North American Non-Asset Transportation Outlook: 2018

Guest Post : David Broering, President of Integrated Solutions at NFI

The final four months of 2017 were some of the most challenging in the past decade for shippers, carriers, and 3PL’s. The market changed dramatically with the arrival of back-to-back hurricanes in September and concluded with the go-live date for Electronic Logging Devices (ELDs).

Coming into 2018, the headwinds for our marketplace are massive. The market seems to be reeling from the lack of capacity now, and with so many variables to make the situation worse through the course of the year. Three main factors are going to help shape the state of the domestic supply chain marketplace in 2018 – ELD devices, driver shortage, and the economy.

ELD Devices

After 18 months of apprehension over what could be, ELD devices are finally a reality. While the long term ramifications of this are not fully realized, the short-term pain has certainly been felt, and it was almost immediate. Many small carriers that were due to integrate these devices waited until the very last minute (some publications say sales spiked 2-3x in the last two weeks before the deadline). The weeks following the mandate have been bumpy to say the least. Certain carriers are struggling to learn how to properly use the devices, and the devices themselves have been inconsistent in their ability to manage the driver’s days. Additionally, devices have been found to be less intuitive than some expected, and there is a ton of uncertainty about what roadside inspectors from state-to-state will actually do if a driver is pulled over and is either not using, or does not have an ELD device. Because the go-live date was really a “soft go-live” for the device – where there are not compliance, safety, and accountability (CSA) penalties for drivers and carriers if a driver is found to not be compliant – there has been a lot of question about how real the effects of this mandate will be until then.

Looking forward, the anticipation is that for as bad as things have been the past few weeks with the acclimation to the device, they may be worse in April when the stakes become far more real and the devices are fully enforced with the penalties the Federal Motor Carrier Safety Administration (FMCSA) envisioned for this program. The good news is that this time will give carriers time to get acclimated to the devices, the bad news is that it will put a further strain on the capacity in the market, and at a time when the peak growing season in the South will be kicking off, when the market can ill-afford it. The ELD story is one that is going to continue to develop over the course of the next few months, and we are all going to have to be keenly aware of what we are doing as shippers, carriers, and 3PL’s to provide as much flexibility in the supply chain as possible to learn this new world.

The Driver Shortage

The industry has had a driver recruiting and retention problem for the better part of a decade. The potential of a driver shortage situation has been talked about quite a bit, but it has not truly hit the marketplace in the form of an actual capacity shortage; mostly due to some of the overall headwinds in the demand for that capacity. The reality of the driver shortage is beginning to settle in for the market, and some of the challenges that we have seen through the past four months are partly due to the fact that carriers cannot hire drivers fast enough to accommodate the increased demand in the market. Where there might have been one to two percent spare capacity in the market as late as mid-year last year, there is certainly at best parity, and more likely a one to two percent deficit in capacity provision for the market currently – and it’s January, typically the slowest shipping month of the year!

The driver shortage is more a matter of the lack of new drivers entering the workforce than it is an individual carrier putting the right drivers in the right seat. This is mainly because of the lack of desirability for the role; there are very few new people looking to join this workforce in earnest. Many in the industry know that in order to retain the talent in the seat and recruit new talent, driving a truck is going to have to become a high enough paying job that people who have not considered this role for them before will not be able to ignore it. This means that carriers are going to continue to need to be paid more for the work they do for shippers to be able to afford to keep the drivers they have and to attract new ones in order to provide more capacity.

This is going to be an ongoing battle through the course of the year and beyond, and as the economy continues to be strong and the demand for capacity grows, that is only going to come from one place – more drivers.

The Economy

One of the biggest stories of the year in 2017 was the positive signs the economy showed almost all year, most especially the last two quarters. With GDP expecting to settle in near an average of three percent growth in the second half of the year, these are some of the strongest back-to-back quarters we have seen in a decade. Moreover, we are expected to carry that momentum well into 2018. With consumers driving a good amount of this growth in 2017 with respect to spending on durable goods (appliances, cars, etc.) and then an incredibly strong holiday shopping season, more of the same is expected from consumers in 2018. When adding in the factors associated with the recent passing of tax reform and its effect on the business community as well as consumers, 2018 could be a really big year for the economy. Many shippers will be looking to expand their production / operations this year under some of the new benefits the change in the tax code has brought, and that is going to lead to the sort of demand from the manufacturing side that we have not seen in quite some years.

Mixing the already strong consumer demand with this renewed small-medium business growth [they benefit the most from the tax revisions] and demand is going to leave the market with further pressure on the overall capacity. While the early part of the year is going to be somewhat quiet relative to the rest of the year – as is the norm – expect the second half of the year to be quite hectic, with the already struggling marketplace demands to get worse. This will most likely leave carriers to choose their shipper/3PL of choice – which could be based on price, service, flexibility, or a combination of those things. How fast the economy grows in 2018 is going to be a major factor in the way the market for capacity moves, and will certainly be in flux as the year goes on and this story takes shape.

2018 is going to be a challenging year for all parties involved in the domestic supply chain. Shippers are certainly going to have to have work with their partners to ensure their raw materials and finished goods arrive on time and in full. What’s more, it’s almost inevitable that most will be paying more for that to happen in 2018 than they did in 2017, and maybe more than they have in years. The best way to manage this and work through the situation is to be transparent about needs, understanding about costs, and really work to try to be as flexible as possible without sacrificing the service commitment that is made to the end customer. The best path to a tolerable solution in a challenging market as this is to build lasting partnerships that can transcend markets and bring meaning to each aspect of your supply chain.

Joining NFI in 2012, David is in charge of NFI’s North American brokerage, transportation management, intermodal, and drayage businesses. David is leading this rapidly expanding division by offering a more robust suite of services to new and existing NFI clients.