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E-commerce kills efficiency as carrier miles decline

Chart of the Week: Average Length of Haul – Company and Leased Fleet Dry Van Carriers, Retail Sales – Online and Mail Order SONAR:ALOHA.VCFOO, RESL.ONLN

This year’s Black Friday and Cyber Monday shopping extravaganza were record breaking in terms of online sales. Both Thanksgiving and Black Friday showed huge y/y increases in online sales revenue, with 14.5% and 19% increases respectively. The e-commerce giant, Amazon, called this past Monday the biggest shopping day ever. National online sales have grown by double digit percentages every month in 2019 through September according to the monthly Census Bureau reports, while department store revenues have displayed y/y contraction in each month. The impact to trucking has been palpable.

According to the Truckload Carrier’s Association (TCA) the average length of haul for dry van carriers has dropped 8% on average since the fall of 2017, an indication that distribution and production centers are moving closer to the final consumer. What does this mean for carriers moving into 2020?

The rise of e-commerce has been well documented. Most everyone has heard the buzzword or phrase “the Amazon Effect” so many times it has lost all meaning. Love it or hate it, Amazon has created an environment where the consumer expects his or her orders in a day or two, making the traditional brick and mortar experience less alluring. This means if other retailers want to compete, they will need to be up to speed, literally, with the competition.

Shorter moves are driving volumes into late 2019, as longer haul freight declines. Image: SONAR – National Length of Haul Volume Indices

According to FreightWaves Outbound Tender Volume Index, truckload volumes have been above 2018 levels since late July, averaging roughly 3% higher. A large portion of that increase was in short haul freight moving under 250 miles from origin. Loads moving 1 – 99 miles were up over 15% y/y, while loads that moved 100 – 250 miles were up roughly 8% over 2018 during the same period. Freight that moved in the “tweener” mileage band of 450 to 800 miles declined 5.8% during this period. Effectively, there are now more loads moving with less miles.

Shorter moves do not guarantee lower cost to shippers, nor are they necessarily bad for carriers. Normal truckload pricing contracts include minimum charges on lanes that travel small distances. Normally, anything moving under 200 miles will hit a minimum charge, which varies widely by carrier. The reason for minimums is simple, driver efficiency drops when they are hitting docks and not on the road.

Most truckload carriers charge by the mile due to the fact they pay most of their drivers this way. This allows the carrier to understand their cost drivers more effectively, while also motivating the drivers to travel long distances and drive more often. Short haul moves make this methodology less effective as there is more time spent on a dock proportionate to driving. Carriers do not get paid while they are not moving unless they charge detention, which is mostly only charged when delays are excessive—normally over 1.5 hours.

Problems occur when drivers spend too much time stopped or in transition. They spend more time on non-revenue activities such as unloading or driving to the next load—called “deadheading”. The increase in non-revenue activities is overcome by charging an amount that accounts for the decreased efficiency. The odds of a carrier moving two 250-mile loads in a day under the 11-hour limit in heavy traffic are slim to none. Therefore, they need to charge for the full day in many circumstances.

Some carriers will be able to pull off multiple moves in a day, which can be quite lucrative as their effective rate per mile is much higher under a minimum charge—often presented as a flat all-inclusive rate to make it more palatable.

As mentioned above, shippers are not getting as much bang for their buck with minimum charges, as they are paying more per mile in these lanes. More minimum shipments can mean higher transportation costs. As the domestic transportation sector sees more minimum transactions, carriers and shippers will both need to be more effective in managing their costs due to the less efficient shorter haul moves brought on by the increasing demand for service.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real-time. Each week a Market Expert will post a chart, along with commentary live on the front-page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

The FreightWaves data science and product teams are releasing new data sets each week and enhancing the client experience.

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Zach Strickland, FW Market Expert & Market Analyst

Zach Strickland, the “Sultan of SONAR,” curates the weekly market update. Zach is also one of FreightWaves’ Market Experts. With a degree in Finance, Strickland spent the early part of his career in banking before transitioning to transportation in various roles and segments, such as truckload and LTL. He has over 13 years of transportation experience, specializing in data, pricing, and analytics.

6 Comments

  1. We need to change the drivers pay structure with E-LOGS that all hours are paid to to truck drivers and to trucking companies. The current status with E-LOGS will force truck drivers to get other jobs and trucking companies to close. The shorter distance is better for the environment and the country. E-LOGS with out hourly pay will cause truck drivers to get other jobs. They will be replaced with new people to the U S and Canada and have more accidents in a effort to keep drivers wages down.

    1. Stephen I AGREE. Salary or hourly. That way the driver gets a firm living wage. For owner ops, they need to band together and ignore RPM and negotiate flat rates on everything.

      Carriers going out of business hurts everyone including the shippers.

    2. Trucking companies may need to consider setting up terminal networks that mirror the networks in place during the Regulated Trucking Period. They should seek out partners that allow them to share infrastructure, drivers and equipment. Leverage technology that enables visibility across the network, trough interchange between partners.

      Deregulation in trucking has run its course and is hurting Trucking Companies’ ability to profitably run their businesses, reinvest profits and leverage technology as a single business entity.

      CEO’s need to listen to their Supply Chain Professionals and stop demanding unrealistic, sustainable cost reduction target year after year.

      Trucking is facing the threat of a downsized industry that will no longer be able to serve the interest of the industry at a service level needed in toady’s business environment.

      The financialization of all businesses in the U.S. is beginning to deliver diminishing returns and bury the very industry we need to build-up.

      1. Something needs to change, there will be more Celadons in our future if this is allowed to continue. Diminishing returns and cost cutting, as you stated, are taking a serious toll on the carrier side, equipment costs and maintenance alone are getting to the point of being ridiculous and down right unsustainable. I’ve only been out here 31 years, rates are lower today when adjusted for inflation than when I started. Equipment is to the point of being unaffordable, then throw in the regulations, Elogs and insurance rates that only seem to go up, it all spells disaster to me. I cannot operate a truck for free, and that is essentially what we are being asked to do. The system is broken.

  2. A truck needs to make $1000 a day to be profitable out here, there was a story on that here at FreightWaves today stating just that. Anything less and you are treading water and unable to maintain equipment and pay the bills. Less than that, and you are spinning your wheels…

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