Carrier CEO’s Weigh in on Rising Rates

If you have been reading this blog, or listening to our two-minute warnings, then you know we have predicted that shippers would experience much higher transportation costs in 2011. But in the last couple of weeks we have learned more and we are concerned that the magnitude of increases may be much higher than we originally thought.

Obviously, the price of diesel fuel has gotten everybody’s attention. According to the Department of Energy, last week the national price for diesel was $4.10 per gallon - and is very likely heading much higher. In fact, there is a growing consensus that within a couple of months, we will see diesel in the $4.50 to $5.00 per gallon range. That means carrier fuel surcharges will continue to rise.

But rising diesel prices are only part of the story.  After attending NASSTRAC‘s recent annual conference, one has to wonder how well shippers understand the issues that are making it much more expensive to operate trucks.  In his most recent blog, Jeff Berman gave you a flavor for the topics which were covered at the NASSTRAC conference. Chris Norek and his education team did an outstanding job putting together a first-class education program.

The sessions, which featured a panel of CEOs of publicly traded trucking companies and a panel of financial analysts who cover the transportation industry, were very informative. After listening to their comments I asked the CEOs whether they would agree with the CEO of another large trucking company who stated transportation rates would have to go up 20% over the next three years in order for trucking companies to have some semblance of healthy balance sheets. Their silence was deafening. Eventually, they stated that they could not talk about rates in a public forum.

Afterwards though, when I talked privately with the CEOs, and others who attended the conference, they confirmed that yes, the cost for items such as health insurance, tires, equipment and virtually every other aspect of their operations has risen significantly. These increases must be passed through to shippers in the form of higher rates.

And this would be in addition to any increases attributable to the rise in diesel prices. That is why we have repeatedly and consistently encouraged shippers to be proactive in raising these issues within their company.

One of the other benefits of attending conferences such as the NIT League Policy Summit, NASSTRAC, or events sponsored by CSCMP, TIA, or ATA is the face-to-face interaction that you can have with the members. For example, at NASSTRAC I asked one large shipper if they had revised their freight budgets to reflect these increases in freight costs. They shared that while they have not revised their freight budgets, they highlight on a monthly basis the factors that are driving up their freight cost. This analysis, which is provided to senior executives throughout the organization, has been very useful and constructive in identifying the transportation challenges that are impacting their supply chain.

Let’s close this Blog posting on a positive note. If you are one of the professionals responsible for managing transportation costs within your organization and you are concerned with what is happening, you are not alone. Fortunately there are some great resources that you can access to help you understand and manage these challenges. For example, this publication, Logistics Management, has some great free webinars. And by listening to webcasts sponsored by financial firms such as Wolfe Trahan or Stifel Nicolaus (which are also free), you can get a much better understanding of what is happening in the transportation marketplace and also get some ideas on what they can do to control their costs.

Finally, I’ve talked with various industry groups for the past couple of months. In these talks I like to emphasize that now, more than ever, is a good time to reach out and ask for help, or conversely, provide useful information to your peers. In that spirit, I am asking for your help. Let us know what you and your company are doing to control their transportation costs. You can share this information by using the Comment Section below to highlight strategies or ideas that you have found to be successful in this environment.

TranzAct Technologies, Inc.

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