Shippers are not out of the woods yet as upward pressure on rates is expected to be applied through 2024.
Despite capacity softening considerably since the pandemic-era freight boom, other market factors are levying higher operating costs for transportation providers, the likes of which could be passed onto their shipper-customers to varying degrees.
Scarcity of cross-dock space
Fuel costs and a growing scarcity of dock space across major cities have been the primary suspects of this trend—according to transport executives who spoke at the Journal of Commerce’s Inland Distribution Conference on September 26.
The latter issue has largely resulted from trucking giant Yellow’s August bankruptcy. The truckload provider’s fall teed up an inevitable market shift which saw its former competitor Estes Express Lines acquire its LTL terminals.
From there, it’s been a scramble to find cross-dockspace, especially as old terminals are being repurposed for other uses.
Cross-docking is a method of unloading goods from inbound delivery vehicles and loading them directly onto outbound vehicles. At its best, this practice minimizes or even eliminates warehouse storage costs, space requirements, and inventory handling. Cross-docking requires a dedicated docking terminal in a warehouse.
Providers are keen on constructing more facilities which leads to the inevitable associated costs. On top of that, the price tag for industrial construction projects is on the rise.
The issue illustrates a burden on the shoulders of trucking stakeholders—warehouses, distributors, and motor carriers—who may face no other option than to deeply root investments into solutions.
While it may not be itemized on an invoice, shippers can expect this will increase rates.
Higher fuel costs, low diesel stockpiles
Fuel costs have also played a role. Average U.S. diesel prices have been on the rise for two months. It wasn’t until two weeks ago that they had finally slipped.
During the nine-week span of increases, diesel prices elevated more than 87 cents.
It’s common for motor carriers to absorb higher fuel costs through imposing related surcharges onto their customers. It’s a widely accepted practice, albeit begrudgingly for shippers.
However, the issue hits deeper than just a cruel summer of paying more thanks to the pump. The diesel market is contending with some of its lowest stockpiles in more than two decades.
Dwindling diesel isn’t just a concern for trucking. The totality of America’s supply chain places it bet on the bright-green pungent liquid.
Embattled farmers need it for harvest season, homeowners need it technically (heating oil, actually) for the winter, and virtually all manufacturing and transportation entities need it for their equipment.
In other words, regarding fuel, a potential supply shortage beckons the threat of rising trucking costs.
However, at that point, if there are dire straits for diesel, shippers will already be negotiating other, likely more critical, supply chain issues.
It’s important to note that amid these issues above, organic freight demand is still relatively groggy. Whenever shipping activity picks up again, it’s likely these issues will further compound in severity.
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