Moving freight is getting more difficult, and therefore, more expensive. If you’ve ever had “sticker shock” from a freight quote, you’re not alone. There are a lot of cost factors that go into the price you pay to move freight, so we want to explain them so you can be an informed shipper and ship smarter.

Every LTL or truckload freight shipment has fixed and variable costs that are calculated into the rate you pay to ship your freight. Let’s start by looking at the fixed costs.

Fixed Costs:

• Truck Payment. Owned or leased, drivers and operators have the expense of their equipment (trucks and trailers) to consider when quoting your freight. New trucks can be leased for $1,600 to $2,500 per month and used trucks can be leased for $800 -- $1,600 per month; a new truck can be purchased for $2,250 a month (purchase price of $125,000 with 5-year financing). On average, truck payments are 16% of the cost of moving freight.
• Insurance. The FMCSA requires individual owner-operators to carry a minimum of $750,000 to $5 million in liability coverage. On average, liability and damage insurance can cost between $6,000 – $8,000 per year, with newly-granted authorities typically paying between $10,000 and $16,000 their first year. Truck insurance accounts for 5% of the cost of freight shipping.
• Driver Salary. This is the largest operating cost of moving freight. Commercial truck driver salaries are based on the distance driven, and although drivers spend a lot of time in traffic, at the dock being loaded or unloaded, etc., their operating costs are only derived from miles traveled. With an average salary of $78,200, driver pay and benefits accounts for 43% of operational costs.
• Office and Overhead. This fixed cost includes a building lease or mortgage, and includes electric, phones, internet, computers, and office support. These costs can vary widely.
• Permits and Licenses. Permits and license plate costs account for $2,300 annually, or 1% of operational costs.

• Fuel. The second largest operating cost of moving freight is diesel fuel. A commercial truck can easily consume 20,000 gallons ($64,000) of diesel fuel per year, accounting for 21% of operational costs.
• Tires. Retreaded truck tires are less expensive than new tires and cost on average $250. Annual tire expense accounts for $3,600, which is roughly 2% of operational costs.
• Maintenance and Repairs. Trucks need constant maintenance and do occasionally break down. Issues with air lines and hoses, alternators, wiring, and brakes are all common in commercial trucks, and can cost $17,500 annually or 10% of operational costs.
• Meals. The truck isn’t the only part of LTL and truckload freight shipping that needs fuel! 10 meals a week at $12 each equals a meals expense of $6,500 a year.
• Tolls. With nearly 5,000 miles of toll roads in the US, chances are good that your freight will be traversing at least one of them, and this will be factored in your cost. For example, a load moving from Chicago to Baltimore will encounter toll roads in Illinois, Indiana, Ohio, and Pennsylvania, costing $225.75.  Sometimes a carrier can avoid toll roads, but this will frequently increase the number of miles driven, which also increases your cost. On average, tolls add $2,500 a year, 2% of the total cost of freight shipping.
• Coffee.  Did you know that truck stops sell more coffee than convenience stores? The average commercial truck driver spends more than $600 a year on coffee. Its effect on cost is negligible but we thought it was interesting!
• Profit. Remember, freight carriers are in business to make a profit. Owners, operators and drivers are funding their kids’ education or dance lessons, paying their mortgages, and buying food and necessities, so please don’t expect them to move your freight for free.

• Electronic Logging Devices (ELD), which have decreased driver productivity approximately 15%. When drivers spend less time driving, transit times increase and drivers move fewer loads, which pushes costs up.
• Telematics services, such as vehicle and trailer GPS tracking.
  
• Driver turnover; not just the cost of recruiting and training, but also the opportunity cost of empty trucks not hauling freight because they have no drivers.
• Finding loads to move can take up a sizable chunk of every day. Every hour spent not driving loaded miles is an hour a driver isn’t making money.

The bottom line is that a lot of factors go into the cost you pay for LTL or truckload freight shipping. The costs listed here are conservative and are probably on the low end, so your costs may be higher.

The struggle is real: moving freight is getting more difficult and more expensive. By shedding light on the costs that go into each and every LTL or truckload freight move, we hope that you’re better informed so you don’t experience “sticker shock” next time you get a freight quote. If you find yourself battling rising freight costs and need some help, contact the freight shipping experts at PartnerShip. We have significant experience in both the LTL and full truckload markets and can help you ship smarter so you can stay competitive.

