Shipping Rates to Increase

April 19, 2018
Shipping Rates to Increase

Shipping costs could increase significantly in 2018 and beyond.

According to shipping industry sources, 2018 could prove to be a challenging year for companies that ship products. The increase that have been seen and are planned for 2018 appear to indicate much larger increases than we're used to.

The boom in shipments generated by online sales has a lot to do with increased volume, and that has resulted in additional costs incurred by the carriers. The carriers operate on slim margins, and thus have historically passed these higher costs on to customers. These factors are true across domestic shipments as well as international. While the e-commerce business has affected the freight business, carriers will need to figure out how to meet the demand without continually raising rates. The driver shortage during this time of increased demand presents an even more difficult challenge for shippers and carriers in the industry.

Some major points on the issue:

  • The Cass Expenditure Index, which tracks the amounts spent on freight, soared 15.6% in March. This is a combination of higher rates and increased volume.
  • Shipment volumes in the US surged 11.9% year-over-year, the highest shipment volume in the US in more than 10 years.
  • There is an overall shortage of people who drive the trucks, pilot the ships and deliver parcels last-mile.
  • To create more resources, expensive new equipment and increased pay for existing positions will be required. See this Wall Street article on trucker pay.

Analysts expect a company's overall freight rates to rise up to 20% this year, and those having to use spot rates will see even higher rate increases. This imbalance is being caused, in part, by increased shipping demand with the same resources. This includes hardware resources (trucks, etc.) and human resources. With those growing slowly and deman growing more quickly, an imbalance has resulted. This will likely be the case for some time to come.

The impact of the electronic logging device mandate (effective Dec. 18, 2017) is having a larger capacity crunch than the 10% previously anticipated. According to a recent survey, approximately 67.3 percent of the truckers responding said they are driving fewer miles since the ELD rule went into effect. Nearly 71 percent reported earning less money in that same time period because they must stop driving after 11 hours. Some analysts forecast freight rates will be up 6.3% this year, more than the 4.2% increase previously forecast. President Trump signed a piece of legislation aimed at partially mitigating this effect by reducing the requirements for the ELD legislation.

Holiday peak season surcharges are also becoming more common. Last fall, UPS implemented a 27-cent surcharge on residential package ground deliveries during the busy weeks in November and December. There are also other fees at work as well, such as fees for third-party billing on e-commerce shipments.

Some facts that you need to know to help control costs where you can:

  • You will likely notice more 'discrete' charges, and carriers will get creative in the presentation of these charges. These can include "peak season charges", as well as a variety of other 'one-time' or temporary charges. regardless of the labels, these costs will need to be covered - by shippers.
  • Ground and air prices will increase at a fairly predictable rate, which appears to be around 4-5% across the major common domestic and international carriers.
  • For quite some time, the major carriers (FedEx, UPS, USPS) have essentially followed a similar path on increases. This appears to be less the case today, and this will make it more difficult to compare services. An example of this challenge is comparing FedEx's "One Rate" to USPS "Flat Rate"; there are many variables you need to consider to choose what is best in your shipping scenario.
  • Dimensional Weight became a major factor in 2017. As the volume of shipped packages continues to grow, we can expect the dimensional divisor to drop. The lower the dimensional divisor, the higher the surcharge.
  • Ensure that your logistics are as lean as possible. Reduce travel time, consolidate shipments and eliminate unnecessary detours or stops. These can be challenging to manage, but the rewards can be significant.

The bottom line

As we get further into 2018 and continue to analyze the effects of increased shipping, GMI is continually looking into ways to keep costs fixed for as long as possible. There are certain aspects of these increases that everyone will be subjected to. It will continue to be critical to keep an eye on shipping costs and do everything possible to minimize the effects of these increases. We realize that our OEMs value our logistics management, and plan to strengthen our vigilance through 2018 and beyond.

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