2014 was a good year for the transportation industry as external factors reduced capacity, which helped carriers gain rate increases not seen in years in many segments. However, shippers unhappy about such rate increases need to realize that the current market conditions represent the new normal for the industry.
Capacity is tight across all trucking segments driven by the driver shortage, escalating equipment prices, new regulatory measures and pressure to provide a better return to shareholders, which translates into higher rates for the foreseeable future.
In 2015, UPS and FedEx will address tight capacity with new dimensional pricing for all ground parcels. LTL carriers will show more discipline with pricing for profitability, which will be achieved with rapid deployment of dimensioning machines, correction for inaccurate weights and reduction in the number of customers on FAK rates. Truckload carriers will be seeking mid- to high-single-digit rate increases to meet the increase in demand resulting from intermodal conversion and the driver shortage.
Increases in prices are required to balance demand and supply. However, a rate increase does not have to mean an increase in transportation budget. Shippers serious about managing their budgets will find that the answer is hidden in their shipping operational practices, which can add more than 10 percent to the transportation cost incurred by carriers.
Examples of bad shipping practices include excessive packaging material, unnecessary detention of drivers, and misinformation of delivery requirements. If such cost imposed by irresponsible shippers is not collected, it results in those businesses being subsidized by more disciplined shippers who could even be their competitors.
In 2015, shippers who improve their shipping practices instead of demanding lower rates from the carriers will have more success in managing their transportation budget. With demand projected to increase as the U.S. economy expands, shippers can be sure that these rate increases are not temporary.
Satish Jindel, President, SJ Consulting Group