Since 2014, the shipping industry has suffered numerous setbacks. Rebounding freight volumes and the proximity of the electronic logging device (ELD) mandate are set to change the industry in 2017, reports Sean Kilcarr of FleetOwner. Unlike the all-time highs of 2014, 2017 will reveal an industry on the cusp of restoring order and LTL rates to acceptable, reasonable levels. But, the most significant impacts of 2017 will be felt in these four areas.
Capacity Will Grow Tighter.
This will be the most important trend to watch in 2017. Capacity was stretched beyond limitations in 2014, and fleets around the country tried to optimize operations through freight reclassification, dimensional pricing models and freight consolidation, explains Jeff Berman of Logistics Management. The slow growth of the economy is not strong enough to catalyze expansion fleets, but it is putting pressure on carrier fleets. If the retail sector suddenly jumps, the capacity crunch will return with vengeance.
The ELD mandate will further worsen the coming capacity crunch. As more shippers look for carriers meeting this mandate, carriers will have an opportunity to control which shippers do and do not get access to their fleets. Meanwhile, carrier investments into the ELD mandate will provide a safety net for increasing profit margins throughout 2017 and 2018. Therefore, the available capacity of less-than-truckload (LTL) shipments will decline from its current state.
Carriers are also building tractor-to-trailer ratios in preparation of this expected crunch. But, additional trailers may cause additional problems with managing routes and dealing with an overstocked inventory.
Too Much Inventory Will Make Restoring Shipping Profits Difficult.
The LTL freight industry outlook for 2017 would be incomplete without addressing warehousing difficulties. When the industry revved up in 2014, many manufacturers and shippers expanded warehousing options and inventory to meet the growing demands of consumers. Unfortunately, slight contractions in the global economy in 2015 and 2016, reflecting the unrest seen in China and Germany, resulted in the scale back of purchasing by consumers. Consequently, shippers have a surplus of inventory taking up space, and this surplus is lowering overall profit margins. However, the issue is not impossible to correct.
More shippers, distributors and other entities in the supply chain are turning toward third-party logistics providers (3PLs) to enhance the flow of goods and maximize profits wherever possible. In fact, 97 percent of companies working with 3PL partners have reported successful relationships, asserts Material, Handling and Logistics, driven in part by stronger, more powerful technologies, including data-driven analytics, assessment of rate classification and improved customer-service capabilities.
The location of inventory is also stagnating the economy. Carriers are not shipping as much freight, alluding to pressure relief on the LTL sector. Unfortunately, as this inventory remains stationary, driving growth forward will be difficult. Even simply moving this freight to other locations will impact operations and contribute to problems with capacity. However, something else may be able to spur the return to profitable freight shipping rates.
Shipping LTL Rates Will Improve.
Between 2015 and 2016, freight shipping rates declined significantly, and dry van rates dropped up to 15 percent. At the close of 2015, UPS Freight and FedEx Freight increased ltl rates by 4.9 percent in an attempt to spur growth, and both companies have done the same this year, explains Dave Blanchard of Material, Handling and Logistics. Yet, the recovery for LTL shipping is not expected to be as promising as some would hope.
Overall, LTL pricing will increase approximately 2 percent in 2017. The following graph, published by Logistics Management, shows how LTL rates have changed since 2015:
There is still a possibility of an economic upheaval, depending on who wins the presidential election, which could cause LTL rates to soar or bottom out. Unfortunately, that story will not be written until November, so carriers must simply hope for the best in light of this possibility and UPS and FedEx rate hikes.
Fuel Costs Will Change Little in 2017.
Fuel costs represent the final factor set to impact the freight industry in the coming year.
The cost diesel will return to prices seen at the start of 2015. While diesel prices dropped in 2016, they have slowly climbed since the beginning of the year, and they will remain approximately $3.00 per gallon throughout 2017. As a result, carriers will need to look to other ways of increasing revenue besides accounting for fuel surcharges or increases.
For example, carriers will continue to push toward the fuel-saving benefits of dimensional pricing, changes to how freight is classified and optimization of fleet capacity to improve overall profits.
2017 will be a year that defines the shipping industry. The heels of the election will write the majority of the story, but these four factors will continue to dominate and push the industry in the direction of slow growth. Fortunately, UPS and FedEx have already made their decisions for LTL rates, which will provide a sense of direction to smaller shippers and carriers, but the greatest impact will undoubtedly continue focus on the capacity crunch. Ultimately, shippers need to be ready for a slow and slightly bumpy ride to experience growth following the industry’s contractions in 2015 and the first half of 2016.