The cost of moving metal by truck is coming down, and the main reason why shippers should expect some much-needed rate relief is demand.
According to economic forecasting and consulting firm FTR Transportation Intelligence, demand growth for trucking is projected at just 1.6 percent in 2019, which is a far cry from the heights the FTR Truck Loadings Index soared to in 2017 and 2018. Last year, overall loadings were up about 3.4 percent, which reflected increased trucking demand.
According to Avery Vise, vice president of trucking at FTR, the firm’s reduced forecast for truck loadings this year and in 2020 is indicative of a softening market. “Most of the economic indicators tied to freight are slowing and this is really the key issue we’re dealing with right now,” Vise said during FTR’s annual State of Freight webinar.
While the trucking industry is bracing for a slower year, shippers could be in line for some much needed rate relief.
Starting in late 2017, the utilization rate of active trucks went through the roof. The active truck utilization rate remained at 100 percent through the summer of 2018, and as a result of historically tight capacity, the cost of moving freight skyrocketed. At this time last year, total truckload rates were up just over 15 percent year over year.
However, softening demand has translated to reduced shipping rates. “We’re still seeing capacity tighter than historical average by quite a bit, but the trend is for softer utilization the rest of this year,” Vise said. “The relief in the pressure on the system that held sway for so long is translating into some rate relief for shippers.”
Total truckload rates, which includes contract and spot rates, are expected to come down about 7 percent in 2019. “But this is based primarily, almost totally, on what is happening in the spot market,” Vise explained. Spot rates are forecasted to be down between 10 and 20 percent this year, while contract rates should remain relatively flat.
“For carriers and shippers that are operating in a route-guide environment, things are going to be a lot closer to flat because that’s what we’re seeing in contract,” Vise said. “Overall, our current forecast is a decline of about a percent, and that’s going to very a little bit by segment, but not very much.”
Additionally, FTR’s most recent Shippers Conditions Index, which analyzes freight demand, freight rates, fleet capacity and fuel price, truckload and intermodal rates are continuing to ease.
“Shippers are benefiting from relatively stable fuel prices and weaker trucking capacity utilization than they experienced in 2018,” said Todd Tranausky, vice president of rail and intermodal at FTR. “But both of those metrics are expected to tighten up as the year progresses. Diesel prices could move up in the fourth quarter ahead of the IMO 2020 fuel mandate, which could pressure fuel surcharges higher late in 2019.”
The last ELD hurdle
In December 2017, the federal mandate requiring the use of an electronic logging device to record hours of service went into effect for most commercial truck drivers.
Although hard enforcement of the rule has been in effect for more than a year, there is one last ELD-related hurdle the trucking industry has left to clear.
When the ELD rule took effect, drivers who were using a compliant Automatic On-Board Recoding Device could continue using that device through Dec.16 of this year. However, after the December deadline, drivers must transition to a device that meets the new ELD standards.
Vise doesn't think the AOBRD deadline will have a huge impact on the industry, but he acknowledges that some hiccups could arise. “Many carriers that adopted electronic logs for the first time in 2017 and 2018 went ahead and installed devices that were already [ELD compliant],” he says. “The bigger issue is going to be the medium and larger carriers that already had AOBRD devices and decided to wait until December of this year to switch over.”
Vise expects the transition, which should only require a software update for most AOBRD devices, to be relatively painless, adding that even if there are unforeseen issues, the industry is better equipped to deal with them than it was when the ELD rule first took effect.
“We’re dealing with a different market in 2019 going into 2020 than we had in late 2017 going into 2018,” Vise explained. “We were very tight already and the productivity hit that we had and the disruption that we had almost certainly was greater a year ago than what we will see from this.”
Clearing the Drug and Alcohol Clearinghouse
Another regulatory issue that could affect available capacity in the coming year is the CDL Drug and Alcohol Clearinghouse, which is a new database containing information pertaining to violations of the U.S. Department of Transportation’s controlled substances and alcohol testing program for holders of CDLs.
The clearinghouse, which is scheduled to take effect Jan. 6, 2020, will require FMCSA-regulated employers, medical review officers, substance abuse professionals and other service agents to report to the clearinghouse information related to drug and alcohol violations by current and prospective employees. According to FMCSA, the clearinghouse will also require employers to query the clearinghouse for potential drug and alcohol violations of current and prospective drivers, in addition to mandating that employers annually query the clearinghouse for each driver they currently employ. Additionally, State Driver Licensing Agencies will be required to query the clearinghouse whenever a CDL is issued, renewed, transferred or upgraded.
“The Drug and Alcohol Clearinghouse rule will improve roadway safety by identifying commercial motor vehicle drivers who have committed drug and alcohol violations that make them ineligible to operate those vehicles,” said FMCSA Administrator Raymond Martinez.
According to Vise, the clearinghouse could affect capacity by creating a potential driver shortage. And the worry among shippers is that this could negate recent rate reductions.
However, Vise explained that FTR’s analysis of the potential impact of the Clearinghouse indicates the rule will only impact a relatively small number of drivers. “A lot of people think this is going to be a huge deal in terms of culling capacity, but I’m skeptical of that,” he said. “We started an analysis last year and concluded that we were talking about perhaps 14,000 drivers in the first year, and that’s really kind of a ceiling.”
FTR’s analysis comes with a disclaimer, however. It assumes that employers are fully complying with current regulations related to drug and alcohol testing, which require motor carriers to disclose positive test results or refusals to prospective future employers as part of an employee’s background check.
“To the extent that isn’t happening, the clearinghouse would correct that and there could be a much bigger impact,” Vise said. “If that is happening, it’s sort of an undercurrent and it’s something that’s not being talked about. If it is happening, the clearinghouse will expose that, and we will have a bigger impact [on capacity].”
A bigger issue, according to Vise, is the growing trend toward increased marijuana legalization at the state level and the impact that’s having on potential driver candidates. “As more states legalize [marijuana], this could become a serious issue for trucking,” he said.