It’s always a good idea to re-assess your transportation needs in the middle of the year. Now that the U.S. economy continues to make gains after a slow first quarter, you can save a lot of headaches by planning and readjusting your network transportation arrangements for the remainder of the year and into 2017.
The preliminary second-quarter 2016 GDP annual growth rate of 1.2 percent reflects a modest increase over the first quarter GDP annual growth rate of .8 percent. Other positive reports such as consumer confidence levels indicate the U.S. economy should continue to gain steam through year end. For instance, the Institute for Supply Management’s Purchasing Manager Index (PMI) was at 52.6 in July. Though down slightly from the prior month, July’s PMI index reflects five consecutive months of manufacturing growth.
Even with such promising news, the U.S. reports of high inventory levels, combined with choppy growth in GDP, paint a mixed picture for the economy, suggesting a current environment of weak demand in many sectors.
So what do transportation planners need to know to stay ahead of the game? Here are some key trends and recommendations from G&D Integrated:
Trucking rates will rise, despite low fuel prices:LTL rates are anticipated to rise modestly at about 2 to 3 percent or greater this year, according to various reports. Higher rate hikes by LTL carriers are expected in 2017. Van TL rates are also expected to rise moderately as capacity tightens in the coming months. The upcoming electronic logging device or e-log mandate takes effect in December 2017. Combined with other regulatory pressures, driver productivity is sure to be affected in an already tight labor market, placing upward pressure on rates.
Take advantage of market conditions: Given tightening transportation capacity across many forms of trucking, summer and early fall is a great time to refresh pricing and secure additional capacity. Moving toward the end of 2016 and into 2017, shippers are wise to take a long-term approach by considering smaller decreases in rates or even modest rate increases for longer term contracts to lock in capacity. Other strategies include shifting your TL freight to intermodal, given improved service levels by rail carriers and capacity availability.
Summing it up: The effects of the upcoming 2017 driver e-log mandate further squeezes the already tight labor market and puts cost pressure on trucking carriers to stay compliant. Combined with the improving economy, truck capacity will tighten further. Contract renegotiation, seeking other modes, and partnering with asset-based providers are all ways to ensure your transportation spend and service quality levels stay balanced.
Remember, it’s always a good idea to work closely with your 3PL, freight carriers, and brokers to stay ahead of upcoming market changes.
Resources featured in this blog:
Bureau of Economic Analysis on GDP growth rates: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
http://www.tradingeconomics.com/united-states/business-confidence
http://www.joc.com/Defying economic gravity/US LTL truck rates rise
Photo courtesy of https://pixabay.com
About the author: Mark London is Vice President, Sales & Marketing at G&D Integrated.