Trucking Costs Are Major Speed Bumps for Businesses

A shortage of trucks and professional drivers is driving up hauling rates and threatening business growth.

August 16, 2018

ALEXANDRIA, Virginia – Shipping costs are rising, and freight volumes are outpacing the supply of available trucks. In fact, empty trucks are so hard to come by right now that Dean Foods, a Dallas-based dairy supplier, has cut its full-year earnings outlook in part because it can’t move goods for anything close to what it expected to pay this year, according to Fooddive.com.

Dean is just one of many U.S. businesses struggling with the tightest freight market in years. Distribution channels that transport goods to retailers, factories and consumers are straining to keep up with the fast-growing U.S. economy, and many companies are cautioning that transportation problems are having an impact on their ability to grow.

In response, some businesses are reshaping their supply chain, and others, including Kraft Heinz, Sealed Air Corp. and Coca-Cola, are raising prices to offset higher freight expenses. Tyson Foods expects “freight to be about $270 million more this year compared to last year,” the company said in a recent earnings call.

The concern over trucking marks a big reversal from recent years, when truck capacity was plentiful and retailers and manufacturers rushed to lock in low rates. Many carriers reduced their fleets, and orders for new trucks plunged. Carriers now are ordering new equipment at record levels, but many report trouble hiring additional drivers.

A new federal rule requires drivers to track their hours behind the wheel with electronic logging devices, which contributes to the problem. Some routes now take two days instead of one because of stricter timekeeping. Plus, e-commerce is pushing companies to ship more goods in smaller loads as they rush to meet consumer demand.

Last year transportation costs rose 7% for U.S. businesses, far ahead of the 4.2% average growth rate over the five years ended in 2017, according to the Council of Supply Chain Management Professionals’ annual State of Logistics Report.

Now, trucking companies are raising contract rates by 10% or more, with further increases expected next year. Many are boosting pay to recruit drivers in a tight labor market and say the price increases are justified after rates remained stagnant for many years.

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