Guest Viewpoint: What’s Driving Freight Costs Higher?

[pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]If you think the price of fuel is the only element driving freight costs higher – Think again!   [/pullquote]

Introduction

The latest Master of Logistics 20th Annual Study of Transportation and Trends Study reports that in 2011 the highest percent of transportation costs was ground freight at 76.1%, of which US long haul trucking holds a major position at 64.4%. Ground freight was then followed by 8.7% for air, 8.3% for ocean, 4.2% for rail, and 2.7% for barge / other.

Ground freight, especially long haul trucking, is a major portion of transportation activity and costs. The three top elements of long haul trucking costs are: fuel prices; labor costs; and truck / equipment costs. The impact of rising yet fluctuating fuel prices, increased labor wages with the shortage of drivers and higher truck / equipment costs coupled with more restrictive Federal Guidelines reveal a future of higher costs. There are no easy quick-fix solutions.

Is there a way to offset these increasing costs? Understanding each element will reveal viable solutions.

The best indicator of ground freight cost is the US Freight Rate Index, CPM (cost per mile).  In 2008, the rate reached a high of $2.50/mile and then plummeted to a low of $1.82/mile in January 2009. The 2009 rates slowly increased to the current 2012 level. In November 2012, the  CPM was $2.48/mile, of which over 81% of this cost resided in the three elements: fuel prices, labor wages, and truck / equipment costs.

Summary

The trends show increasing costs in each of the top three elements for the next 5 years. What’s driving costs higher?

  • Increased fuel costs are tied to national supply and demand. Note: If domestic oil drilling restrictions are withdrawn, fuel prices may decrease.
  • Increased labor costs continue to be influenced by the shortage of drivers, restrictive Federal regulations and pressures on employers to hire older and more experienced drivers.
  • Truck costs will continue to increase due to technology upgrades prompted by:
    • New engines that will be lighter, more fuel efficient and transfer data to the truck’s technology
    • Future Federal standards will require increased in miles per gallon and add more driver and vehicle documentation.

 Possible Solutions

The challenge is how to deal with higher costs. Some possible solutions:

  • Find lower cost fuel, such as domestic oil drilling, natural gas, etc.
  • Utilize lower cost transportation; alternate sources such as Aerocraft airship or rail.
  • Companies could realign distribution strategy placing products closer to customer clusters, reducing distance and number of shipments.
  • Improve turnover by making driver lifestyle more tolerable.
  • Encourage technology to improve performance with fuel efficient, lighter engines and lighter, structurally stronger trailers.
  • Implement technology to digitize Federal documentation requirements. This is a concept similar to workforce automation.

Path Forward

Is there a path that leads to lower freight costs? Left untouched, freight costs will continue to rise. On the other hand, by focusing on the three elements, over 81% of freight costs, can be addressed and lowered through a myriad of creative solutions.

Read the full article in November/December 2012 edition, Pharmaceutical Outsourcing, Vol. 13 Issue 7, link – https://www.pharmoutsourcing.com/Featured-Articles/126129-What-s-Driving-Freight-Costs-Higher/

About the author

C. Ray Goff Jr. has over 25 yrs. commercial and clinical distribution, supply chain and project management experience at major biopharmaceuticals. Ray is also a speaker, writer and has held leadership positions in professional and trade associations.

By | 2018-04-30T12:54:33-04:00 December 9th, 2012|Most Popular Posts, Transportation|Comments Off on Guest Viewpoint: What’s Driving Freight Costs Higher?

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