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Looming Freight Capacity Concerns and Rising Rates

Guest Contributor on Aug 24, 2017 11:15:00 AM

Prime Advantage has invited industry experts to share insights on achieving manufacturing and business success. In this post, Neal Willis of ReTrans Freight, discusses upcoming freight limitations and price increases.

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Summer’s window of vacations and time off are coming to an end and before we know it the holiday season will be upon us all the while freight shipments will continue to ramp up. Freight rates are poised to rise and the capacity situation will undoubtedly drive freight rates higher for shippers. Experts and analysts are warning shippers about the rising costs of freight rates and advising shippers to align 2018 for the pending crunch. Some brokerage heavy, large 3PLs have already fell victim to higher purchased transportation costs and their profits have taken a hit as a result.

Arguably, rising spot market rates as of late may be an indicator that the scales have already been tipped in favor of the carriers. The driver shortage and capacity concerns combined with the fact that eCommerce has already contributed to higher freight transportation costs leaves carriers obliged to pass higher freight rates along to shippers. Supply and demand is nearly in balance in the LTL industry and the truckload market has somewhat rationalized as larger fleets have sold off excess equipment and capacity.

In the midst of the ramp up for the holiday season, the ELD mandate will undoubtedly remove some capacity from the industry. Motor freight drivers and carriers are obligated to comply with the ELD mandate requirements effectively beginning December 18, 2017, while concerns over capacity in both the truckload and LTL industries are beginning to hit home. Some analysts have predicted that as much as 10% of capacity will be stripped from the market because of the ELD mandate alone. 

When capacity becomes tight in the truckload market, the LTL industry typically ends up getting the freight overflow. With no room to spare in the LTL freight sector, constricted TL capacity will leave both truckload and LTL freight carriers stressed. Some freight carriers are already struggling to keep pace with demand while continuing to provide quality service. Right now it is seemingly all about people and equipment, as two of the biggest challenges to overcoming capacity issues are with the driver shortage and government regulations, both of which are difficult, if not impossible to control.

Given the fact that there’s really not any excess in the industry at the moment, capacity now becomes a real problem for shippers without committed pricing and carrier partnerships, and shippers wise enough to understand these issues also understand they’re going to have to pay a little bit more in order to secure the capacity needed to meet demand.

Alignment in strategic partnerships to secure favorable outcomes become even more critical as carriers are wiser and don’t view freight in the light of “more is better” as we have seen in the past.

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Topics: Manufacturing, Industry News

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