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Rising Trucking Rates Disrupt Supply Chain Economics

by Josh Bays, on May 15, 2018 9:24:44 AM

For logistics-intensive operations like distribution centers and manufacturing plants, transportation costs can be a primary concern. It is common for logistics costs to represent a large share of an operation’s bottom line. Even though many operators pass this expense on to their customers, all companies with distribution activities continually battle uncertainty in the industry. Site Selection Group, a full-service location advisory, economic incentives and real estate services firm, monitors trucking rates to provide its clients with accurate data on transportation costs for our site selection projects. There has been some volatility in the market that is having a profound effect on domestic supply chains.

Truck rates continue to rise

Over the past year, all varieties of freight have seen an increase in rates. The chart below tracks the national average per mile spot rates for vans, reefers and flatbeds.  The trend for all three types has increased steadily over the last 12 months. Van rates have risen from $1.67 to $2.16 per mile, reefer rates have risen from $1.94 to $2.43 per mile, and flatbed rates have risen from $2.07 to $2.65 per mile. As rates rise, an efficient logistics network becomes ever more important.


Per Mile Spot Rates

Distribution_Graph1

Source: DAT

What is driving the rising rates?

The labor market continues to tighten across all sectors, so it should come as no surprise that employers are having more difficulty hiring truck drivers. In addition to this, drivers are leaving for better-paying jobs in other sectors. The competition can offer attractive alternatives to a trucker’s work, such as consistent schedules and lack of travel. This shortage will continue to drive up freight rates as employers are forced to pay drivers more. The graph below displays the median hourly wage of a truck driver over the past several years.

Median Hourly Wage for Truck Drivers

Distribution_Graph2

Source: BLS Occupational Employment Statistics, Heavy and Tractor-Trailer Truck Drivers

In addition, as the graph below shows, diesel prices have been on the rise, forcing employers to raise their freight rates.

Retail Diesel Prices

Distribution_Graph3

Source: U.S. Energy Information Administration, Retail Prices for Diesel (On-Highway) – All Types

Effects of natural disasters

Another contributing factor on the upward movement in trucking rates is the reconstruction efforts following Hurricanes Harvey and Irma. The supply chain has been greatly affected by the need for plywood, sheetrock and other materials in Houston and Florida. As trucks bring supplies in, they struggle to find materials for the return trip back, and end up leaving with empty trucks. As such, many companies charged a premium to deliver to Houston in the weeks and months following Hurricane Harvey. As more trucks were diverted to Houston, the rest of the country had to manage the effects of the disruption to the supply chain.

Transportation costs are essential to site selection

Operations both big and small are driven by the need to get product to their customers in a timely manner. With the rise in online shopping, customers now expect to receive their goods faster than ever before, and employers are seeing the effects of a shortage of drivers. As part of the site selection process, it is becoming more critical than ever for companies to evaluate regional labor trends, fuel prices and their own networks.

Topics:Distribution CentersManufacturingEconomic IncentivesSite Selection GroupSite SelectionLocation Advisory

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