Analysts at Morgan Stanley predict decreased truck capacity in 2020, translating to higher truckload rates. The five reasons they believe decreased truck capacity will occur include:
1.) Carriers have to convert to the electronic logging device (ELD) by tomorrow, December 17. The ELD rule takes full effect and the AORBD exemption ends.
2.) Carrier insurance premiums have been on the rise due to catastrophic accidents. Carriers have seen over a 50% increase in premiums.
3.) Drivers' failed alcohol or drug tests that initially went unreported will be required to be entered into a federal database on January 6, 2020.
4.) On January 1st, the International Maritime Organization (IMO) regulation begins. This regulation seeks to put a 0.5% restriction on sulphur emissions in 2020. Currently, the mandate is 3.5% and the maritime industry will move toward fuels composed of less sulphur-- i.e. diesel. Diesel prices are expected to rise by up to 30%, which will highly impact small truckload carriers.
5.) On January 1st, the California AB 5 rule goes into effect. This rule will affect carriers who do business in California and will require indepent contract carriers to operate as company employees. Some carriers are looking to reduce operations in California.
For these reasons, rates are expected to increase in 2020--potentially back up to 2018 levels.
More information on this matter is available here.
LME Inc., a less-than-truckload carrier out of Minnesota, abruptly shut its doors last week. The shuttering of this 600-employee operation "is an indication that trucking companies that are poorly run could be in deep trouble if the economy slows" (Economist Noel Perry Warns of More Shutdowns After LME Padlocks Doors, Transport Topics, 16 Jul 2019). Besides LME, other trucking companies have also shut their doors this year. This is exemplary of both a slowdown in the trucking industry and signs of a weakening economy.
Other carriers who shut their doors this year include: New England Motor Freight (a Northeastern LTL carrier), TFI International Inc.'s Highland Transport Division (cross-border unit operating in the Northeast), Eastern Connection (regional freight carrier in the Northeast), Falcon Transport (Ohio-based carrier who hauled a lot of freight to and from General Motor's Lordstown, Ohio, plant), and Starlite Trucking Inc. (California-based agricultural products hauler).
There is a lot of competition in the trucking industry right now, and companies who are not making enough money cannot stay afloat long enough to remain in business.
The rise in online sales and decreased capacity led to an 11.4% increase in spending costs on transportation and logistics in the U.S. during 2018. This equates to about $1.64 trillion USD. Various costs rose: transportation, logistics, and trucking costs all increased nearly double digit percentages from 2017 to 2018.
As 2018 was a year of tight capacity and intense growth, the forecast for 2019 is slower growth. The impact of weather and tariffs has already affected suppliers, shippers, and transportation partners.
Read more information regarding the increase in logistics costs here.
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As general information to our clients and readers, FedEx Express is not renewing their contract with Amazon as tensions have been heightening between the two companies. Here are a few facts we found important regarding this future contact change, which will end on June 30th:
Other sources: FedEx opt out of Express contract with Amazon may be a good thing, analysts say, MarketWatch, 11 June 2019; FedEx declines to renew Amazon's U.S. air-delivery contract, The Washington Post, 7 June 2019; FedEx Express will not renew contract with Amazon, Supply Chain Digital, 10 June 2019
Prior to Trump's imposed tariffs on China taking effect and the proposal of Mexico tariffs, April exports and imports are down.
Transport Topics notes that "Goods shipments to China fell to $8.5 billion in April from $10.2 billion the prior month and are down 20% year-to-date, while imports from the nation have declined 13.2% in 2019. Meanwhile, merchandise exports to Mexico are little changed so far this year while imports are up 6.1%" (Exports, Imports Plummet as US Trade Deficit Narrows, 6 June 2019).
Trump's changing policies are affecting businesses' supply chains and are making it harder for businesses to account for future growth or decay.
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