2018 will be a very challenging year for manufacturers and retailers as the service-level demands of their customers increase, while transportation capacity tightens, and transportation costs rise. There will be no relief from their own C-suite in terms of profit expectations in an environment where it is very difficult to pass on price increases to customers.
Wal-Mart, for example, has moved from Must Arrive By Date where early deliveries were not penalized to On Time In Full (OTIF), a more stringent service standard, with a target of 100 percent of cases delivered on the requested date and not earlier for 95 percent of all orders. Fees for non-compliance are 3 percent of cost of goods sold for non-compliant cases. The 95 percent standard takes effect in February, just two months after the new ELD rules go into effect, which will exacerbate an already too-tight truckload market.
Spot market truckload rates are up more than 20 percent year-over-year and as contracts get renewed over the next few months, contract TL rates are headed up and diesel is almost back to $3 per gallon. General inflation expectations for 2018 are only 2.3 percent, so rising transportation costs are unlikely to be recovered by price increases for manufacturers and retailers. On top of all that, much needed corporate tax rate reductions and expensing of certain capital expenditure could cause a surge in the economy and in freight volumes.
So what should freight shippers do? It’s again time to shift TL to intermodal. Lock in capacity, costs, and service levels with dedicated capacity and look for cross-company dedicated opportunities. Be smarter than the other guy by being carrier friendly. If you penalize for early deliveries, make sure you don’t give out a 500-mile load with a delivery three days from pickup. Re-examine your supply chain network for a new environment of tighter capacity, higher service standards, and rising transportation costs. Invest in technology, particularly automation, visibility, and predictive analytics.