LTL freight rate increases are unavoidable. And in this current tight capacity market, it’s no surprise that many carriers have taken their general rate increases (GRIs) earlier than in previous years. Just like in the truckload market, costs are been driven up by the ELD mandate, the driver shortage, and hours of service (HOS) rules. Coupled with the strong U.S. economy, freight demand is surging and straining the market.

Along with the tight capacity market, trends towards shorter supply chains and smaller, lighter loads have led to more demand for LTL services. The rise of ecommerce has played a large role in the increased demand. Products that consumers never would have dreamed of ordering online years ago, like furniture, have now become commonplace for ecommerce. However, these types of shipments are less desirable for carriers. With more deliveries being made to more remote areas without backhaul opportunities, the costs are significantly higher for them.

With the driver shortage, it is easier for carriers to find and recruit LTL drivers, compared to truckload. They are more appealing jobs, with shorter lengths of hauls and less time away from home and families. However, there are fewer LTL carriers entering the market when compared to truckload. The complex networks of terminals that LTL carriers rely on are much more difficult to establish, making it a significant barrier to entry.

With all of those factors to contend with, LTL carriers have been announcing their GRIs throughout the first half of 2018.

• FedEx Freight: 4.9% effective January 1
• YRC Freight: 5.9% effective February 19
• XPO: 5.9% effective March 5
• UPS Freight: 5.9% effective March 26
• ABF: 5.9% effective April 16
• Estes: 5.9% effective May 7
• Old Dominion: 4.9% effective June 4

Rates aren’t the only thing on the rise. Many carriers are charging more for accessorials like inside delivery or Saturday delivery. Carriers are also implementing tools and technology that help them determine what types of freight are profitable and which ones aren’t – and charging accordingly. Dimensional pricing is one example of this. Many carriers have invested in dimensioning machines, which calculate the amount of space a shipment will need in the truck, leading to less dependency on the National Motor Freight Classification (NMFC) system.

As with any announced rate increases, the important thing to remember is that the averages may not reflect the actual increases you’ll see in your freight bills. Depending on the lane and shipment characteristics like weight or class, the increase could be significantly more.

To determine what you can expect and what you can do to offset the rising costs, start by taking a look at the increases for your typical lanes. That will give you a better idea of what cost increases you can budget for, rather than relying solely on the reported averages. Then determine ways to reduce those costs. Consider working with a freight broker, to benefit from their industry expertise. A quality broker will have the knowledge to help you navigate the market and will be able to find solutions that can help to reduce your costs.

PartnerShip can help you ship smarter. For a competitive rate on your next LTL shipment, get a free quote!

If you’ve been experiencing sticker shock from unpredictable freight rates lately, you’re not alone. Shippers are seeing a lot of volatility in the truckload and LTL market, with no end in sight.

2017 ended with tightened capacity and record rates. By December, the average van rate was $2.11 per mile (DAT) – an all time high. The load-to-truck ratio was also breaking records at the end of the year, with 9 load postings for every truck posting in December.

Coming off of a record high December, capacity continues to be tight in January – particularly with reefers since they’re needed to keep freight from freezing in the coldest parts of the country. DAT reported that the national load-to-truck ratio at the beginning of the year was the highest ever recorded at 25.2 reefer loads per truck. During which, the reefer rate was at a high $2.71/mile. Van rates have also been breaking records. According to DAT, they were at $2.30/mile on January 6.

So what can shippers expect going forward? Let’s look at the trends. We saw a bit of a recession in 2015 and 2016 with rates and load-to-truck ratios declining, but that appears to be over. Rates climbed throughout 2017 and we can continue to expect increases in 2018.

Overall, the U.S. economy is healthy right now and is growing, increasing freight demand. In contrast, the trucking industry is dealing with the aftermath of the ELD (electronic logging devices) mandate. Not only do they need more drivers and more equipment on the road to handle the same amount of freight, but they are also contending with a long running driver shortage. All of this equals tightened capacity, which is becoming the new normal in the industry.

