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State of Logistics: Despite Serious Capacity Crunch, Rates Only ‘Steady’

Last year was the “best year for the supply chain industry since the Great Recession” but serious concern over the truck driver shortage persist, said transportation consultant Rosalyn Wilson at the Council of Supply Chain Management Professionals’ (CSCMP) 26th Annual “State of Logistics Report” which is presented by Penske Logistics.

The transportation sector grew by 3.6% last year – thanks mainly to stronger shipment volumes, not higher rates, said Wilson, who reportedly tracked and measured all costs associated with moving freight through the supply chain since 1988.

As reported by Heavy Duty Trucking, Wilson explained  how the general freight pattern in 2014 was unmistakable:

“Freight shipment volume [of late] has been following a predictable trend – starting the year at or below the end of the previous year, rising throughout the spring, flattening or even dropping during the summer months, peaking in August-September, then falling close to the levels at which the year started 2014 was no exception for the start of the trend, as the January level was the lowest since 2010. February followed the trend and began the climb upward… Things got even better in the second quarter with freight payments in April hitting the highest point in 15 years. Shipment volume also rose in April reaching the highest level since June 2011. Freight continued to gain momentum although the performance of the economy overall during this period was weak.”

During this time, the trucking industry edged closer to 100% utilization. And while the number of truck shipments declined, truck tonnage increased.

“This supports the anecdotal evidence collected that suggests loads are heavier and more trucks are moving at or near full capacity,” she said.

She cautioned supply-chain firms to “be aware that a trucking shortage allows carriers to be selective in who they do business with. They are interested in maximizing driver pay and satisfaction, which means more time actually driving to deliver or pick up goods since drivers are generally paid by the mile.

“Shippers who hold drivers for long periods of time waiting to load or unload, or who do not treat their drivers well, will fall to the bottom,” she continued. “Maximum equipment utilization, quicker turns, and fewer empties go right to the bottom line. Shippers willing to work with carriers to accomplish this will fare better than those who neglect these issues.”

According to Wilson, the state of logistics in 2015 will be shaped by the expected “sustained growth in freight volume and the capacity limitations combined and cost increases.”

“Most of the problems that the freight logistics industry will face in the next three years will boil down to capacity issues. Freight volume is expected to increase at a moderate rate, but capacity is not going to keep pace. Rates should rise faster in the second half of 2015 to cover the higher costs faced by carriers and needed investment.”

While carriers are working to overcome some capacity constraints, they are proceeding with caution to make sure that they do not end up in the overcapacity situation they found themselves in prior to the Great Recession.

“Truck drivers,” she added, “will be the limiting factor for the growth in trucking capacity.”

It’s curious then why the capacity crunch across all segments hasn’t necessarily translated into significant upward movement in trucking freight rates.

“I absolutely cannot understand why trucking companies are not in the driver’s seat regarding freight rates, and I’ve been saying this for the last two or three years,” Fleet Owner reported Wilson as saying.

Joe Carlier, senior VP of sales with Penske Logistics, noted that there doesn’t seem to be a “clear reason” why this contradiction between almost 100% capacity utilization and what he called “steady rates” exists in trucking.

“That’s the big question because it isn’t making sense,” he told Fleet Owner. “That’s what has really popped out of this year’s report as unique; what is really behind this ‘flat rate’ trend.”

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