Clarity has come to a number of transportation uncertainties leading to a situation where currently there is a very good balance between supply and demand, which could mean a relatively soft market throughout 2016.
At least that is a potential scenario according to John Stenderup, manager of grower-shipper supply chain services for C.H. Robinson’s Monterey, Calif., office. In his position, Stenderup manages the C.H. Robinson/Western Growers Transportation Program, which seeks to leverage the aggregate buying power of the association’s membership to secure better rates and service from the nation’s supply of perishable haulers.
“Toward the end of 2014, we looked ahead at 2015 and saw a number of issues that could disrupt transportation,” he said. “There was 98 percent utilization of equipment and a number of regulatory issues on the table that we thought might negatively impact supplies.”
At the time, Stenderup said it was prudent to predict a rise in rates in 2015 and periods when demand would clearly outstrip supplies. For the most part that never materialized. He said the drought did reduce some produce supplies, meaning the demand for trucks was a bit lighter than expected. And the regulatory issues, especially concerning restricting hours of service, did not surface as that regulation was “kicked down the road a bit.”
Instead, “we had a soft market through much of 2015,” he said, and 2016 is currently heading down that same path.
Stenderup noted some of the factors that point to this forecast. While truck utilization is still very high, it has dropped a bit to about 95 percent. While some are saying there could be an oversupply of equipment—backed by data showing record truck orders in late 2014—he believes that efficient utilization of the equipment that is available might be a better explanation. Stenderup said that logistics firms such as C.H. Robinson have gotten very sophisticated in the allocation of trucks. And shippers and receivers are more cognizant of tightening up their processes to reduce wait times. In addition, he said the increase in truck purchases was largely to replace equipment rather than to add to overall supplies.
“Currently we have a great deal of market stabilization,” he said. “There is a harmonious flow between supply and demand.”
He believes productivity has increased and even an extra trip a year for a cross country truck represents a significant increase in supply.
Stenderup said there are factors looming on the horizon that might alter the current situation. In the first place, California is getting a good amount of rain this winter, which will undoubtedly impact spring and summer supplies from the West. That equation could go either way. With more water, more acres could be planted increasing the supply of fruits and vegetables and increasing the demand for trucks. On the other hand, the rain has curtailed vegetable supplies for much of the winter creating a “supply-exceeds-demand” situation in transportation. That could continue as long as rain curtails supplies.
The cost of fuel is another item that certainly impacts the profitability of a load, though it rarely has a direct impact on the price of the load, excluding fuel surcharge add-ons. Stenderup said supply and demand of trucks is the determining factor when it comes to rates. It doesn’t matter that truckers are paying $1-$2 less per gallon for their gas. When trucks are tight, the rates will climb to what the market will bear. However, there is somewhat of an effect when supplies of trucks exceed demand. Lower fuel costs do allow trucks to lower the floor on which they will operate. After all, they are paying $500 less than they were a couple of years ago in fuel costs on a cross country trip, so someone very well may be willing to take that trip for a lower rate just to get the business.
With a look further on the horizon, Stenderup said the advent of electronic logging devices (ELD) and the mandatory use of them will have a significant impact on truck supplies. Within the next two years, electronic monitoring is expected to be mandatory. No more stretching of driving hours beyond the law will be possible. “In the short term, more accurate monitoring could limit productivity,” he said. “There will be no more gray area and it won’t be possible to coerce a driver to get the load there as quickly as possible.”
Stenderup said that unreasonable demands on drivers have already lessened over the years because of increased attention by the courts and various regulatory agencies. But ELDs will add another layer of surveillance that will virtually make it impossible for a solo driver to get across the country in record time.
But C.H. Robinson also sees great advantage in having the data that will be generated by these electronic devices. In the long run, it should lead to increased productivity. “We will have lots of data to analyze, showing us, for example, which routes are more efficient and where we can eliminate delays.”
Data is good, he said, and will be utilized for the benefit of both truckers and shippers.
But back to the current situation, Stenderup said C.H. Robinson is urging its clients to utilize this very stable market to consider advocating for long term contracts and pricing from their carriers. He said now is the time to try to lock in these lower rates.