If you think the cost of fuel (specifically diesel) is the only driving factor behind freight rate increases, think again. There are countless variables to the rise in freight shipping costs. While the cost can be offset at the asset-based level by carriers, most shippers will have to come up with creative solutions to deal with the flux of freight rates.
Regardless whether the items are being shipped at the manufacturer level, distributor level or retail level, ground freight or long haul trucking is usually involved. Therefore, operational factors that affect the trucking industry have the most impact on general freight rate increases. The four main factors are fuel increases, labor costs, equipment prices and Federal restrictions.
Fuel prices, like most commodities, are influenced purely by supply and demand. When the demand for fuel increases, so does the price. The highest crude oil price struck in 2008, marking the most recent financial crisis. Since that time, the demand for crude oil decreased (due to a shrinking economy) and the price has leveled to pre-2008 prices. Keep in mind, any time a global or local disaster happens the cost of fuel skyrockets. These unforeseen disasters – whether natural or man-made – can cause a spike in freight rates at any time.
Why would labor costs affect the fuel bottom line? Many different factors contribute to the rise in labor costs. We know the main cause is a shortage in drivers, but why is that the case? Issues like a high number of retiring drivers, recruitment and retention hurdles and Federal regulations that monitor driver schedules all affect labor costs, which ultimately impact freight rates.
New regulations that monitor carbon footprint and fuel usage have caused a need to modernize engines and trucking equipment. Since new equipment costs are now on average 40% more than they used to be, this cost gets tacked onto the freight rate. We can expect these costs to be a factor over the next 5 years, driving the cost of freight shipping skyward.
Beginning next month (July 2013), new regulations will limit drive time from 11 hours to 10 hours in a 24-hour period. While it doesn’t seem like that much of a break, it will certainly create the demand for more drivers and equipment.
One of the ways a shipper can combat rising freight rates is to always receive the best price available. Compare your freight rate from multiple carriers. Sometimes the national carrier you may use could be more expensive than a regional carrier for a shorter haul.