By Connor Lokar on Jul 18, 2018 1:04:00 PM
Both US businesses and the consumer at large are engaged in a multiple-front battle with inflation. Prolonged acceleration at the global level (World Industrial Production has been accelerating for 20 months and counting) has put upward pressure on commodity and raw material pricing for US producers.
The impact of escalating trade conflict with China as well as other tariffs have further compounded this issue for metals and other imported products. But not only are inputs in the production process on the rise; transport costs are as well – particularly for those businesses that utilize trucking to move product.
The US Dry Van Total Charge Rate, including fuel surcharges, climbed to $2.16 per mile in May, the highest per-mile rate ever recorded and up a whopping 13.3% from the year-ago level. The monthly Total Charge Rates for Refrigerated ($2.35 per mile, +13.3%) and Flatbed ($2.44 per mile, +13.0%) are also maintaining robust rates of rise. The double-digit increase in freight rates has been driven by a litany of factors: regulatory compliance costs driven by a new mandate for electronic logging devices, a robust rise in US Retail On-Highway Diesel Price (up 26.7% from the 2017 level), and a trucking demand that is completely overwhelming available drivers, thanks to the fastest annual growth in tonnage in nearly 20 years, as indicated by record high in the US ATA Truck Tonnage Index.
This is all excellent news for carriers but bad news for freight brokers, third-party logistics providers, and shippers trying to secure low rates. It is even worse news for the US consumers in the unenviable position at the bottom of this funnel, shouldering the price increases passed along by US businesses trying to preserve their bottom lines. Consumer nondurable giants, including Tyson Foods Inc. and General Mills , have already communicated that freight costs are having a negative impact on their earnings as well as their intentions to pass these costs on to consumers.
Trucking cost inflation is unlikely to abate this year. The US Dry Van Linehaul monthly rate lags behind US Industrial Production by two months, meaning freight cost pressures will continue to rise for a brief period even after the US economy reaches a cyclical peak. We expect the US economy to accelerate through the third quarter of this year; consequently US businesses should plan for intensifying freight cost inflation to continue through the summer.