute to what most believe is the start of a balancing act between carriers and shippers.

Over the course of the past few years, line haul rates have been fairly mediocre. Mainly with shipping customers on the winning end of most negotiations. This has primarily been due to the ease and accessibility of finding available units along with high competition in the carrier marketplace. Most markets have been seeing a fairly even load to truck ratio, especially on the spot market side. According to DAT statistics taken over the past 2 ½ years, the middle of last calendar year saw a jump in load to truck ratio, roughly hitting 3:1 — a point it hadn’t seen since spring of 2015. From then, there has not been a single month under the ratio of 2:1. As business picks up and capacity remains stagnant, in the best case scenario, rates will have to become more aggressive in order to beat out competition. While we haven’t seen the increase just yet in 2017, most feel it is on the way. A current leveling off could potentially give way to major price hikes. Since the start of the year we have experienced a slight loss in the average RPM for van and reefer, but it is still holding fairly steady.

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The inactivity in the market place is most likely due to the new Presidential administration and in which direction corporations/business owners believe the economy will head in the future. Under President Trump’s proposed tax plan, corporations could see an income tax savings of 20%. With the restructuring of individual tax brackets, the average consumer could receive more buying power as well. In theory, these items will lead to economic growth and the need for greater capacity throughout the market. Wonderful news, again in theory, as this contributes nothing to increasing capacity and will only lead to a widening gap in the load to truck ratio across the country.

New ELD mandates, in addition to the current turnover rate plaguing the industry and lack of youth at the driver position, will play a pivotal role this year. We will see further cuts to available units as some small and medium carriers face the difficulty of not only equipping their tractors with electronic logging devices but also with training their drivers. The average cost of a logging device runs around $400 to $500, factor in installation and maintenance for a fleet of even 50 trucks and the price starts to take a toll on any operation. In addition, carriers that are not yet equipped will have to struggle through training their drivers on how to properly use these devices, potentially harming service, and utilization — indirectly creating even more of a gap in capacity. Major carriers should not see too much of an effect as most already require electronic logs to be used by their fleet, though lease purchase or owner operator heavy fleets could see some minor impact.

So where, if at all, is the silver lining in all of this? Dedicated operations. In my humble opinion, the best available option for both carriers and shippers. In a recent JOC article written by William B. Cassidy, “Dedicated trucking a ray of light after tough 2016,” he details the positive impact dedicated operations had on the trucking industry last year from the carrier side. 10 of the top 25 major carriers last year that saw revenue increases also made strides in advancing their dedicated operations. While this is not the only viable solution, it could be the simplest and most effective. Traditional 3PL’s, as they always have been, are another great capacity solution. As we begin to see an increase in new forms of 3PL’s (i.e. Uber, Transfix, and Truckerpath), it is necessary look at the whole picture. While these matching services provide a direct route to the trucker market and may seem like a creative way to increase the amount of moving freight, there are complications. Without a direct connection or a customer service representative, who will handle the issues that arise? The ability to use 1 individual at a company designed to move freight and provide service seems, at least to us, to outweigh the benefit of potentially matching with lease operator drivers out for the quickest buck.

As we make our way through the remainder of the year, the overall truck availability should remain fairly stable and potentially drop off towards the end of the year. Rates will eventually increase as carrier’s place pressure on shippers and fuel prices continue to rise. With the help of a potential economic boost from the government and the placement of expanded dedicated opportunities, shippers should still see a quite positive 2017.

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