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All Signs Point to Rate Increases

Posted By Administration, Thursday, June 21, 2012
Updated: Tuesday, August 27, 2013

The message of continuing price increases was echoed in presentations at the recent NASSTRAC Shippers Conference & Transportation Expo. The stated amount of the increase varied falling in a range of 2% - 7%.

"There is a cost pressure and a wave of costs coming to the truckload industry that are unlike any that we have ever seen," said Derek Leathers, COO Werner Enterprises. Presenters throughout the conference recounted facts on increasing costs in all areas especially drivers, fuel, equipment, and tires.

Benjamin Hartford of Robert W. Baird & Co. reported a 2% - 4% truckload price increase in 2012. His considerations to this statistic included fleet age being at a generational high and fleet size shrinking at 1% - 2% over the next two years setting the stage for positive pricing. Hartford reports other mode prices increasing in 2012 (LTL 2% - 5% and rail 3% - 4%).

John Barnes of RBC Capital Markets sees GDP growing moderately at 2%. If there is a more material recovery, capacity will be tighter driving the need for more than an RBC's forecasted 2% rate increase.

"At U.S. Xpress, we challenge ourselves to become more efficient and more effective," said John White, President, U.S. Xpress. "Yet we need 5% to 7% in rates," he added.

Last year, third quarter reports from the 11 publicly-traded carriers showed an average price increase of 4.1%. Eight of the 11 had financial results worse in third quarter 2011 than in the same 2010 quarter signifying the rate increase wasn't enough for them to make an appropriate return on their investments.

There are efficiencies being made. "In the last year and a half we have dropped idle by about 40%. On top of that, we dropped our dead head by 15%. Yet on a 500-mile move, because of fuel costs, my cost to move that load is up about $5 a load," said White.

The need to attract drivers is a key factor in rising prices. The lack of drivers translates to equipment sitting idle reducing productivity and utilization rates. Conference speakers agree that driver pay needs to increase. Driver income is not keeping up with inflation. Also, with the CSA requirements, it is becoming more difficult to find qualified drivers. Both shippers and carriers can improve the driver environment. Pay is only one aspect. Getting drivers loaded and unloaded efficiently goes a long way to keeping drivers on the road increasing their income potential.

Other strategies that can impact freight costs include:

  • Moving freight on weekends improves truck utilization. Drivers on irregular routes work on weekends. At U.S. Xpress 70% of trucks on weekends are looking for freight.
  • Selecting the most efficient mode. Moving an LTL to truckload or truckload to intermodal carries reduced pricing.
  • Transportation/fleet outsourcing to a credible carrier can provide cost savings since leasing is still the lower cost.
  • Using a holistic approach to the supply chain. Analyze the total cost to serve over a period of time rather than truckload rates alone.

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