The latest news on the economic front shows 3.9% GDP growth in the 3rd quarter. That's the second consecutive quarter of the strongest economic growth since the recent recession. In addition to the recession, the economy is also recovering from the disastrous winter of 2013-2014, when truck and rail capacity shortages led to spot market rate increases of more than 10%. Contract rates also rose, after a long period of stability.
De-Regulation and Pricing Stability - The impact of these rapid changes is even more profound when you consider the historical context: Following deregulation in 1980, thousands of non-union carriers entered the marketplace. Capacity expanded as route restrictions and pricing regulation were eliminated. Advances in equipment design and fuel economy enabled carriers to keep rates relatively constant. A major, unpredictable cost, fuel, was offset by the introduction of the fuel surcharge in the late 1980s. The surcharge helped carriers to adjust for sudden shifts in diesel prices.
Far-Reaching Regulatory Changes in 2013 - The industry continued to find ways to contain costs, until recently, when new EPA regulations and ultra-low sulfur diesel hurt fuel economy and drove up engine manufacturing costs. Costs soared for tires and other supplies, as well. For example, a sleeper-cab tractor now costs $35,000-50,000 more than five years ago. Lastly, Hours of Service (HOS) changes in mid-2013 hampered driver productivity, leading to wage increases that may or may not stabilize the outflow of experienced drivers from the industry.
Impact of Pre-Existing Regulations - Driver recruitment and retention were also affected by CSA safety scoring. CSA considerations helped to boost driver turnover levels back above 100% as companies seek to shed drivers with poor scores and recruit drivers with above average scores. Environmental regulations from the California Air Resources Board (CARB) increased operating costs on trips to/from and within California, home to the country's two largest ports, its largest agricultural centers and many other important freight markets. As the economy improved, drivers and prospective drivers sought work in the higher paying sectors of construction and energy exploration. Driver shortages plague fleets of all sizes, making it difficult to expand when currently owned equipment lacks drivers.
Freight Rates Become Unpredictable - Most transportation and logistics professionals pride themselves on their ability to set pricing and anticipate costs. Recent events, including changes in the regulatory and economic environment, as well as weather, have confounded the most sophisticated pricing models, however, as they depend on extended trends in historic data. DAT has been better able to track conditions through loadboard metrics and rates that are updated daily based on shorter time periods.
Spot Rates Rise 10% vs. 2013 - Spot market rates are up more than 10% in 2014, year over year, as a national average. Contract rates are rising, too. Shippers have reported jumps of 5% or more, as carriers rebid the same lanes at a higher rate. Compare this to the period of 1983 to 1997, when truckload rates barely changed on many popular routes.
3PL Bidding Strategies Depend on Rate History - Brokers and 3PLs are in the middle, trying to make sense of it all. They need tools that can help them to understand current business conditions and forecast future needs. Like carriers, brokers and 3PLs are often asked to make a firm bid on future business for the next year or more. In order to bid confidently, they want to review and analyze at least twelve months of rate history, capturing seasonality, prevailing rates, demand and capacity on a lane-by-lane basis.
DAT RateView Supports Long- and Short-Term Pricing Strategies - Even the most experienced transportation pricing analysts are challenged by the current environment. They would like to rely on their own companies' historical pricing data, but recent rate behavior has made it difficult. DAT RateView tracks rates daily on tens of thousands of lanes, for van, reefer and flatbed freight movements. The carriers, brokers or 3PLs can compare their companies' internal pricing histories with the prevailing rates in each lane, to assess "what the market will bear" for a single move or to construct bids on long-term contracts with shipper customers.
To learn more about DAT RateView or request a demo, please contact our award-winning customer service team at 800.551.8847 or complete this online form.
Categories: Rate Trend of the Week