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May 14 2018

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May 14 2018 | The Journal of Commerce 11 Cover Story www.joc.com IF SHIPPERS THOUGHT it was difficult to find a truck in the first quarter, just wait. The era of the electronic logging device (ELD) is here, and it's just getting started. Shippers need to act now to find and keep the capaci- ty they will need not just this spring but also during the fall peak. US truckload contract rates came in hot in the first quarter, rising by high single-digit or low double-digit percentages at some of the largest motor carriers as freight demand remained high enough to keep truck capacity tight. Shippers, even those that expected rate hikes, were stung. Shippers tied the rate increases not only to high demand, but also to the impact of the ELD mandate, which took effect on Dec. 18. The mandate changed the calculus truck- ers use when determining whether to accept a load tender, and what to charge to haul freight. "Freight is up a lot, and that's a consequence of the change in regu- lation in terms of number of hours that the drivers can drive," James Quincey, CEO of Coca-Cola, said during a first-quarter earnings call in April. He said Coca-Cola's freight costs were up about 20 percent. In a survey from Wolfe Research, ship- pers predicted their transportation budgets would increase 7.5 percent over the next year. Because the market isn't about to change, shippers will have to make changes to attract and secure capacity and blunt rising costs. With trucking companies rejecting one of every three to four loads, according to conversations with fleet exec- utives, shippers have only a few options. One is to pay more for dedicat- ed contract carriage, locking in a specific number of trucks each week rather than taking a chance on the spot markets. Another option is sticking more loads on intermodal rail despite poor service this past winter. That option could be short- lived, however, because shippers told Wolfe Research that intermodal rates are rising and are likely to go up another 3.6 percent during the next year. The same report found that there was a 0.3 percent net shift from rail to truck over the past six months because of the rails' service problems, but that will shift 1.1 percent back toward rails in the next year because of the truckload environment. Shippers also are passing some of the added costs onto consumers. Transportation, in general, accounts for 5 to 15 percent of the total costs of retail goods, so the effect would likely be only a couple of pennies per item, industry analysts told The Jour- nal of Commerce, on the condition of anonymity. There's plenty of evidence that contract rates are rising more rap- idly than expected. As of mid-April, the average contract linehaul van rate was 11.3 percent, or 19 cents, higher than at the same time last year, according to DAT Solutions, a Beaverton, Oregon-based freight marketplace. FTR Transportation Intelligence now expects contract truckload rates to rise 13 to 14 percent. "We are seeing high single-digit to low double-digit rate increases driven by strong market conditions and inflationary pressures, such as the expense of hiring and training drivers," Kevin Knight, executive chairman of Knight-Swift Transpor- tation Holdings, told analysts in the company's first-quarter earnings call on April 25. At Schneider National, the second-largest US truckload operator after Knight-Swift, rate hikes in cus- tomer contract renewals averaged low double-digit percentages in the first quarter, the company said on April 26. CRST International CEO Dave Rusch told The Journal of Com- Judging by spring demand and restrained capacity, a new pricing reality is here for the long haul By Ari Ashe and William B. Cassidy

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