Total spend of shipments as well as the volume of shipments declined for all of North America in October. In fact, October shipment indices have fallen to the lowest levels since 20111. In the past month freight shipments have dropped 4.7%2. All modes of transportation have seen a decline including truck and rail shipments. This was a very different picture a year ago when shippers feared that there would be a capacity crunch. At that time, the economy was growing and freight demands had increased to near parity in the supply and demand of transportation. The U.S. GDP continues to increase, just not at the rate that it was earlier in the year. Although the American economy continues to grow and change, there appears to be an excess of capacity. Here are a few of the factors that have affected the state of the transportation industry:
New Fleet Equipment
For the first time in five years, there is an excess in truckload capacity. In the beginning of this year, carriers were faced with weather challenges as the Northeast had record snow fall and the West experienced labor challenges. To keep up with what was forecasted to be a busy year, companies began to order a record amount of fleet equipment. Now that the purchased equipment has come in and is being put to use, there isn’t enough volume to justify the purchases3. The capacity levels have led many companies to not purchase any further equipment for the year.
Holiday Inventory Preparation
In previous years, the fourth quarter meant a time for shippers to ensure that they have enough inventory levels to support them through the holidays. In turn, carriers would see a spike in freight volumes. Typically this meant a spike in volume leading into Black Friday and a second spike just after to replenish inventory for the last push the holidays. This year is proving to be slightly different. Some companies were faced with inventory challenges last year during the West Coast Port problems and ended up with empty shelves around the holidays because their containers were still on ships in the port. As things began to clear at the port and the two sides neared an agreement, they then saw an influx in inventory they no longer needed as the holiday season had already passed. This season, shippers focused on continuously receiving more shipments throughout the year so they are already prepared for the holiday season4 making inventory levels the highest they’ve been in the past five years
Driver Hours of Service
Another major change to the transportation industry has been the suspension of a previous restriction on drivers’ hours of service. Previous regulations required drivers to take a 34 hour restart one time in seven days and they also had to include two consecutive 1:00 a.m. to 5:00 a.m. breaks. This was problematic for the industry for many reasons, the biggest one being that most drivers operate at night to take advantage of reduced traffic on the roadways. As of December 2014, the U.S. Federal Motor Carrier Safety Administration decided to suspend the regulation. Since then, drivers have freed up a lot more time where they can be working. With the extra time and more drivers available during the week, there was capacity added to the market5.
Fuel Prices Remain Affordable
The price of a barrel of oil began to drop rapidly late in the fourth quarter of 2014. In step with that decrease in the value of oil, fuel costs drastically decreased and stayed relatively inexpensive throughout the year. Depending on the market, some diesel prices can be as much as $1/gallon lower than at this time last year, and it’s even more for the average personal vehicle. Those lower fuel costs have led to a reduction in energy production in the United States6. This decrease in energy production has led to less volume of freight around the shipment of equipment for the energy production as well as resources themselves. This decline of demand in the oil and gas industry has in turn added quite a few drivers and trucks back to a previously tight driver-hiring situation. However, the lower fuel cost has contributed to the increase in consumer spending which accounts for about two-thirds of economic activity within the U.S7. With the extra money they have saved on fuel, the U.S. consumer has contributed to the propping up the economy this year.
As the U.S. dollar has strengthened over the course of this year, U.S. goods have become less competitive abroad. The remainder of the year is predicted to continue the trend as the Federal Reserve begins to slowly increase the cost of money, thereby helping to slow down the inflation of the value of the dollar globally. Falling exports, a decline in domestic manufacturing goods8, and a decrease in energy production has freed up additional capacity on top of what has previously been mentioned. Working with an integrated service provider can help manage and predict these changes in capacity and keep you ahead of the game so you are buying your transportation for the right price at the right time. As the New Year approaches, you can expect the market to remain fluid well into 2016.