Domestic shipping costs rising in 2015

It looks like the trucking industry will continue to make headlines in 2015.  In 2014 the major headlines involved trucker safety and trucking accidents with the Morgan Freeman injury topping the list.   There was also a little bit of press on how the weather affected trucking with polar vortex doing its part in delaying shipments.

In 2015 the major headlines may be costs and freight capacity.   As manufacturing hopefully continues its rebound, don’t be surprised to hear about shipping costs increases when companies announce quarterly earnings next year.

We are already seeing the evidence of cost increases:

• Fed Ex has announced increases of 4.9% for 2015. This is after they announced earlier this year that they will be changing dimensional shipping rates.  (UPS made a similar announcement).  It also should be pointed out that Federal Express’s earnings are beating expectations:   FedEx Quarterly Profit Surges 24% to $606 Million.
• Trucking rates for long distance contracts increased 8% in August according to DAT solutions, a company that provided data to the transportation sector. Source.

The main reason for expected increases is a severe driver shortage.   In a previous blog we reported that there are 35,000 open positions for over the road drivers.    Some analysts are saying that the shortage could grow to over 200,000 in the next 6 years if the issue is not addressed.  Source.

There appear to be a myriad of reasons for the driver shortage:

• Demographics: A significant number of truckers are over 55 and heading into retirement at record numbers.    The younger generation does not seem that excited about over the road hauling and sleeping in cabs.
• Demand: With the manufacturing sector continuing to rebound and the economy in general picking up, the shipping demand is also increasing.
• Wages: Like many other occupations, wages in the trucking industry have been stagnant over the last 8 years,   10 years ago; one could earn significantly higher wages in trucking than other competing occupations such as construction or retail.  That gap is not as significant any more.
• Federal Regulations: Over the last couple years new regulations have come in that added restrictions for getting a trucking license – thereby reducing the number of potential drivers.    Some of the new regulations also put restrictions on number of hours and times of the day, making it less lucrative for independent drivers.

There are not a lot of options for short term solutions, trucking companies are going to have to make the driver position more attractive.   That means higher wages, less hours and more benefits for truckers.    All of which will add to cost.    Some companies have already increased their driver’s rate by 14% and that number will probably grow.

Driver shortages are not the only factor that will drive costs up.   New federal regulations will restrict hours and require companies to add more overhead to comply.   The federal government still hasn’t figured out what it is going to do about the erosion of the transportation infrastructure (roads and rails) and how it is going to be paid for.  Some of the solutions being discussed are added tolling, which will directly increase trucking costs.

For any market, like physics, every action has a reaction.   In a competitive economy it is almost a sure bet that shippers and manufacturers will start finding less expensive options to protect their bottom line.   Whether that involves technology, logistics or consolidation remains to be seen.    But for the immediate future, it is almost a sure bet that the US domestic transport supply chain will see some major cost increases.