Fleets Grapple With Freight Rate Pressures

tonnage Traffic moves along the Schuylkill Expressway in Philadelphia. (Matt Rourke/Associated Press)

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Trucking companies are navigating a challenging economic environment where stubbornly high costs for goods are affecting what shippers are willing to pay for transport, experts warned.

“It’s really tough right now,” said Paul Bingham, economics and country risk director at S&P Global Market Intelligence. “The pressures are there, with the demand going away and the inflation being stronger than I think any of them were hoping. There’s been some relief on the diesel fuel side, but that really hasn’t made up entirely for the depressed market.”

Cowen and Co. in its fourth-quarter carrier survey found rates are expected to rise 2.4% in the first half of the year, but that’s down from the 4% growth forecast in its Q3 survey and also is below the current rate of inflation. The Jan. 5 report concluded carriers are struggling to pass costs onto shippers amid inflationary pressures.



“You had the expectations, and then you have what they’ve been signing the contract rates at,” Cowen analyst Jason Seidl said. “They both fell the same amount. And you’ll notice that both amounts are definitely not enough to cover inflation — at least not the type that we’re seeing currently. The good news is if you’re a carrier, the cost to hire drivers is getting less expensive, but it’s still going up greater than your ability to price.”

The Cowen survey noted that pay pressures are easing, as carriers now anticipate an increase of 4.3% in the year ahead, compared with a 5.9% forecast from the Q3 report.

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Seidl 

While carriers expect business growth of around 2.2% over the next year, that’s below the historical average of a 3.4% annual gain.

“There’s no shipper I’ve ever met that loves price increases,” Seidl said. “Especially now, when they’re having their own challenges about their own inflationary fight within their own company. You’re going to have them push back as much as possible.”

Seidl believes any rate increases carriers secure this year should be seen as a victory given market conditions and looming threat of a recession. Especially, he noted, as some carriers worry that rates could fall below year-ago levels.

“There’s just too much capacity right now for the demand that’s out there,” Bingham said. “You’re seeing it mostly on the spot market, but the contract market with a lag is catching up. I expect it’s going to not resolve itself for quite a while. In fact, it might get worse later on this year. We’re forecasting a recession for the U.S. The outlook is not good for carriers, and it’s really time to hunker down in terms of managing costs, managing their customers and being able to plan for rates.”

Still, Bingham noted there is a limit to how much shippers can push back on rates; carriers still need to turn some profit to ensure they can continue serving those shippers.

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Paul Bingham, director of transportation consulting at IHS Markit Economics

Bingham 

“Operational management is key in this type of market,” said Blair Blake, vice president of carrier strategy at Arrive Logistics. “Overall demand levels contract, [so] carriers look for security and freight consistency through contractual agreements.”

Especially when operational costs remain high, noted David Spencer, vice president of market intelligence at Arrive Logistics.

“Whether it’s insurance, more downtime when it comes to maintenance, more expensive maintenance as a result of some of the supply chain shortages we’ve seen, or labor shortages from the last couple years, all of these things really create pressure on carriers to maintain their margin,” he said.

KSM Transport Advisors President David Roush estimates cost inflation for carriers is up about 30% over the past two years, and said many of the increases are tied to things difficult for carriers to control, such as insurance, maintenance, equipment and driver wages. These increases, he noted, may compel them to take business they might otherwise reject.

“Some carriers are losing what we call franchise freight, which is their best freight, and they’re retaining toxic freight, which is their worst rate. And some are a different mix of that franchise and toxic,” he said.

Roush added some of his carrier clients report that shippers are pushing back hard to lower rates, including additional requests for proposal rounds. He noted that one carrier described it as shippers being out for blood.

“I don’t think that the shippers are open to listening about specific cases,” Roush said. “I think they’re focused on getting back some of the rate inflation that they perceive exists.”

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