Recent weather events have been driving up rates as well. Areas of the U.S. that don’t typically experience extreme cold or snow have been hit by treacherous weather that has led to dangerous conditions including low visibility and icy roads. In a tight capacity market, these conditions drive up rates even more.

In February we can expect to see capacity loosen some (barring any winter storms or other troublesome events), as this is typically the slowest time of year for freight. However, you’re likely to see higher rates than you have in years past, because of the long-term trends.

In April, drivers not complying with the ELD mandate will be put out of service. Up until then, inspectors and roadside enforcement personnel are simply documenting and issuing citations if a truck isn’t equipped with the required device. As a result, we may see some ripple effects. There could be fleets that have held out or hoped to fly under the radar until April. There could also be another wave of trucking companies exiting the market, which will leave a void in the already tight market.

Now it’s more important than ever to find ways to mitigate the impact of this tightened capacity. Plan ahead so you can be flexible. Providing more lead time and giving your carrier a longer pickup window rather than a specific time can lessen the strain on its network. Planning ahead can also help you shift to more committed freight and away from the spot market. The spot market is more sensitive to disruptions and subject to reactionary pricing spikes.

Luckily you don’t have to navigate the freight market alone. When you work with PartnerShip, you benefit from our large network of carrier partners and our shipping expertise. We help you ship smarter with competitive rates and reliable service. Get a quote today!

With the New Year approaching, it’s time to look at the UPS and FedEx rate increases for 2018 and how they will affect your costs. In September, FedEx announced an average increase of 4.9% on Express and Ground services. UPS joined the party in October, announcing that they will also be increasing their rates by an average of 4.9%. The new 2018 UPS rates will take effect on December 24, 2017, while FedEx will be instating them a week later on January 1, 2018.

The averages might be the same, but the rates vary. With higher increases for some services and lower increases for others, you can’t budget based on your costs increasing 4.9%. It’s important to look at what services you use, your package characteristics, and the locations you’re shipping to, and then evaluate the new rate charts to find your biggest cost offenders from the 2018 FedEx and UPS rate increases.

On top of the FedEx and UPS rate increases for 2018, there are additional updates that are likely to affect your shipping costs. First, UPS is lowering its dimensional (DIM) weight divisor from 166 to 139 for domestic packages less than or equal to one cubic foot (1,728 inches) in size. With this change, UPS and FedEx are back in line with each other on how they calculate dimensional weight. Both carriers will now use 139 for all domestic and international packages.

It’s been a wild ride the past few years with multiple changes to which packages DIM weight pricing applies to and how it’s calculated, so this is a welcome stabilization. However, a lower divisor means a higher chance that your package will get billed at your DIM weight, rather than your actual weight. If you ship packages one cubic foot or under with UPS, it’s important to take note and make changes to eliminate any unused space in your packaging or consolidate orders when possible.

Surcharges are also increasing, with some at alarming rates. Most notably, in 2018 FedEx and UPS are coming after larger, oversized packages. Not only are they increasing at a higher rate than most surcharges, they are by far the most costly. For example, the FedEx Unauthorized Packages fee is increasing from $115 to $300 and the UPS Over Maximum Limits charge is increasing from $150 to $500. The shipping trends that have resulted from the rise of e-commerce has taken its toll on the carriers and they’re having to move more and more oversized packages that can’t go through their automated systems. Time is money, so they’re tacking on hefty fees to make up for it.

Ahead of the new FedEx and UPS rate increases for 2018, new holiday peak season charges will also apply. UPS is adding peak surcharges on domestic residential packages during the busiest shipping days of the year – from November 19 to December 2 and from December 17 to December 23. These fees will add up quick when you have an increased amount of orders over the holidays. 

In a notable departure from UPS, FedEx decided not to add a peak season surcharge this season. Instead they opted to increase surcharges for packages that are big or bulky enough to require special handling. UPS is also increasing the cost of larger packages by adding additional peak season surcharges on top of the already existing surcharges. The 2018 UPS rate announcement included increases for these surcharges for the next holiday season, so you can expect this trend to continue.

