- increased freight rates,
- changes to hours of service,
- and fluctuating demand in the Transportation Industry
What do Hours of Service, Shale Gas, and the reemergence of American manufacturing have to do with your transportation strategy?
All of the mentioned items have the potential to raise freight rates over the next 12 to 36 months and should be a signal that you need to consider your short and long term transportation strategy.
With changes to the Hours of Service coming into effect in the next year, many companies are predicting a decrease in overall truckload capacity. This means that slowly rising freight rates could see a jump as trucking companies’ margins are squeezed by a need to hire more drivers to make up for losses in driver hours. This can also affect fleet operators as they will have to undertake studies to determine the effect that the Hours of Service changes will have on their ability to move freight.
In the West, Southwest, and Northeast, there is an increased demand for drivers that can haul hazardous materials to and from hydraulic fracturing wells. As more drilling permits are granted in Eastern Ohio and Western Pennsylvania, new operations will require trucking and rail capacity to move water and chemicals to new well operations and wastewater, oil, and gas away from the drill sites. Shale Gas and Oil loads are also attractive to Owner Operators because they are typically shorter runs and the pay per run is higher due to the time spent on site and reduced fuel use compared to longer runs.
While the return of American manufacturing is good for local communities hit hard by the recession, it can spell trouble for your current transportation strategy. It is predicted that as soon as 2015, wage increases in China will diminish the cost advantage of producing many products in China. This is starting to require companies to bring manufacturing back to the United States in order to keep costs down. This move could put more freight on domestic carriers, reducing overall capacity and driving up rates.
The good news is that in the short term, companies that execute a new transportation strategy and rate bid package can take advantage of a lull in the markets to lock in rates before the next increase. In the first quarter of 2012, many carriers saw an increase in margins, good weather, and only a slow increase in demand. Driver turnover for the period was also low, which means that available capacity was steady and acquisition costs for new employees was down.
Does your company have a transportation strategy in place to prepare for changes in the transportation capacity or capitalize on the short term reduction in rate increases?
If the answer is no, then you should consider a strategy review. Our team of experts can help you make decisions quickly so that you can capitalize on this unique market before it is too late and freight prices go through the roof.
About TransTech Consulting
TransTech Consulting, A Blue Horseshoe Company, is a privately held management consulting firm that has been providing expert supply chain consulting solutions to Fortune 500 and mid-market businesses throughout the world since 1983. Based in North America, TransTech assesses business needs and applies world-class business applications to improve profitability and increase efficiency. For more about TransTech, visit www.transtechconsulting.com.