Three Things That Will Drive Your Freight Costs Higher
Now that we have reached the half way mark in 2014, shippers are asking whether the increases in freight rates that they experienced in the first half are an aberration or a harbinger of things to come. Practically speaking, while freight rates may stabilize for the remainder of 2014, there are three things that shippers need to watch because these three things could have a significant impact on freight costs in 2015.
1. Move to Dimensional Pricing
FedEx and UPS have both announced that they will be more aggressive in utilizing dimensional pricing. What does this mean for shippers? Well, if a shipper has a lot of parcel, or small shipments, or, in the case of FedEx Freight certain types of LTL shipments, this change in dimensional pricing could result in a double digit increase on freight for these shipments.
2. Truckload Capacity Will Continue to Affect Shippers
People wanted to believe that the tight capacity in the First Quarter of 2014 was the result of bad weather. While the weather certainly played a role, what shippers are starting to realize is that an increase in GDP as well as changes associated with the new Hours of Services rules are having a significant impact on truckload capacity. The Market Demand Index, “MDI” (which measures the relationship between supply and demand in the freight sector) is running at very high levels and that means that the carriers maintain leverage in seeking – and getting – higher rates. This tightened capacity has cascaded into the less than truckload (TLT) marketplace driving rates higher there as well.
3. Escalating Fuel Prices
As the price of fuel continues to escalate, shippers will see higher fuel surcharges. Additionally carriers will be more aggressive in charging shippers for services or factors which affect their costs. If you make a carrier wait at your facility, or your customer makes the carrier wait, expect higher detention charges. And given the considerable investment that carrier have made in technology, the carriers are more capable of identifying factors which impact their cost to serve your business. And with the MDI at historically high levels, the carriers will not be shy in asking for higher rates in order to be compensated for their services.
Fortunately, there are things that shippers can do to work with their carriers in order to minimize the impact of these three factors. In order to do that, shippers need good data and a commitment to being proactive in working with carriers to manage their freight costs.