The 2018 FedEx and UPS rate increases are proof that the carriers are getting smarter, hitting shippers where it hurts most. Luckily, you don’t have to navigate the changes alone. The shipping experts at PartnerShip have evaluated the new rate charts and we have completed a detailed analysis, so it’s easier for you to assess the impact on your shipping costs. Download our free white paper today!

Truckload shipping costs have been steadily climbing and are poised to go even higher because a perfect storm of events is pushing truckload rates to record highs: the looming Electronic Logging Device (ELD) mandate; the cleanup and aftermath of Hurricanes Harvey, Irma and Maria; and an already significant driver shortage that has stressed truckload capacity.

Let’s look at these factors one by one.

ELDs
An ELD is electronic hardware that connects to a truck’s engine to automatically log a driver’s hours of service (HOS) and fleets and owner-operators have until December 18th, 2017 to implement them. In a previous blog post on ELDs, we anticipated that ELDs would have an effect on pricing and freight rates caused by decreased productivity and reduced capacity.

• Decreased productivity. Carriers that have implemented ELDs have reported average productivity decreases of approximately 15%. ELDs track drive-time so drivers can no longer log 400 miles when they actually drove 700.

• Reduced capacity. Some owner-operators will leave the industry because of their loss of productivity and the associated loss of income, further reducing truckload capacity.

Hurricanes Harvey, Irma and Maria
These three hurricanes hit the US within a four-week span and left massive destruction and flooding behind. These hurricanes have had a significant impact on truckload capacity. Recovery efforts required immediate emergency supplies and aid, which shifted truckload capacity to the affected areas, leaving other parts of the country with much less capacity. As recovery and rebuilding continues, truckload capacity will continue to be reduced.

Existing driver shortage
This issue has been building for years. Drivers are leaving the industry as they retire or move on, and younger people are not entering the industry to replace them. The driver shortage causes truckload capacity to tighten, which pushes rates higher and higher. According to Bob Costello, chief economist for the American Trucking Associations, “We may be seeing the beginnings of a significant tightening of the driver market.” At large truckload fleets, driver turnover in the second quarter of 2017 jumped 16 percentage points to 90%; for small fleets, it was up 19 points to 85%.

This combination of factors has led to the tightest truckload spot market in at least four years and freight brokers are working hard to obtain truckload capacity for shippers, but be prepared, rates are going up with no end in sight.

According to Logistics Management, experts expect the current stressed capacity situation to continue well into 2018 partially because of the productivity loss that is expected from the ELD mandate. If you’re a shipper, you should probably prepare your company management to expect higher transportation costs for the next 12 to 18 months.

During the last week of September, the number of available loads on the truckload freight spot market jumped 5.4%, the number of available trucks dropped 3.2%, and tight capacity sent the load-to-truck ratio into uncharted territory, according to DAT Solutions.

DAT said load-to-truck ratios were higher for all equipment types:

• Dry van: 7.0 loads per truck, up 10%
• Flatbed: 50.2 loads per truck, up 16%
• Refrigerated: 12.4 loads per truck, up 2%

DAT said average truckload spot rates continue to remain at two-year highs and demand for truckload capacity in September was up 15% from August, and up 80% from September 2016.

Here’s the takeaway: you will be paying more for truckload freight and it will be harder to cover your loads.

When rates go up and capacity tightens, shippers tend to look for help and reach out to freight brokers and third-party logistics companies to tap into their network of carriers, and take advantage of their expertise in truckload pricing and rate negotiation. The shipping experts at PartnerShip will work with you to cover your loads and secure the best truckload freight rate possible. We know the lanes, we know the rates and we will help you ship smarter. Contact us today to get a free quote on your next truckload freight shipment!

You may have heard that FedEx announced its General Rate Increases (GRI) for 2018. In the past few years, UPS has been the first of the two major small package carriers to make an announcement for the coming year, but this time FedEx is taking the lead.

Here are the announced average increases that will take effect January 1, 2018:

• 4.9% for FedEx Express domestic and international services
• 3.5% for FedEx One Rate
• 4.9% for FedEx Ground and FedEx Home Delivery
• 4.9% for FedEx Freight

As it’s important to remember every year, these averages don’t paint a complete picture. The zones you typically ship to and the services you typically use could dramatically affect the actual increase you’ll see on your invoices. Some are much higher than the average, while others are much lower or remain the same. UPS is likely to make its announcement for 2018 rates soon and if history is any indication, the averages will be similar to its competitor. 

