Freight markets have seen some changes in 2019. The entire shipping industry is seeing changes from several critical points. While some carriers have had steady and reliable contract business, the more common transactional spot market is having a tougher time.
The two main areas of influence are the driver shortage and the issue of capacity storage. Each is slightly different but have a large impact on the current conditions of the freight market.
A driver shortage happens when the market is good and there is a lot of freight that needs to be moved. There are not enough drivers available to fill the fleet rosters. There are cycles in the industry that affects the way carriers manage their fleets.
When times are good, carriers grow their fleets and offer incentives to bring on drivers, planning for future contracts and opportunities for business.
During periods where there is less demand and times are tough, most carriers can only focus on the short-term issues fighting to stay afloat.
Capacity storage in the shipping business is how much cargo can fit in each truck unit. The volume load on each shipment helps carriers make money since more cargo is in the truck. Utilizing a fleet efficiently means calculating loads strategically.
When there is a capacity shortage in the market, there are not enough trucks available for dispatch. This gives the carriers more pricing power with their fleets, bringing up pay for drivers.
What It Means for the Market
In 2018, volumes were reaching peak levels and carriers were hiring more drivers and trucks to meet the demands. As expected, incentives were offered to boost the appeal of driving a truck for certain carriers with the costs passed on to shipping customers. Up until May of 2019, volumes were reaching within 3 percent of the 2018 peak levels, sometimes even passing them.
However, once the tariffs were rolled out against China, things started shifting for carriers. In June, trucking spot rates dropped more than 36 percent since carriers were adding to their fleets and the market became oversupplied.
With the switch in the markets, carriers have been forced to stop growing their fleets and capacity is no longer an issue. Fewer imports mean lower port volumes, leaving businesses to reconsider their supply chains and making changes to keep business going.
Carriers are starting to find they are dealing with a driver shortage and too much capacity storage available.
Unfortunately, it doesn’t look like the driver shortage will change any time soon. With the capacity issues, carriers are having a hard time keeping qualified drivers on their rosters. Trucks are left empty and capacity is down, meaning more miles are required to make the same amount of money.
This creates cost inflation in the market, making jobs like construction and warehousing services more appealing.
Driver pay is one of the largest costs for carriers, along with fuel. Since the beginning of 2019, oil prices have been on an upward track making fuel more expensive for shipping services. The predictions for fuel costs don’t give carriers much hope for the rest of this year either. Predictions for diesel fuel are not much better either.
Everything is not all bad though for companies offering shipping services. This is a time in the business cycle that companies work harder to offer quality customer service for better business relationships.
Those that use technology and think creatively will find ways to stay in business and gain a better position in the shipping sector. The best drivers will be drawn toward the best carriers, bringing another strong point to that company.
Overall, the market is headed for a tough position, all thanks for driver shortages and storage capacities. These two points of interest are what everyone will be watching for the next few years.