During the three years to 2017, local freight trucking prices have been growing at an estimated average annual rate of 1.7%. Demand growth has led to higher service prices, but high competition, stable wage costs and falling fuel costs have tempered the pace of price growth.
This market’s carriers transport nearly all consumer goods during the initial or final phases of their distribution. Thus, trends in consumer spending determine demand for market services from wholesalers and retailers, which together account for about one-third of carriers’ sales. Moderate growth in consumer spending has contributed to demand growth for local trucking services. Further indicators of moderate demand growth include annualized growth in the IPI, which can be used as a measure of demand from the manufacturing sector, and total trade value, which can be used to measure demand from international shippers.
At the same time, suppliers’ fuel costs have dropped in line with crude oil prices. Carriers’ wage costs have been stable. These input cost trends have mitigated some of the upward pressure on price. In addition, this market is highly fragmented and contains a vast number of carriers, indicating a high level of price-based competition. Competition has limited carriers’ ability to raise prices, which has kept buyers’ purchasing power moderate and stable.
In addition to mild growth, market prices have been exhibiting little volatility during the past three years. Because fuel surcharges have declined overall, they have not significantly impacted the volatility of prices. Low price volatility improves buyer power by increasing the accuracy of purchasing budgets. Low price volatility and subdued price growth have also limited the penalties associated with ad hoc shipping. Carriers tend to be more willing to reduce rates for buyers that can guarantee a steady revenue stream rather than purchasing one-time shipments, but recent market trends have allowed short-term buyers more leverage to earn lower prices.
In the three years to 2020, the price of services is forecast to rise at an accelerated average annual rate of 2.1%. Prices will rise as a result of growing demand and recovering fuel prices, while price-based competition and stable wages will restrain the rate of this growth.
In the coming years, consumer spending, which drives much of the demand from this market’s key buyers, will grow as disposable incomes and consumer confidence rise. These improvements will flow through the supply chain and push up the IPI, a proxy for manufacturing demand. Additionally, the growing complexity of supply chains and increased outsourcing and offshoring activity will help drive growth in total trade value. This growth will increase demand for local trucking for the first leg of exports’ transport and the final leg of imports’ transport.
Meanwhile, the world price of crude oil is forecast to rebound, causing suppliers’ fuel costs to rise considerably. With fuel costs on the upswing, operators’ overhead costs will swell, leading to higher fuel surcharges. However, green credentials, improving natural gas infrastructure and government incentives will encourage carriers to convert larger portions of their fleets to natural gas vehicles. As a result, suppliers are anticipated to reduce their fuel consumption, helping to curb price increases tied to rising diesel fuel costs.
As in the past three years, carriers’ wage costs will remain nearly stable through 2020 because low barriers to employment and the broader appeal of local truck driving jobs in comparison to long-haul jobs will continue to attract a large pool of applicants. Furthermore, price-based competition will increase as the number of carriers in the market rises, dampening price growth.
Even so, overall price growth during the period will reduce buyers’ ability to negotiate discounts and special prices. Furthermore, the cost penalties associated with ad hoc purchases will increase as prices rise, although low price volatility will continue to aid buyers in making long-term purchasing decisions. In particular, long-term contracts will continue to reduce costs for buyers with stable, long-term shipping needs.