FedEx and UPS traditionally have similar average rate increases, but in the last few years their base rates have diverged a bit. Ground base rates used to be nearly identical, but in 2017 the two carriers took different increases in different zones, making it harder to compare apples-to-apples. On top of that, they also implemented slightly different approaches to dimensional (DIM) weight pricing, by using different DIM factors. As a result, looking at what would be most cost effective for you and how your rates will change has become more complicated.

Another trend that we’ve seen from UPS and FedEx is the announcements of additional changes throughout the year, separate from the GRIs. The announced averages have gone down in recent years, but these mid-year adjustments can sometimes have a larger impact.

One example of this is the new peak season surcharges that UPS is implementing for the holidays this year. UPS recently announced that it will apply a 27-cent charge on all ground residential packages during its busiest weeks in November and December. FedEx is taking a notably different approach and forgoing any additional holiday residential surcharges except for  packages that are big or bulky enough to require special handling.

Both UPS and FedEx attribute charges like this to the rise of e-commerce, which has brought a sharp increase in residential shipments, particularly oversized items like furniture and exercise equipment. These kind of parcel shipments put a strain on their networks and their sorting machinery, and they've been finding ways to make up for these costs.

FedEx is also making a couple of additional moves to address the changing nature of parcel shipments in 2018. It will now apply a surcharge for shipments with third-party billing – mimicking a move that UPS made at the beginning of 2016. FedEx will also begin applying a DIM factor of 139 to all SmartPost parcels, effective January 22. UPS already applies DIM weight pricing to SurePost packages, but uses a higher DIM factor for packages 1,728 cubic inches and under.

Every year, when the new rates for UPS and FedEx are out, PartnerShip does a complete analysis so you can determine what effect it will have on your business. Subscribe to the PartnerShip Connection blog to be alerted when it’s out so you can start planning for the new year and learn how to mitigate the rising costs of small package shipping. 

One of the most devastating storms of the past century, Hurricane Harvey, has left its destructive mark on Houston, Texas, and its impact will create a ripple effect on shipping that will be felt for months, if not years.

The entire PartnerShip team holds everyone impacted by Harvey in our thoughts, and we'd like to thank everyone that has assisted in the relief efforts.

According to DAT, inbound and outbound freight volume for Houston was down 10 - 15%, and its analysts expect that number to hit 75 or 80 as storm clean-up begins.

Logistics research firm FTR predicts similar countrywide supply chain effects and increases in rates. “Look for spot prices to jump over the next several weeks with very strong effects in Texas and the South Central region,” according to FTR economist Noël Perry. FTR noted that rates gained 7 percentage points in the five months after Hurricane Katrina in 2005 and spot market rates jumped 22% in the weeks following massive snowstorms in 2014.

FTR states that the most immediate effect on capacity is caused by trucks waiting for the area to become passable so they can resume operation. Longer-term effects to capacity will include the relief shipments, additional construction supplies as the area rebuilds, reduced productivity due to freight lane shifts and rerouting, and increased congestion at loading docks caused by these supply chain disruptions.

Other considerations for shippers:

• Harvey has shut show about 20% of US oil refining capacity in Corpus Christi, Port Arthur, Lake Charles and Houston. The disruption will drive up fuel prices and the fuel surcharges carriers charge for every load.
• As noted, carrier capacity is going to get tighter. FEMA and other agencies are putting pressure on the market to move equipment and supplies to the area. This capacity tightening should first affect flatbeds to move heavy equipment, then reefers to move food, then dry trailers for dry goods and other supplies.
• It is likely carriers may struggle keeping their commitments to you in the short-term as FEMA and other agencies will pay a premium to move needed equipment and supplies. You may need to shift your carriers around in order to secure the capacity you need.
• Your transportation costs will increase. Be prepared to pay 5 - 22% more in the short term.
• Your customer demand will change. Your customers or suppliers may cancel shipments, or add shipments, or reroute shipments. Until operations in the Houston area resume and get back to normal, there will be interruptions in every industry’s supply chain.

