There are a range of factors that can influence the cost of freight transportation. Some of these factors can cause an increase in the cost of shipping rates, which can have a negative affect on your business. Below, we summarize the factors that may influence freight charges, from decreased freight volumes to international affairs and recent regulations.
Demand and Supply
According to the Cass Freight Index Report, shipping volumes had fallen about 6 percent year-over-year by May 2016. At the same time, many trucking companies have begun to expand their fleets by purchasing new trucks. This has meant that there is an excess in trucking capacity combined with low freight volumes, providing shippers with an incentive to demand lower freight costs.
One of the recent causes of this reduction in freight volume can be traced to Britain’s withdrawal from the European Union. Brexit has worked to strengthen the US dollar, resulting in reduced export activity and a significant reduction in international shipping overall. This has resulted in a conundrum whereby demand for freight transportation is weak but supply is superfluous.
There are multiple regulations that have recently been implemented that reduce productivity in the industry. Firstly, there has been an increased focus on safety with the passing of the FAST Act which was implemented to fund costly repairs to surface transportation through 2020.
The same Act has required that the Federal Motor Carrier Safety Administration’s monitoring system be updated to improve the accuracy of safety scores. Because of this, carriers have been primarily focused on improving their CSA scores to prevent damage to their businesses occurring when these scores are made publicly available.
Another regulation that can influence freight costs is the recent revisions to Hours of Service for truck drivers, which manage when drivers may work and therefore inhibit productivity. This is especially noticeable when there is an existing shortage of drivers. Since drivers are in high demand, there is an incentive to increase the cost of freight transportation.
Similarly, the upcoming requirements for Electronic Logging Devices will demand new hardware, software and training. These additions will incur an extra cost for carriers and thereby lead to an increase in freight charges overall.
Drivers and Fuel
An abundance of small package shipments, improper packaging, inefficient routes, and the retirement of aging drivers have contributed to a truck driver shortage. Training new drivers for a Commercial Driver’s License can take up to 3-6 months and also incurs extra costs.
This shortage of drivers has seen carriers offering higher wages and extra benefits and perks. This, however, increases the costs to the carrier and may also determine the cost of transportation as well.
Lastly, the cost of fuel may have a huge influence on the costs involved in freight transportation. Where fuel prices are down, transportations costs should be reduced. However, with reduced fuel production and the recent pipeline explosion, fuel costs are expected to climb. This will no doubt have an immediate effect on the cost of transportation.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.