Should we expect US logistics costs to increase in 2014 ?

Posted on September 5, 2014 by aviyer2010

An article in the Supply Chain Digest (September 5,2014) by Dan Gilmore lists several recent price pressures on US transportation. He lists a 22.6% cost increase accounted by a combination of a 14% wage increase due to driver shortages, a 2% increase due to Hours of service rules, a 3.3% increase as independent truckers are listed as employees, a 1% increase due to the need to have digital loggers on trucks and a 2.3% increase due to diesel tax changes. Given the steady decline in US logistics costs, would you expect the direction to change to now generate cost increases ? Will competition between truckers and more efficient trucks as well as the decreasing cost of technology keep this increase in check ? Will this growth in costs for trucking cause a shift in mode to trains and other larger volume shipment modes ?

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16 Responses to Should we expect US logistics costs to increase in 2014 ?

Qidi Cao says:

September 8, 2015 at 2:11 pm

In my opinion, transportation by trucks is still the biggest logistics transportation in the United States. However, due to several reasons, the costs of trucks transport are increasing. Reasons like the increasing costs of diesel fuel, driver shortages and more. Truckers are a dangerous and fatigue job, so there is a shortage of truckers which competition between them might not decrease the costs. However, as larger volume shipment increases in technology. For example, train shipment. It is maybe cheaper to shift in mode to trains and other larger volume shipment modes. As the technology increases, lead time might be decreased using these larger volume shipment modes.

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Trey Christner says:

September 9, 2015 at 9:43 am

I believe the costs for US transportation will level out with the decrease in logistics costs and increase in trucker wages, service rules, and diesel taxes. The technology and efficiency to transport goods in a larger volume shipment may decrease logisitic costs even more, but the current line haul/back haul efficiency to lower logistic costs will keep transportation costs steady with new taxes and precautions to keep truckers safer on the highway.

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Juechen Xia says:

September 9, 2015 at 2:35 pm

I did some research on website and found that the logistics cost of 2014 was about 3.1percent larger than that in 2013. I think the problem is that technological changes in one year is not that significant to reduce logistics cost. In the meantime, factors like driver shortages and wage increase will increase dramatically due to people’s awareness of warfare. And there are some uncontrollable factors to impact on the situation.

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Ryan P. Case says:

September 9, 2015 at 3:14 pm

I believe the current trend will continue in the near future with lower logistics costs. Over time trucker wages have increased with inflation, restrictions on driver hours continue to be enforced, and fuel costs fluctuate. Balance is maintained through trucks fuel efficiency, as well as coordination of schedules to ensure efficiency of truck loads. I believe that global supply chain organizations/leaders will continue to push for improved shipping, rail, and air travel to balance the increasing shortage of truck drivers.
I believe of more concern will be how to pay for improving and replacing the crumbling current infrastructure. Traffic continues to increase on roads that are exceeding planned capacity and service life, the need for more and updated rail (to include more offload/onload locations enrollee), and expanding freight operations to more airports.

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Kevin Morrisroe says:

September 9, 2015 at 4:26 pm

Will this growth in costs for trucking cause a shift in mode to trains and other larger volume shipment modes ?

I do not believe there will be an overall large shift to trains and other larger volume. No matter how much you put on a train, you will need a truck to get it to the destination. As they say, the last mile is the most expensive mile (the truck). I do believe the cost of trucks will go down however, in the future; the largest reason of the growth of cost is due to driver shortages. This is something that is not seen as a continuous rising element and people will fill this job market over time.

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Animesh Choubey says:

September 9, 2015 at 6:53 pm

I think increase in the costs by 22.6% is a huge number, so emerging technology or increase competition may or may be able to cover this. Thus in my opinion this gradual movement towards increase costs will continue to happen.
One way to reduce these costs is to increase the number of available drivers by increasing the wages or providing them options of routes so that they can drive in the areas where they are more comfortable. Also switching to train as mode of transport is a viable option provided there is a economy of scale in involved and costs associated is comparable to the road transportation but again it is important to keep in mind that rail facility is not available in every part of the country.

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Amanda Dyson says:

September 9, 2015 at 8:12 pm

I would not be concerned with the increase in trucking transportation costs. One would expect to see some increases year over year due to common cost increases, such as the price of fuel and wages paid to truck drivers. As the number of drivers decreases, thus creating a shortage, your simple microeconomics concept of supply and demand comes into play — when supply decreases while demand increases, the price paid for the good will increase. This is what we’re seeing happening in the trucking industry. Ideally, the cost savings from technology will compensate for the increases in other areas to keep the average transportation cost relatively stable. As Kevin said, even if trucking costs do continue to increase, companies will still be forced to use trucking as a mode of transportation to some extent, given that ships and planes cannot deliver to nearly as many destinations that trucks can.