The holidays are approaching and that means an increase in small package shipping. If you use UPS for residential Ground shipping, you’ll also see new holiday residential shipping surcharges from the Atlanta-based company.

UPS announced that it will add a 27-cent charge on all Ground residential packages sent between November 19 and December 2. This includes two of the busiest online shopping days of the year, Black Friday, which is November 24 and Cyber Monday, which is November 27.

The charge hibernates for two weeks, then returns December 17 through December 23, during which time all Ground residential deliveries will see the additional 27-cent charge, plus an additional 81-cent charge for next-day air shipments or an additional 97 cents for two-day or three-day delivery.

According to financial news outlet Bloomberg, the surcharges will increase the cost of UPS residential deliveries by roughly 3 percent.

The stated reason for the company’s surcharge increases is that online shopping and e-commerce has grown significantly over the last twenty years and UPS sees a huge influx of packages during the holiday shopping season that puts stress on its systems, processes and machinery. On an average day, UPS processes around 19 million packages but during the holiday season, that number swells to 30 million packages.

In order to meet demand, UPS says it has to add planes, trucks, and thousands of employees; and the surcharges are necessary to offset the additional cost of the holiday package surge.

“UPS’s peak season pricing positions the company to be appropriately compensated for the high value we provide at a time when the company must double daily delivery volume for six to seven consecutive weeks to meet customer demands,” according to Glenn Zaccara, a spokesperson for UPS.

UPS is also adding a Large Package surcharge of $24 and a Over Maximum Limit surcharge of $249. Both of these UPS surcharges are effective November 19 through December 23, 2017.

In a notable departure from UPS, FedEx will not apply residential surcharges this holiday season, except for packages that are big or bulky enough to require special handling.

Between November 20 and December 24, 2017, FedEx Express and FedEx Ground in the U.S. and Canada will increase the additional handling surcharge by $3 per package and $25 per package for oversize packages. The largest surcharge of $415 per package is only applied to packages that exceed the FedEx maximum size limit and cannot move through its sorting equipment.

With the additional handling surcharge for oversized packages, both UPS and FedEx are trying to discourage large and heavy, odd-sized shipments, because they cannot pass through its automated systems and require additional handling. In fact, the volume of oversized packages handled by FedEx Ground has increased 240 percent during the past ten years and is now 10 percent of the ground operation’s volume. This is “largely driven by expansion of e-commerce into sports equipment, furniture, mattresses and other things that weren’t largely available on e-commerce 10 years ago,” according to Patrick Fitzgerald, senior vice president of marketing at FedEx.

It's important to evaluate how you these changes might affect your shipping costs. Through a PartnerShip-managed shipping program, you can receive significant discounts on select FedEx services - resulting in savings that can help to offset cost increases like these. If you're not sure if you qualify for one of our small package shipping programs, contact us and we'll find the solution that's right for you.

Freight carriers are catching shippers off guard this year by taking their general rate increases (GRIs) earlier than before. Last year, the LTL rate increases came in the fall, but this year many of the major carriers increased their rates in May and June.

• ABF increased an average of 4.9% on May 22

• YRC Freight increased an average of 4.9% on May 29

• XPO Logistics increased an average of 4.9% on June 5

• Estes increased an average of 4.9% on June 26

• UPS Freight increased an average of 4.9% on June 26

Planning and budgeting for your freight
When you look at average LTL rate increases, it’s important to note that you can’t take the average at face value. If you’re trying to determine what kind of effect this increase will have on your freight costs, you will need to look at the specific increases in your typical lanes. Some lanes will have drastically lower or higher increases than the average.

Factors affecting price
There are several factors that contribute to the cost of your freight, and there are several trends that have had an impact recently. In recent years freight carriers have made a push to become more efficient in measuring and classifying freight. Many LTL carriers have invested in dimensioning machines, which makes measuring dimensional weight a lot easier. This means shippers need to be extra careful when choosing a freight class on the BOL to avoid costly reclassifications.

Another factor is capacity. The manufacturing industry is expanding steadily, creating more demand, while the trucking industry is experiencing a driver shortage. The new ELD mandate and hour of services changes will only continue the trend. When capacity is tight, the power is in the hands of the carriers and they can charge more – especially on less profitable lanes.

