In recent years, the LTL sector of the trucking industry, now valued at $36 billion, has experienced momentous growth. Today, over 70% of all freight shipped in the U.S. travels by truck at some time in its journey, with more than 10.5 billion tons of freight moved by truck, per year, on average. And As the trucking industry experiences trends like the massive growth in e-commerce, shortened supply chains, tighter capacity and a focus on lighter or smaller loads, analysts expect this growth in the LTL industry to continue through 2018 and beyond.
Thanks to the inherent flexibility required to operate within the LTL market, LTL carriers are poised to take advantage of these obstacles in a way that full truckload carriers simply cannot. Note, there are a lot of things to be excited about and some serious challenges LTL carriers will inevitably face. Understanding the trucking industry’s performance and the forecasted trends therein can help your company prepare for the future. This research and preparation are wasted if you do not take the proper preventative actions meant to prevent these problems before they arise. Below, we will discuss expectations, trends, and forecasts for the LTL industry in 2018.
Expected Freight Industry Growth
Within the LTL industry the top 25 carriers account for 90% of LTL market share, as a result, the LTL sector has pricing power over shippers that the full truckload sector simply does not.
According to LTL analyst David Ross, “2017 will be “generally good” for LTL carriers, with results improving as the freight year progresses. The expectation remains for better times ahead in LTL due to the prospect of lower taxes, reduced regulation, increased capital spending and the administration’s stated focus on domestic jobs, infrastructure, and manufacturing. In theory, these should all work to drive earnings per share higher for LTL carriers—but in practice, it may take a while.
The ATA (American Trucking Association) expects growth consistent with that of the U.S. economy with 3% increases expected in full truckload shipping and less than truckload shipping annually for the next half-decade. A booming economy and growing American population lead analysts to believe that we will also continue to see growth in both the number and weight of goods shipped all over the country.
While this growth is expected in freight across the board via trains, plane and cargo ships, truckload freight is expected to benefit the most from these positive economic trends. LTL freight, especially, is trending high as companies search for more flexibility in their shipping needs. Many theorize that the key to LTL growth in 2018 is a combination of improving the manufacturing sector and reducing truckload supply, thus driving down the average weight of full truckload shipments and encouraging further movement into LTL networks.
Change in Trucking Rates
According to the Bureau of Labor Statistics, although producer price inflation for the service sector as a whole has remained relatively stable, staying at 2-2.5%, freight trucking inflation has been undergoing rapid acceleration with prices rising and inflation reaching a 6-year high.
Trucking rates are rising across the board and expected to continue to climb. Fed Ex, for example, has hiked up their rates by 4.9%.
Forecasts expect these rates to continue to climb as demand for freight services also rises. There are a variety of reasons for recent surges in freight rates. Shipping, as you might imagine, is quite expensive, with steep costs associated, from creating brick-and-mortar terminal networks, to dealing with deteriorating infrastructure, and demands for shortened supply chains, smaller and lighter loads, and tighter carrying capacity. Add steady growth in consumer spending, increases in business investment and rising costs for either equipment, insurance, or drivers and it should be no surprise that rates will continue to climb.
The ELD Mandate
In December, the ELD (electronic logging device) mandate took place. Although shippers and carriers have known and presumably prepared for this, reasonable concerns are held over the impacts it will have on capacity. The ELD mandate was a subsection of a 2012 Congressional bill entitled, “Moving Ahead for Progress in the 21st Century.” The purpose of the ELD was to create new criteria for tracking Record of Duty Status that encouraged trucking companies to comply with existing hours of service (HOS) requirements for truckers, and not allow truckers to drive past their maximum time allotment. By the New Year, trucks were required to be installed with ELDs or face stiff penalties.
These HOS regulations tied in with ELD has led to a capacity crunch within the LTL industry. A capacity crunch represents the amount of available capacity being used at any given time and is thus directly related to the number of drivers currently driving. According to the Federal Motor Car Safety Administration, hours of service regulations include the following:
- Truckers have an 11-hour driving limit, and they are only allowed to drive a maximum of 11 hours after 10 consecutive hours off duty.
