In an ever-changing economic and political context, the road transport sector finds itself on the front line of impacts, directly affecting businesses.
Here’s a clear analysis of the current challenges and some practical tips to help you navigate the turbulence and anticipate the experts’ predicted cost increases.
1. Looming Freight Rate Increases
Freight rates have remained relatively stable but, in many instances, believe it or not, are depressed due to a surplus in industry-wide trucking capacity.
The underlying costs for carriers—fuel, labor, insurance, and vehicle maintenance—have risen significantly. These costs, coupled with depressed freight rates due to overcapacity, have resulted in many carriers closing up shop in 2024. (The Trucker / RTS / Trucking Dive)
While spot market rates can fluctuate, Jason Miller, Professor of Supply Chain Management at Michigan State University, predicts that the spot market will likely see a significant rate increase (10-20% year over year) in 2025, which will also help pull contract rates higher.
2. Strategic Planning and Cost Mitigation
Fortunately, there are several solutions that shippers can adopt to mitigate the impact of expected increases in trucking costs. Here are a few strategies:
- Optimizing Supply Chain Efficiency: Shippers should look for ways to streamline operations and reduce waste in the supply chain to offset higher transportation costs. This could include improving inventory management, using just-in-time inventory practices, and adopting more efficient warehouse operations. (RTS / Trucking Dive)
- Exploring Alternative Transportation Methods: With short-term trucking rates likely to rise, shippers should broaden their shipping options, considering alternatives to over-the-road (OTR). Rail and intermodal services can offer a more cost-effective alternative to OTR, especially for long-haul shipments. (RTS) By leveraging different transportation modes, shippers can find cost savings while still ensuring that their goods reach the market in a timely manner.
- Investing in Technology: Shippers are also turning to technology to gain better visibility into freight operations and identify inefficiencies. By integrating real-time tracking and predictive analytics, shippers can make more informed decisions on modes of transportation and proactively manage their relationships with their customers. (RTS)
3. Reevaluating Relationships
Given the continued pressures on the trucking industry and the forecasted bull market, shippers may need to reevaluate their relationships with carriers and freight forwarders. Many are looking to forge closer partnerships with service providers that can offer reliable services at a competitive price.
Asset based carriers will, naturally, utilize their fleet on higher margin loads, likely leaving price conscious businesses who ship infrequently in the lurch.
Collaborative relationships with freight forwarders who can leverage their roster of carriers allow businesses to weather the forecasted rate increases.
Working with freight forwarders to consider customized solutions, including intermodal/rail/ocean, is a way to navigate the decrease in trucking capacity and the forecasted increase in rates.
This requires proactive planning and communication between partners to ensure lead times consider the slower, less expensive alternative modes of transportation.
Conclusion
Inflation in the trucking industry is reshaping the cost landscape for shippers.
Freight rates, depressed by excess capacity in the industry, are now facing rising rates driven by multiple factors.
However, shippers can reduce the impact of these rising costs by adopting a combination of strategies, including optimizing the supply chain, and exploring alternative transportation methods.
In addition, leveraging technology and reevaluating relationships with carriers can help shippers stay competitive despite the challenges posed by inflation. (RTS / Trucking Dive)