If you’ve been watching the news the last several months, you probably saw the recent wave of retail chains closing many of their brick-and-mortar stores. Ecommerce has had a profound effect on the market and the trucking industry is not immune. Consumers have come to expect free shipping and are buying more and more individual items online. As a result, there are more residential deliveries than ever before and in some cases there has been a some shift in demand from truckload to LTL.

Offsetting the increases
PartnerShip works to negotiate competitive rates on your behalf with the most reputable LTL carriers in the industry. Combat these rising costs by contacting our shipping experts at 800-599-2902 or email sales@PartnerShip.com.

Get a free quote on your next LTL freight shipment!

In 2015, the Federal Motor Carrier Safety Administration (FMCSA) established standards for Electronic Logging Devices (ELD). An ELD is electronic hardware that connects to a truck’s engine to automatically log hours of service (HOS). Regulating a driver’s hours of service is to prevent accidents caused by driver fatigue. Fleets and owner-operators have until December 18th, 2017 to implement use of ELDs if they have not already done so.

One of the factors surrounding the ELD mandate is its impact on freight costs. In this blog post, we’ll look at some of the factors that will drive freights costs up with use of ELDs. Let’s examine these factors one-by-one.

• Cost of implementing ELD. When electronic logging devices were introduced 20 years ago, a single ELD cost up to $2,500. Today, the FMCSA estimates that the average annual cost of an ELD will be $495 per truck. The cost to implement ELDs will be passed along to shippers but will only marginally drive freight costs up.

•  Decreased productivity. Most carriers that have implemented ELDs have reported productivity decreases of approximately 15% with fewer miles driven per day. ELDs track drive-time to the minute so operating logs can’t be “fudged.”  A driver can no longer report 300 miles driven when they actually drove 600 miles. Some carriers are charging more to make up for this loss in productivity. 81% of large fleets (more than 250 trucks) have achieved full ELD implementation so their rates have “normalized” by now. For smaller carriers, expect nominal price increases of 5-10% for loads that are booked on the spot market.

•  Reduced capacity. Some owner-operators will view the cost to implement ELDs combined with the decrease in productivity as “big brother” meddling in their business and will leave the industry, reducing capacity.

So, what effect will the electronic log mandate have on freight rates? According to transportation economist Noël Perry, truckload rates will increase about 4% this year, with additional capacity pressure caused by the ELD mandate. “The maximum impact will occur in 2018,” says Perry, “and it won’t stop until two to three years afterwards when people finally figure out they have to do it.”

Truckload capacity utilization is expected to remain greater than 100% well into 2017 and Perry puts the chance of a “significant” capacity shortage at 60%, with a 30% chance of a “real whacko” shortage. He also notes that the spot market tends to be much more volatile, with the 4% increase in contract rates translating “easily” to a 15-20% increase in spot pricing.

So, what will electronic logging device regulations mean to shippers?

• As carriers procrastinate to comply with electronic logging device mandate, it will result in fewer available carriers. Consider working with a broker/3PL to offer additional resources to keep your freight moving without any delays.

• Loss of carrier productivity means that shippers will need to better manage their time to ensure on-time delivery. For example, lanes that range from 450-700 miles will be affected as these lanes will turn into two day transit hauls instead of one.

• The truckload capacity crunch could shift some freight that would normally move via truckload to LTL. Working with a broker or 3PL that routinely handles both truckload and LTL will ensure that your business keeps its freight moving!

• Shippers can help drivers become as efficient as possible to decrease time spend on duty, but not driving.  Following these suggestions will increase driver efficiency and create additional capacity to drive down your shipping costs:

o   Have flexible shipping/receiving times

o   Reduce driver wait time

o   Quickly and efficiently load drivers

o   Provide and offer legal parking at pickup and delivery locations

•  Using a broker/3PL will help you fully vet carriers and their ELD compliance.

• Most importantly, as capacity tightens, expect rates to increase. Working with a freight broker or 3PL can help you find the carrier capacity you need and negotiate rates on your behalf.

Working with a freight broker can help you mitigate the costs associated with electronic logging device regulations. Contact PartnerShip at 800-599-2902 or use our contact us form to see how we can help you ship smarter so you can stay competitive.