Tight Trucking Market Has Retailers, Manufacturers Paying Steep Prices Jan 05 2018
By Jennifer Smith
Updated Jan. 5, 2018 2:18 p.m. ET
Retailers and manufacturers grappling with an unusually tight trucking market are paying the steepest prices in years to keep their goods moving.
Freight demand had been ticking up for months, closely tracking the strengthening U.S. economy. The market got a boost from retailers needing to restock stores and distribution centers amid the biggest jump in holiday sales since 2011. That wave of demand hit the trucking market just as a new federal safety rule kicked in, leading some drivers to idle their big rigs.
By the end of last week, just one truck was available for every 12 loads needing to be shipped, according to online freight marketplace DAT Solutions LLC. That is the most unbalanced market since October 2005, after Hurricane Katrina, and compares with a roughly 1-to-4 ratio at the end of 2016.
Some companies are delaying nonessential shipments rather than scramble to find a truck. Others are paying a premium to ensure big rigs will be waiting at their warehouses when they need them. The cost to hire the most common type of big rig shot up to $2.11 per mile, including a fuel surcharge, in the week ended Dec. 30, a 3½-year high, DAT said.
“There’s a shortage of trucks available…there’s delays in shipping,” said DAT analyst Mark Montague. “Some loads that have to move [right now] are paying extremely high rates.”
Trucking companies are responding to strong demand by ordering more trucks from manufacturers. Fleets reserved 37,500 Class 8 trucks, the kind used on long-haul routes, in December, the most in a single month in three years, according to ACT Research.
Freight demand strengthened in recent months as manufacturing activity expanded and retailers stocked up for the holidays. Year-end sales soared past expectations (https://www.wsj.com/articles/retailers-feel-shoppers-christmas-cheer-1514243102) , growing at their fastest pace since 2011, according to Mastercard SpendingPulse. That led some retailers to hire even more trucks to replenish stores and distribution centers. Surging online sales have extended freight demand deeper into the holiday season, as retailers and delivery firms hustle to ship millions of packages to consumers’ doorsteps by Christmas.
The new federal mandate may have exacerbated the capacity crunch. Starting Dec. 18, most big rigs must be equipped with electronic devices that monitor drivers’ hours behind the wheel. The rule is meant to reduce accidents stemming from driver fatigue by increasing compliance with existing limits on driving time.
While most large fleets already track driver hours electronically, many smaller fleets and truckers who own their own vehicles waited until the last minute to switch over from paper logs (https://www.wsj.com/articles/trucking-industry-worries-new-rule-could-raise-costs-1513359508) , which officials say are easier to falsify.
Some drivers reported trouble getting their new electronic logging devices (https://www.wsj.com/articles/slow-start-for-truckers-under-new-rule-on-logging-hours-1513887909) , or ELDs, up and running. Others said they planned to park their trucks over the holidays. Analysts expect some drivers will now cover fewer miles a day because the devices make it easier for law enforcement to know when truckers have exceeded federal limits on driving time.
For example, in the past few weeks the price to ship freight between 500 miles and 750 miles has shot up 30% on some routes, said Dave Menzel, chief operating officer for Echo Global Logistics Inc., a brokerage. With stricter timekeeping, routes of that length might take two days instead of one, forcing companies needing next-day delivery to hire more-expensive team drivers, Mr. Menzel said.
“We’re seeing a premium on teams that can move loads quickly,” he said.
Frigid weather across much of the U.S. (https://www.wsj.com/articles/blizzard-conditions-threaten-east-coast-1515077936) has also increased demand for trucks with temperature-controlled trailers that can keep perishables from freezing. Last week the average rate for refrigerated trucks hit $2.46 on the spot market, the highest since July 2014, according to DAT.
The winter storm pounding its way up the East Coast this week is expected to goose freight rates, as icy conditions and blinding snow make roads treacherous, slowing deliveries.
Trucking capacity was tight through Christmas “and the rates are still high,” said Troy Cooper, chief operating officer at XPO Logistics (http://quotes.wsj.com/XPO) Inc., XPO +0.56% (http://quotes.wsj.com/XPO?mod=chiclets) which has a large trucking division and brokers freight.
Mr. Cooper said demand typically slows through January and February, “so if it stays elevated, that will give you a sign,” he said.