Rising Costs in Logistics: How have inflation and industry changes impacted freight?

RISING COSTS IN LOGISTICS

Prices are going up, and inflation has been a hot topic. In the U.S., the inflation rate for 2021 was 7%, and the current inflation rate for 2022 is 8.6%, the largest annual increase since December 1981. That’s a considerable increase compared to the previous years of 1.4% for 2020, 2.3% for 2019, 1.9% for 2019, and so on.

Many areas in the trucking world have been impacted over the last few years, one often affecting the next one down the line. Let’s look at the areas impacting the increase in freight costs.

FREIGHT COSTS

As with so many other goods and services, the cost of shipping freight has become steeper because of the pandemic. Both in the live market & brokerage services, we are seeing prices double or more than they were only a year ago.

Data from Truckstop.com and FTR Transportation Intelligence showed an 18.3% rise in truck freight costs since January last year, the largest 12-month increase on record. In addition, the prices of support services and warehousing have also soared. But what is behind this increase and how can shippers navigate these changes resulting from inflation?

There are several reasons for the volatile freight prices…

Labor Shortages:

One reason is the current labor shortage. Between 5% and 10% of cross-border truck drivers either retired or left the industry since the beginning of the pandemic. That means that anywhere from 32,000 to 64,000 outbound and inbound loads are now left without a driver to transport them.

Driver Wages:

Another factor contributing to rising freight costs is the increase in driver pay. In 2022, driver pay has increased by 50% in just a year. The continuing driver shortage is also causing companies to offer more attractive wages to new hires. This affects the rates companies can offer to shippers.

Trucks and Trailers:

Semi-truck prices can vary significantly depending on make, model, age, provenance, and optional extra features. In 2021, the cost of a brand-new trailer is between $30,000 - $35,000, while orders right now are coming in between $45,000 - $50,000. That’s a 50% increase in price on trailers alone.

To buy a brand-new truck in 2021 would cost around $140,000, while a similar truck today would cost between $165,000 - $170,000. That’s more than a 20% increase in just one year. Even a 4 or 5-year-old truck that used to cost anywhere from $35,000 - $45,000 just in 2021 is now selling for over $75,000.

Fuel:

A commercial truck consumes approximately 20,500 gallons of fuel in a typical year. Since the start of 2022, the cost of diesel has risen steadily by a total of $1.637, bringing the price of diesel to over $5 per gallon. At these rates, a gallon of diesel costs $1.94 more than it did a year ago.

“It’s just a lot of volatility, and we’re expecting the potential for continued price spikes,” said Phil Flynn, Senior Energy Analyst at The Price Futures Group. Plus, when the cost of fuel per gallon plus any applicable taxes is calculated, the dollar value is more than triple the amount of gallons.

WHAT TO DO?

Unlike previous years when the market was more stable, shippers will have a tough time finding the sweet spot that balances price and service/compliance levels. With so many uncertainties, budgeting for transportation spending can be difficult when trying to piecemeal a plan with different providers.

Because the costs of trucking have increased so much on the back-end, many of these cost increases will be transferred to the front end. With so much market volatility and supply chain disruption, elevated freight rates are likely to remain through much of this year, according to logistics experts.

Working with an established logistics management company can help ease these stresses. Dupré Logistics has a fleet of trucks as well as a brokerage arm to keep our customers’ freight moving. We have the benefit of scale and years of experience to navigate difficult market cycles like these. Dependable partners help shippers find stability in a fluctuating market.

Let us help you keep your shipments moving. Work with safety-focused, experienced professionals. From dedicated trucking to site logistics, we develop customized solutions that provide safe & efficient benefits to our customers. Our motto is “Always Forward Thinking,” and we back that up with our solutions.

Contact us today to learn more about what solutions work best for you!