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Ankita Singh says:

September 10, 2015 at 9:30 am

The trend of increase in the truck transit cost is here to stay for the several reasons mentioned in the blog. Increasing fuel cost and change in rules in industry norms are here to stay for a while. I believe that technological up-gradation might help in offsetting the impact by some margin but a strategic change is what I foresee to tackle this change. As Kevin and Amanda mentioned, truck transits would always be a part of logistics and we can not replace it with any other mode of transport. However, the opportunities involving optimized mix of rail and truck transit could be explored in order to keep the overall transportation cost under check in the present day scenario.

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Rahul Srinivas Sucharitha says:

September 10, 2015 at 10:58 am

I think that the cost of logistics would not change drastically due to the change in technology as the drivers and the companies would take time in getting accustomed to the new technology and would take years of training and affirmation from the corporate of the company to utilise the new technology.
Also, the increased costs would in the long run, decrease or remain steady provided the drivers show efficiency and the technology which we have in hand is optimized and put to good use.

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gnichter says:

September 11, 2015 at 1:41 pm

I think that logistics costs overall will still follow a downward trend in the near future. Companies are getting smarter about managing their logistics. For example, there are now advanced algorithms and computer programs that can solve even the most complex route planning problems. UPS has invested heavily in their ORION system, which can analyze over 250 million address data points. Certainly, new technologies like this will contribute to vast cost savings and will shape the future of logistics.

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Joseph Mista says:

September 13, 2015 at 6:25 pm

There is a ton of great tech. being introduced into the trucking industry, a lot of it dealing with improving diesel engine efficiency and longevity. Additionally we spoke recently about the Iran deal allowing for a huge decrease in oil price. I feel that these two factors will outweigh the lack of drivers, and other price pressures. I will be interesting to see where things go.

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Jiawei Zhang says:

September 14, 2015 at 4:21 pm

The reasons for cost increase listed in the article, we can separate them into 4 types.
1. The wage increase due to shortage of drivers and the change of service rules. These two could increase road transport cost continuously, which means once they change their influence on cost is last during the following period, unless they make another change.
2. The independent driver truckers was considered as employees, this is a mistake in statistics, it can be fixed.
3. The digital loggers. This cost was taken place for only one time. And it’s cost could be distributed in a long time.
4. The disiel cost, it change frequently, it could be ignored in the long run.
So , just the first kind of cost could result in a increase of road transport cost. And these costs are uncertain in the long run.
In conclusion, it was uncertain, the cost of road transport will keep increasing in the U.S.

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Aaron Johnson says:

September 16, 2015 at 1:39 pm

After reading this, I decided to check how the trucking industry fared in 2014 to see if these costs had a significant impact on the industry. According to the American Trucking Association, trucking revenues exceeded $700 billion for the first time ever, and they accounted for 68.8% of all domestic freight tons and 80.3% of all freight transportation spending. Despite the increasing costs, the industry continues to grow, but the rising costs are forcing companies to be more efficient. I think by making sure they have the most fuel efficient vehicles and utilizing the trucks to close to full capacity, most organizations can offset the rising costs. I don’t anticipate seeing a decline in the trucking industry anytime soon, but the rising costs will force organizations to continuously improve their operations.

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Xiaowei Shao says:

September 18, 2015 at 12:10 pm

If our assumption here is that the US logistics system requires the same trucking distances and truck numbers as before, I think the transportation cost would go up. Because the rage increases, diesel tax etc would contribute to a higher cost.
Just suppose we were now in 2013 and still don’t know about what will happen next year. The increasing trend of unit truck shipment cost would remind us to redesign our logistics system to reduce cost. It is possible that after forecasting the shipment demand for next year, we found it more efficient to use more trains or other large volume. It is also possible that we still believe that using trucks is the most suitable way.
In addition, though transportation cost accounts for a large proportion of logistics cost, we cannot ignore costs related to other parts of the logistics such as warehouse, sourcing etc.
So to sum up, whether the logistics cost will increase depends more than just the increasing prices.

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Manish Singh says:

September 20, 2015 at 1:20 am

Demand aggregation and use of larger carriers can help to some extent to mitigate the risks.The factors which are leading to increase in transportation costs are unavoidable and require a proper planning to deal with.The other modes of transport cannot replace truck because they may have their own limitations for example many remote areas may not be connected through rail link but truck can easily reach them.

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Kairui Jia says:

October 7, 2015 at 9:09 pm

I don’t believe the US logistics cost will increase. Since wage increment takes the largest part of total cost increment, it has a limitation. Because the unemployment in the US is at middle level, and many Mexican-American choose truck driver as career. The shortage of the trucker is a temporary phenomenon. However, the decline of logistics cost is inevitable, because it has been regarded as another part of profit by companies. Thus, enterprises will try to improve logistics efficiency consistently.

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