Transportation and logistics news: Higher rates are coming, say analysts

Various freight transportation experts agree that increased rates are on the way for a variety of reasons.

By ·

Before volumes for motor carriers began their gradual recovery earlier this year, it was not a secret that shippers were getting significant leverage when it came to rate negotiations with carriers for nearly a three-year period.

With a surplus of capacity, high operating costs, contentious relationship with their credit arms, and slim margins, carriers knew they could not be choosy—especially when it came to getting business and keeping trucks on the road. But the way things are shaping up now, it appears carriers may be getting some welcome relief in the form of higher rates, and shippers might as well bank on that, according to Charles W. “Chuck” Clowdis , Jr., Managing Director-Transportation Advisory Services, at IHS Global Insight.

In a research brief, Clowdis painted a definitive landscape of the myriad reasons, higher rates are en route.

“Since 2006, the rate levels in the transportation marketplace have favored the buyer of transport service,” wrote Clowdis. “More capacity pursued less available freight as the economy retracted. As capacity decreases and becomes more valuable to serve the released consumer demand, carriers will become more aggressive in seeking rate increases.  Increases in the 7-10% range have already been signaled by the industry.”

Other factors pointing to higher rates identified by Clowdis include the need to service debt incurred by many of the carriers that resorted to borrowing—at high interest rates–

to sustain themselves during the downturn. He added that carrier shareholders have been patient during the downturn and will expect improvement in share prices and dividends driven by better earnings: demands which he said will be met by increased rate levels.

What’s more, increased rates are likely to occur due to: owner-operators offering less capacity as the economy gains steam; a possible reoccurrence of a driver shortage; carriers making fewer investments to upgrade fleet assets that are more fuel efficient and require less maintenance.

Robert W. Baird Inc. analyst Jon Langenfeld echoed this sentiment, explaining that with carriers not buying trucks as frequently and capacity tightening over 2010 and 2011, the trucking industry is at a stage where it has not been in about five or six years.

“For shippers and carriers, this means higher rates are coming,” said Langenfeld. “The economy is stronger than people give it credit for. Higher rates are coming…but it is hard to say how long it will last; it could be anywhere from two-to-six quarters. Rates are going up for shippers. If you want to run a strong supply chain and a precision inventory network, you need carriers to be healthy. Right now, they are not, and you will see that through this cycle.

With higher rates on the horizon, Langenfeld said now is a good time for shippers to meet with carriers to lock in rates for the next 12 months.

Shippers, meanwhile, are less than thrilled at what is ahead of them.

“I see a lot of trouble explaining to our management why we need…rate increases,” said Candace Holowicki, Masco Corp. logistics manager at the National Shippers Strategic Transportation Council (NASSTRAC) Annual Conference in Orlando. “I’m trying to be an advocate for both sides of this, but I can’t give everyone a 20 percent increase, so don’t ask …the money is not there.”


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Article Topics

All Topics
Latest Whitepaper
Digital Issue: The Current State of Third-Party Logistics Services
It has become quite clear that logistics professionals are now facing an unprecedented set of challenges. From tightening capacity, to ongoing regulation hurdles, to the complexity brought on by e-commerce, today’s shippers are transforming the way they manage their logistics operations.
Download Today!
From the June 2017 Issue
Here are five trends that every shipper­—and potential shipper—must watch as the demand for experienced logistics and supply chain professionals soars.
2017 Rail/Intermodal Roundtable: Volume stable, business steady
Cross-Border Logistics: NAFTA tune-up time
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Women in Logistics: Breaking Gender Roles to Win the War for Talent
In this session you'll hear from a panel of women who are now leading top-level logistics and supply chain operations. The panel will share their success stories as well as advice for women who are now making their way up the ladder.
Register Today!
EDITORS' PICKS
2017 Top 50 3PLs: Investment and Consolidation Maintain Traction
The trend set over the past few years for mergers and acquisitions has hardly subsided, and a fresh...
The Evolution of the Digital Supply Chain
Everyone is talking about terms like digitization, Industry 4.0 and digital supply chain management,...

2017 Salary Survey: Fresh Voices Express Optimism
Our “33rd Annual Salary Survey” reflects more diversity entering the logistics management...
LM Exclusive: Major Modes Join E-commerce Mix
While last mile carriers receive much of the attention, the traditional modal heavyweights are in...