Temperatures and Freight Costs Are on the Rise This Summer
According to data provided by Cass Information Systems (NASDAQ: CASS), freight costs saw a surge in June and are expected to continue to rise moving forward.
The expenditures component of the Cass Freight Index increased 56.4% year-over-year and was 11% higher than in May. In fact, compared to 2019, the expenditures index was up 27.9%
The difference in the year-over-year numbers has been greatly affected by a steep drop in demand due to world-wide COVID-related lockdowns during the same period in 2020. This trend of increasing rates will likely continue due to the widespread lack of drivers, warehouse space, and equipment like trucks and containers.
“Tougher comparisons in the coming months will naturally slow these year-over-year increases, but extraordinary growth rates will continue in the near term, driven by increases in both shipment volumes and freight rates,” Tim Denoyer of ACT Research explained.1
Many industry experts expect the capacity constraints to ease up in the near future as the driver employment rate increases in response to higher pay which should, in turn, change the trajectory of truckload rates.
“Even with material supply constraints, the freight cycle remains in high-growth mode, benefiting from a strong retail economy, tight inventories, and a persistent backlog of container ships anchored in the San Pedro Bay,” Denoyer said. He believes the industrial sector will begin to catch up to broader demand as “record capital goods demand and likely infrastructure programs” play out. 1
The current capacity backdrop could begin to loosen as transportation payrolls expand and extended unemployment benefits have already expired in some states. Additionally, waning stimulus payments and supply constraints (drivers, trailers, and chassis) are weighing on volumes.
Though 2020 was marked by low levels of supply and exceptionally high demand, these levels will not last indefinitely. As they say, the cure for high prices is high prices; the market will eventually correct itself.
Becoming a Truck Driver Looks Good Through Higher Pay Tinted Glasses…
Driver recruitment and retention remains the top priority throughout the trucking industry.
It’s estimated that more than 200,000 qualified CDL holders are not currently working due not only to the COVID-19 pandemic, but also increased compliance with the Drug & Alcohol Clearinghouse. Diminished driver school graduation rates, early retirements, and more than 75,000 Clearinghouse violations are also some factors for the reduced number of drivers.
Data shows that driver hiring conditions are getting better, according to Tulsa, Oklahoma-based software-as-a-service provider Tenstreet. A recent report from the company that helps carriers better recruit and onboard drivers noted a “positive driver hiring outlook on the horizon.”
There has been a “slow but steady climb back to January levels” the data shows, with the number of drivers filling out job lead forms and applications continuing to move higher. January is usually a busy month for activity as drivers tend to inquire about changing fleets or jobs at the beginning of each year.
“Overall, we’re starting to see the same general seasonal trend lines the trucking industry is used to, with applications taking a hopeful turn upward in May, which will ideally mirror 2019’s trend of an increase in applications over the summer and into the fall,” the report read.2
A press release cited support from customers and their understanding of “the growing needs of the market” as a catalyst for the pay raise.
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