How is your transportation network performing relative to inflation? The answer depends on what data source you use.
Transportation prices have increased every year by 3.36%, on average, according to the U.S. Bureau of Labor Statistics since the agency began tracking a Consumer Price Index for transportation in 1935. By comparison, from 1935 until present, the national inflation rate has averaged 3.54%.
Boom-and-bust cycles for transportation rates had been predictably reversing every three to four years. In late 2021 and early 2022 inflation and pricing trends were thrown out of order. The global pandemic roiled freight markets and triggered a series of events that caused inflation to enter uncharted territory.
Because of rising costs and the lack of capacity, transportation has been a frequent topic of boardroom discussions during the past two years. Shippers have been monitoring inflation data for their raw materials as well as their transportation costs more closely to benchmark their performance relative to market conditions.
Public data sources to monitor transportation inflation began with the Motor Carrier Act of 1935. Rates were in freefall during the Great Depression, and Congress passed the law to create the Interstate Commerce Commission (ICC) to regulate pricing and grant motor carriers operating authorities for specific lanes and commodities.
ICC regulations made it difficult for new carriers to enter the market but kept inflation at bay since all price increases had to be approved by a government entity. A confluence of economic factors in the 1970s led to deregulation of transportation that ended the ICC with the Motor Carrier Act of 1980.
In the 1970s the economy was mired in stagflation, a condition where high inflation combines with high unemployment and stagnant demand. The CPI for transportation hit record highs in 1979 with an increase of 14.26% and in 1980 reached 17.81%. Those records stood until recently.
In the 1980s, due to deregulation, new motor carriers flooded the free market with transportation rates dramatically below the previously publicly filed rates with the ICC. The pricing for transportation finally was being driven by supply and demand rather than government-protected geographic monopolies. Of course, with prices more closely related to actual costs, they were more susceptible to cycles of increase and decrease due to supply and capacity changes.
The CPI transportation index rose 7 percent from Dec. 2007 to Aug. 2008 prior to the Great Recession, after which rates entered a deflationary cycle. Freight rates began moving upward and then accelerated between July 2017 and Dec. 2018. The freight market cooled off in 2019 and then plummeted in April 2020.
Lasting side effects
In April 2020, capacity in some freight sectors was idled during a period of economic uncertainty and government lockdowns that were meant to slow the spread of the novel coronavirus. From May onward, consumer demand surged and outpaced capacity growth.
The trend continued in 2021 with an ongoing pandemic and greater supply chain bottlenecks. Freight costs via trucks rose by more than 16% in 2021, the second-highest annual increase on record by the U.S. Bureau of Labor Statistics.
Transportation rates continue to set records in 2022 with pent-up demand, backlogged capacity and global supply chain disruptions. The invasion of Ukraine by Russia created another supply chain risk by driving up fuel prices and further limiting the production of commercial vehicles. Both Russia and Ukraine are among the world’s leading sources of neon gas and palladium, which are used to produce semiconductor chips, and the uncertainty of their conflict is likely to continue restricting available truckload capacity.
Sizing up inflation
Personnel in transportation and logistics departments rely on accurate inflation benchmarks to contextualize performance. Under normal market conditions, a shipper with a 10% increase in transportation costs would have to admit failure. If the overall freight market had an inflation rate of 20%, however, its transportation strategy would be considered a resounding success.
One source that has not been useful for benchmarking performance is the U.S. Freight Bureau of Labor Statistics’ transportation CPI. The index is not specific to freight. It is a broad measure of private and public transportation costs.
Shippers have several options for using freight-specific inflation indexes. Each has different methodologies and data sources with varying degrees of accuracy.
The Cass Freight Index, and more specifically, the Cass Truckload Linehaul Index, is published by Cass, a freight auditing and payment service provider.
The Cass reports are available for free online. The company provides limited information on what methodologies it uses, and the reports lack views of underlying data and lane-level details.
The most recent Cass Truckload Linehaul Index for February 2022 showed an inflation rate of 12.6% year-over-year. While that is an eye-opening inflation rate, other data points indicate a much higher inflation rate of 20+% throughout 2021.
Other inflation indexes are paid subscriptions. Some utilize publicly available data from Cass and other sources as proxies for actual freight transactions. Most do not provide lane-level details that shippers can use for benchmarking and analysis.
A true benchmark
The broadest, deepest, and most comprehensive rate analytics database in the transportation industry is DAT iQ. In 2021, DAT iQ analyzed freight transactions from shippers who collectively spent more than $125 billion on transportation.
Data in DAT iQ is validated and peer reviewed to ensure it is the most accurate and relevant information available for transportation and logistics. Shippers who use DAT iQ know exactly how inflation is measured and where the data comes from. Organizations also benefit from using lane-level analysis and benchmarking performance against industry peer groups and the overall market.
There are many reasons why transportation costs might rise. Higher total volume, shifting of origins or destinations to high cost regions, changing length of haul, decreased primary carrier acceptance, etc. DAT iQ allows a shipper to isolate these drivers and determine the underlying cause of any price changes. This allows a transportation executive to determine if a change in rates is due to the market or to their own practices.
For 2021, DAT iQ rate analytics data showed contract plus spot rates had 23% year over year inflation. Contract rates alone increased by 19%. In February 2022, contract rates increased 20%, year over year, and went up two percentage points from the 18% increase in January.
Now, more than ever, shippers need accurate, timely and relevant inflation data to assess their performance relative to rapidly changing market conditions. To learn more about a true measure of freight market inflation and how using rate analytics and benchmarking tools can improve transportation results, visit www.dat.com/iq.