Last year it became evident that shippers were going to start battling rising rates for 2018 and beyond. Now that 2019 has hit, where these rates and what battles lie ahead, remains unclear.
Recent history of contract rates
Intermodal and truckload rates have risen over the last 12 months. The trucking industry took a pit stop with the electronic logging devices but has returned to the main course. For rails, there has been an increase almost every week for the last year for intermodal volume and this should continue into 2019 and 2020.
Projection of contract rate increases for the rest of 2019 and into 2020
Contract rates are going to continue increasing. We are 25% through the year but the trucking situation looks like this year and next will consist of contract rates increasing. Shippers are going to pay more per mile for their truckload contracts. The prediction is that the increase will be between five and eight percent, while others say it will be modest, only up to three percent. Most meet in the middle and predict that for the remainder of the year, and well into 2020, those rates will go up between 3-5%.
Why do spot rates continue to vary drastically?
Stakeholders should keep their eyes peeled. The spot prices for this year increased dramatically above contract before they went back down. Since spot prices function as the floor, wherever the bottom floor is, will indicate where the prices will head this year and beyond.
Transportation intelligence has noted upper single digits for the last three months and then a quick deceleration, and a potential for receding prices near the end of this year. But, that same ebb and flow might continue into 2020. Many shippers were waiting, biding their time so to speak, as the initial political turmoils started to die down. As a result, they put in bid packages late in the year so there are some carryovers on the rates at play, which explain some occurrences that occurred this first quarter of 2019.
Future of truck utilization
Reports indicate that there has been 100% utilization among trucks last year. Truck utilization measures the number of trucks that are in use in the shipping industry compared to the number of seated trucks that are available.
A 100% utilization figure means that if there is an available driver, that freight can fill the trailer. No driver is sitting around, waiting for work with an empty truck. They are always on the move and full. The last time utilization was at 100% was 2004.
However, estimates indicate that this year and the next, this percentage will fall back to 94%. This is indicative of the statistical turn of events which took place in 2015. In the past, the motor carriers ordered new trucks in an effort to remain in step with the stronger 2014 market. But a recession in 2016 left carriers with new empty trucks and no cargo.
This year class eight trucks are in high demand, higher than they have been in over ten years. In August of 2018, there were almost 50,000 orders for class eight trucks. Recently, those numbers have dropped as manufacturers have reached a cap with the number of orders they are able to complete for the remainder of the year. For shippers, this means that there are more trucks and there is a slightly lower utilization. This behooves them as it is now easier to find capacity.
Shippers don’t have to wait for a truck to be available like they do when things are at 100%. They don’t have to pay repositioning fees to get capacity immediately. New supply has made its way into the shipping system and is starting to help all parties meet demand.
Carriers are ordering new trucks simply to meet the demand of shippers. They don’t want to lose any opportunity and will always say yes. After such, they figure out a way to make the requested work even if the CEO’s are filling their personal vehicles and hitting the road.
Will trucking compete with intermodal transport in the future?
Right now it seems that intermodal may or may not become more competitive this year and next. This differs based on the location of the shipper, the destination of the goods, the PSR, and the service levels. For example: railroads in the U.S. have dealt with slower business and longer dwell times compared to last year. They simply stopped meeting customer expectations back in September of 2018. To that end, they are trying to eliminate the interline service for many of the routes currently taken. Costs, as a direct result, are beginning to change and the result is that this year and next, intermodal will be less competitive for shippers who are using one of the origin and destination groups.
However, at the same time, some trains are increasing their speed and decreasing their terminal dwell times. The Class One railroad has been the only one to do this and as a result, has seen higher volumes.
Forecasts stipulate that things will be more competitive, but there will be fluctuations. People will see intermodal volumes go up, but the pricing will still rise. Shippers will now bear the burden of determining where equipment comes from, while railroads have the burden of determining how they will deal with the increased volume.
Wrapping up
Overall, U.S. truck shippers have seen changes in contract rates. There are projections for contract rate increases for the rest of 2019 as well as 2020. Spot rates are varying drastically and show no signs of stopping. The future of truck utilization seems to be on the move. It seems that as of now, there is an opportunity for trucking to compete with intermodal transport in the future, capitalizing upon the areas where rail is falling short.
