By Randy Griffin, Distribution Manager
Trucking is poised to take a steep rate hike due to declining number of drivers, cost of insurance, and most impactful, the new mandate for ELD (Electronic Log Books). USA TODAY recently published a front-page article about a Charleston port container driver talking about having to use multiple fake log books to run over hours just to make his truck payment. He was fired by the company for his public comments.
After years of lawsuits, appeals and delays, the much anticipated ELD mandate goes into effect this December. The House of Representatives transportation committees are having hearings in July to discuss this political football. On one hand, the public is concerned over tired drivers and safety, but on the other, this regulation will have an impact on transportation delays and rate hikes. Some think that there might be a delay in the mandate as the political power of business is much more organized and well financed than the public safety groups. The grass roots outcry may not have enough voice or money to drown out business concerns. Though there may be a delay, this rule will one day be enforced.
The impact on business will be to drive up prices, demonstrated by a simple supply and demand market curve.
Suppliers who serve just-in-time plants (like automotive) are often assessed shutdown penalties if they cannot meet delivery, and are willing to pay whatever it takes to meet production demands. In addition, some customers either can’t plan accurately or won’t increase safety stock appropriately. As a result, available trucks will be the subject of bidding wars among suppliers. Standard business principles dictate that when output or available product declines, a business should try to capture the highest return on the limited supply of product or asset. Overhead does not change when output has declined, so any business wanting to survive a downturn, will try to increase the ROI to pay the bills and generate capital to survive. In the last 5 years, tens of thousands of trucking companies have failed. This ELD Mandate will only increase that trend as the costs of implementation is high and many smaller carriers do not have the capital or technology to comply. Many drivers will simply quit the industry rather than have big brother follow their every move. As a result, the number of available drivers will decline and carriers will have to raise pay to attract new drivers. All this points to steep increases in future rates.
The next 5 years will also be a period of shortage in logistical assets – namely warehouse space. The first market reaction to higher transportation costs will be to increase inventory and to place that inventory closer to the customer so that less-than-truckload (LTL) carriers can fill the demand gap cheaper than express carriers. The impact of this will be higher LTL costs due to increased demand and higher warehouse costs due to less availability. This will be compounded for the chemical industry as warehouses will have less square feet to lease and will abandon hazardous storage for less costly commodity items which require less insurance and less regulated storage processes. Specialized chemical warehouses will be less available and costlier.
Lintech International, as part of our forward looking strategy, has increased our specialty chemical storage capacity by investing in a 120,000 sq ft flammable storage facility in Richmond, Indiana. This ensures that we can serve our customers in that region with an ISO 9001:2015 certified warehouse that meets the demanding requirements of the National Association of Chemical Distributors (NACD) Responsible Distribution Code of Management Practices.
The coming years will be challenging! Only those distributors who are prepared to maintain regional inventory will be able to meet the demands of this challenging market condition.