FTR: Pressure on shipping contract pricing to continue into 2018

In addition to a fuel cost increase, a more negative reading in transportation consultancy FTR’s shipping conditions index was impacted by increased logistic costs that are expected to persist well into next year.    Indiana-based freight transportation consultancy firm FTR said Oct. 31 that shipping conditions took a turn toward the negative in August, primarily because of short-term fuel cost increases caused by Hurricane Harvey, the destructive storm that swept through the Gulf Coast in late August and caused billions of dollars of damage in the United States and elsewhere.
   In addition to the fuel cost increase, the more negative shipping conditions index reading was also impacted by increased logistic costs for shippers that are expected to persist into 2018, according to FTR.
   “Spot prices have already spiked due to full capacity utilization,” the consultancy said in a statement. “Pressure on contract pricing is expected to increase by the end of 2017 and into 2018, keeping the SCI index in negative territory through the period.”
   According to FTR’s chief operating officer, Jonathan Starks, shippers are currently in a tough position.
   “We have known for some time that the trucking industry has been operating with very little excess capacity; however, the weak pricing environment masked that phenomenon for the last year,” Starks commented. “Hurricanes Harvey and Irma exposed shippers to this new reality.”
   “There just wasn’t enough excess capacity to deal with spikes, and the result was a significant spot market pricing gain that persisted through early October,” Starks continued. “Spot rates have begun to normalize, but that still puts rates at plus-20 percent compared to last year. When you couple the Hurricane impacts with increased freight demand and the fast approaching ELD implementation, there’s a real fear that loads won’t get delivered.”
   This, he said, is already beginning to show up in the contract markets. Contract pricing is likely to show significant gains through most of 2018, according to FTR.