- Drivers now also have a 14-hour absolute driving limit for driving after coming on duty, following 10 consecutive hours of off-duty.
- Drivers must also take breaks and may only drive if eight hours or less have passed since the end of the drivers last off-duty.
- If the driver drives for seven consecutive days, a trucker may not drive more than 60 hours on duty in the same period. Similarly, a driver may not drive more than 70 hours with it in eight consecutive days. This consecutive. Can only restart after a driver takes 34 or more hours off duty.
Due to these HOS and ELD regulations, LTL drivers are not able to drive as many hours as they may like or could be limited in trips able to take up. The ELD will be utilized to track and monitor whether or not drivers are obeying HOS regulations, which most expect to lead to a decrease in trucking capacity, if not this year, then in the near future.
Diesel Fuel Cost Expectations
According to the U.S. Energy Information Administration oil prices are expected to rise. “For the 2018 April–September summer driving season, EIA forecasts U.S. regular gasoline retail prices to average $2.74/gallon (gal), up from an average of $2.41/gal last summer.” Couple a wild political climate, with uncertainty in places such as Saudi Arabia and questions about oil supplies and you find yourself a recipe for higher oil prices. Naturally, this rise in the price of fuel will likely further drive costs for LTL shipping on the part of carriers and those looking to ship. If trends continue as they have been, oil prices will slowly grow and then level off in late 2018.
Potential for Driver Shortages
It is estimated that the trucking industry is currently experiencing a shortage of drivers, despite the fact that it is the largest occupation in the country. This shortage is as large as 30,000 drivers and is only expected to grow. Fears of automation and self-driving trucks is one of many factors driving people away from looking for jobs within the freight industry. One area seeing significant dips is in the population of over-the-road, long-haul truckload carriers, which are the backbone of the trucking industry.
Unfortunately, however, fewer and fewer people chose to pursue such a career, citing long periods away from home, insane hours, and low pay. As a result, this shortage could reach quarter million drivers short by the mid-2020’s. This deficit could have severe and negative consequences for the LTL shipping industry as a whole, leading to shortages, delays, higher costs and unhappy customers. Naturally, this would have a ripple effect that damages every industry that utilizes truck freight, but e-commerce and retail stores would likely be hit harder than most.
Bob Costello, the chief economist for the ATA, says “On average, trucking will need to recruit nearly 100,000 new drivers every year to keep up with the demand for drivers, with nearly two-thirds of the need coming from industry growth and retirements.” If not corrected soon, driver shortages will only continue to worsen. The trucking industry will face difficulty finding quality candidates, not only filling current positions, but a large number of future recruits who will be needed to replace drivers that are expected to retire imminently.
Those in the LTL industry are bracing themselves for the challenges to come posed by driver shortages, rising fuel costs, and rising shipment costs. One way many are bracing themselves for these changes is by partnering with vendors and creating industry relationships. More and more, we see industry professionals sharing costs or industry experience in mutually beneficial relationships. Although it may seem backward, co-loading with other shippers is becoming more common.
Consolidating shipments allows shippers with under-utilized capacity an opportunity to optimize and send dynamic multi-stop truckloads to the same locations. As a result, this leads to reduced transport costs, reduced fees, reduced working capital, higher frequency deliveries, inventory improvement and improved order fill rates. Collaboration tackles that scalability problem that many smaller shippers have and as tech and innovation continue to improve, so to do our ability to optimize our network and logistics.
2018 is expected to be one of the best years in recent memory for the LTL industry. While there are high expectations, undoubtedly, we will see surprises and continued change within. Therefore, determining ways to increase your shipment’s efficiency should be important in preparing for any and every future obstacle. Such measures may include combining shipments, compacting pallets, utilizing GPS and smart tech to organize your shipping fleet.
While many are hesitant to jump on the technological bandwagon, doing so can help you find cost-effective ways to increase efficiency. At the very least, be sure that you are aware and compliant with the most recent laws and regulations on the books, be it local, state or federal; check in from time to time with the FMCSA to stay up to date and in the know.