It’s a great time to be in the transportation industry! According to the 26th Annual State of Logistics Report published by the Council of Supply Chain Management Professionals (CSCMP) total US business logistics costs rose to $1.45 trillion in 2014, a 3.1% increase over 2013.
Rosalyn Wilson, the author of the State of Logistics Report stated:
“The U.S. economy is on fairly solid ground” with unemployment falling, real net income and household net worth inching up, low to moderate inflation, and declining oil prices putting more money in Americans’ pocketbooks.”
And the report forecast more of the same for 2015!
Digging into the details there is plenty to be happy about, particularly for my sector of the industry but let’s look at trucking first.
Overall logistics costs are broken down into 3 main components:
- Inventory Carry costs, including warehousing: 32.8%
- Transportation Costs: 62.6%
- Logistics Admin/Shipper costs: 4.6%
Of the transportation costs trucking took the lions share, $702 Billion or 77.3%. This is significant because trucking was running nearly at full capacity. In fact the American Trucking Associations’ estimates that there is a shortage of 40,000 drivers. Baby boomers are retiring and there are not enough younger drivers to replace them. This will put upward pressure on pricing. It’s a mystery why this didn’t happen in 2014 but it’s bound to happen in 2015.
My personal opinion is that it will happen, probably later in the year, and I also think it might bite the trucking industry in the ass. Bear with me and follow my thinking on this.
Rail Investment Is Rising
Freight railroad companies have been investing an average of $23 Billion a year since 2009. In 2015 that is forecast to rise to $29 Billion and the industry is going to hire 15,000 new employees.
Do the railroad companies know something that the trucking companies don’t?
Rail Intermodal Freight Volume Continues to Rise
According to the State of Logistics Report Rail Intermodal Freight Volume rose by 10.6% in 2014, continuing a pattern of solid multiyear growth. This is based on new business and conversions from truckload services. (See where I’m heading with this?) Rail carloads rose by 4.8% and overall revenues rose by 6.5%.
Railroad companies are investing big in their infrastructure. Rail Intermodal business is up and continues to increase. A portion of that business is conversions from truckload services. Trucking has no additional capacity. Trucking prices are going to significantly increase.
If you are a shipper, third party logistics company, or freight forwarder facing these realities on the ground, what are you going to do? You are going to look at rail intermodal as a cost effective alternative solution. As the report shows this is a trend in its infancy but it is gathering momentum so third Party Logistics companies with their eye on the ball need to take note.
Yes it’s a great time to be in the transloading business!