4th Qtr. 2014 Industry Updates
State of the U.S. Transportation Market
All transportation modes are seeing cost increases at higher rates than Producer Price Index.
LTL, Truckload and Parcel carrier pricing continue to increase at a faster rate than the overall producer market. Transportation costs as a percentage of sales continue to rise, squeezing profit and operating margins.
U.S. Diesel Fuel Projected Costs
Forecast is for fuel prices to accelerate their decline through 2015.
U.S. Diesel Fuel Retail Prices
Diesel fuel prices averaged $3.82/gal in 2014. They are projected to average $3.07/gal in 2015, according to the Energy Information Administration (EIA) Short-term Energy Outlook published in December 2014.
U.S. Diesel Fuel and Crude Oil Prices
Less-than-Truckload (LTL) Updates
- LTL General Rate Increases (GRI) took effect in January 2015.
- LTL carriers using rail service report are experiencing service issues.
- LTL demand is up and capacity is static, resulting in pricing discipline and increased freight rates. This should continue through 2015.
- Truckload capacity is still tight even with the post-holiday slowdown in Q1 2015.
- Carriers expecting normal seasonality leading to tightening capacity in March.
- Carriers will still be seeking increases, but not to the levels of 2014, as they continue to try to combat driver recruiting retention challenges by increasing wages.
- Increasing demand and stagnant to falling capacity is allowing carriers to ask for rate increases prior to contract expiration.
- Potential rollback of latest driver regulations, along with rapidly decreasing fuel costs, should help ease capacity constraints and reduce costs.
- Phalanx Strategies expects that the pricing and capacity in the truckload market will remain tight throughout the first quarter of 2015, with normal seasonal tightening ramping up towards the end of March. We recommend maintaining relationships with carriers that performed well in 2014 while testing additional providers to maintain a healthy provider network.
- UPS has started allowing U.S. customers to collect packages from neighborhood stores or lockers to lower failed deliveries of online purchases.
- The growth in e-commerce volume is driving UPS to find ways to increase the number of packages delivered per stop and avoid repeat deliveries attempts to buyers not available to receive their parcels.
- UPS said it expects to have 20,000 pickup points in Europe and the Americas by the end of 2015.
- Both FedEx and UPS are expanding cross border enablement solutions with the recent acquisitions of Bongo International and i-parcel, LLC, respectively.
- Each company provides a comprehensive and integrated end-to-end solution that helps retailers grow by reaching international e-commerce consumers.
- Capabilities include duty and tax calculations, export compliance management, HS classification, currency conversions, international payment options inclusive of language translation, shopping cart management and fraud protection.
- The combined software and transportation solutions allow merchants to reach a broader international consumer base without expanding their footprint.
- In addition to the 4.9% GRI announced by FedEx and the elimination of the billable weight exemption for ground packages less than three cubic feet, FedEx has confirmed that it will change the tables used to calculate fuel surcharges.
- Beginning February 2, 2015, fuel surcharges for FedEx Express, FedEx Ground and FedEx Freight will increase.
International Shipping Updates
2015-16 Trans-Pacific Rates and Contracts
- Container lines have discussed solidifying rates levels in 2015-16 at the rate of $2,000 to $3,650 per forty-foot equivalent (FEU) from Asia to the U.S.
- The TSA is moving away from GRIs to combat rate objectives.
- 20’ box rates will be assessed at 90% of the FEU rate.
- Carriers feel an urgent need in the current market environment to view pricing differently.
- Rate minimums are an effort to better reflect actual costs of service, rather than simply recommending a specific increase based on short-term supply-demand conditions.
- TSA has rolled out multiple GRIs this year with little success in raising overall rate levels.
West Coast Labor Negotiations
- Negotiation attempts are continuing between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA).
- PMA sent a request to the ILWU for a federal arbitrator to break the impasse in negotiations that have been on-going since May with no resolution.
- Union has been non-responsive to meeting requests of the mediator and has asked to negotiate directly with the carriers.
- PMA took 23 minutes to reply with a negative response and matters have deteriorated from there.
- The ILWU is stating that the disruption seen this fall on the West Coast docks was caused by actions of carriers, not longshoremen.
- PMA is stating that this is nothing more than a smokescreen by the ILWU for its slowdown activities.
- The Trans-Pacific market is consistently one of the least profitable markets for carriers.
- Carriers are less willing than they were in years past to give the ILWU generous pay and benefit increases as a trade-off for peace on the waterfront.
- Interesting to see if the slowdowns undermine the competitiveness of West Coast ports.
- Previously there was no alternative, but with the Panama Canal set to expand in just over a year and Suez services gaining in popularity, West Coast ports do not enjoy the monopoly they once had.
Container Storage Depot
- The port of Long Beach opened up a depot on 12/29/14 where empty containers can be temporarily stored. The depot will ease space constraints at congested marine terminals while also freeing up chassis for use in the harbor area. This is currently scheduled to remain open through March 31, 2015.
- Between possible new contract pricing and the West Coast challenges, 2015 is shaping up to be a pivotal year.