LTL Freight Carrier GRIs, Rising Rates and Capacity ConcernsWritten by Neal Willis
As we are at the forefront of a new era in trucking, where carriers have the upper hand and are able to dictate their own terms, rising freight rates are inevitable. The video—Freight Has a Perfect Storm on Its Horizon—is a great summation of some of the major challenges shippers are facing in this market, the likes of which have never been witnessed before. Shippers who have ignored the warning signs are in for a rude awakening.
Supply chain continuity in 2018 will be a challenge for many shippers who haven’t accepted modest rate increases and locked in capacity with their carrier(s) of choice.
Many LTL freight carriers have already announced their Fall General Rate Increase (GRI) and they have ranged anywhere from 4.9% all the way to 15%, and even more in some cases. The important thing to bear in mind about a GRI is that it is an aggregate average of all of the rate increases across all carrier lanes, and the announced carrier GRI is not always indicative of how much freight costs will actually increase.
Shippers in tune with the market conditions understand that rates will be increasing even higher once the ELD mandate kicks in and capacity is strained even more. Industry analysts are predicting that freight rates will rise anywhere from an additional 5% - 15% just as a result of the ELD mandate, which is set to take effect December 18, 2017. Capacity in the market is expected to contract, but no one knows exactly just how much capacity will be purged.
The shortage of qualified drivers in the industry is a big problem and it is only going to get worse in the short term. The cost of compliance with the ELD mandate along with other government regulations and an aging infrastructure with deteriorating roads and congested highways only exacerbates the existing driver shortage and capacity deficit. Carrier friendly shippers who understand what’s happening in the market are favorably accepting modest rate increases without challenge. Shippers are locking in freight rates and capacity now, and many shippers began rate negotiations early this year in order to minimize the chances of their supply chains being negatively affected by the ELD mandate and capacity constraints.
Shippers who have historically played hard ball and beat carriers up over price will see even higher freight rates, and some will even experience carriers walking away from and/or turning down their business for more favorable freight and shippers. Those shippers who haven’t been kind to carriers in the past will find themselves without reliable carriers and committed capacity, and they will struggle to have their freight picked up and delivered. Supply chain continuity is key in 2018 and customers who continue to view freight as a commodity will learn a hard lesson.