How Inflation and Shortages are Affecting the Trucking World
You probably can’t go a day without hearing about “soaring inflation” and “skyrocketing prices” for everyday items. When it comes to the transportation industry, inflation is especially profound. Nothing that goes into to making the transport world turn hasn’t felt the affects and it can be difficult to wrap your head around all the avenues it may touch.
The most precious commodity
As a society we have become nearly entirely reliant on diesel. Because of this it has created an unrelenting demand. The cost of diesel though is what can truly cause inflation to occur rapidly for not just products but cost of living as well.
Just to make sure we understand how entrenched diesel is in our every day lives, we need to look at everything in our home. We’ve heard that everything you had was brought to you by a trucker or train; groceries, the roof over your head, the clothes in your closet and so on. While this is still true, there is more to it that involves diesel.
Outside of the transportation it takes to get it there, the cost of manufacturing most goods involve diesel in some way or another. Groceries are a good example of use when it comes to production due to running farming equipment and machinery.
When the fuel it takes to make and transport good rises, the rate of inflation and the cost of the goods will rise. Carriers and everyone else involved in the transport of goods then have to raise the price of transporting customers freight, thus causing the customers to have to raise the price on their goods in order to still turn a profit.
“Meanwhile, prices for freight transportation by train and by plane each rose more than 11% vs. the year-ago period. The BLS noted that rising costs for transportation services were a key contributor to overall producer price inflation of 10.8% in May, a mark that—while still high—was down slightly for the second month in a row.
Month to month, final-demand wholesale prices rose 0.8% in May after climbing 0.4% in April and 1.6% in March.
Producer prices for final-demand foods were up 13% year over year in May, with eggs once again leading the way on the wholesale food inflation front: Wholesale egg prices rose nearly 185% over year-ago levels (with a month-over-month decline of 0.3%).
Wholesale prices for beef/veal and pork fell month-to-month and year-over-year, with beef prices down 14% on the year and pork prices down more than 5%. Chicken prices went the other way; a 4.6% month-to-month jump in producer prices for processed young chickens contributed to a year-over-year climb of 20.6%.”-winsightgrocerybusiness.com
By now you can likely see how the spillover effect takes place and causes the general cost of living to go up, no matter how far distanced one is from the actual point of inflation.
Regarding the cost of diesel, that alone is hurting carriers more than any shortages or supply chain issues. Small to moderate sized carriers are feeling the biggest effects of pricey fuel as they often risk losing customers to bigger carriers that can afford the increase by taking smaller loses.
As smaller companies must increase their freight rate to accommodate for the cost to run the fleet they will likely lose customers. This will make it incredibly difficult for them to stay in business. Those that are based in California and western states are feeling the most pain at the pump with notoriously high gas prices, the diesel is no different there.
Like as discussed above, inflation touches everything just as diesel touches everything in some way or another. In the trucking industry, shortages of equipment have caused carriers and owner operators to either adapt or take losses.
Rising costs has made it difficult for truck manufacturing companies to keep their heads above water. This can result in cutting wages and/or losing staff as well as the ability to find and afford the materials in order to produce. Though this business is no stranger to shortages and price hikes since the pandemic, it is making it increasingly harder to meet demand, consequently causing carriers to suffer.
One of the more disposable commodities that is becoming much pricier are trailers.
“For motor carriers, inflation is showing up in places besides driver wages and fuel. Perhaps the most dramatic example is trailers. The Producer Price Index (essentially a measure of business-to-business inflation) for truck trailers and chassis has been surging for a year. February saw the second-largest monthly increase (6.3%) in the trailer PPI, after the third-largest increase (5.5%) in January. The largest one-month gain (10.5%) occurred in October. Surging trailer costs are not surprising given the price surges we have seen in key trailer materials, such as aluminum, steel, and lumber.” – truckinginfo.com
With higher pricing for equipment and not enough of it, this always plays into how pricing is adjusted for freight customers. This makes an unsettling environment for smaller carriers and owner operators.
“Small operations may be hit the hardest by these emerging stresses to the market. Higher equipment maintenance costs resulting from a lack of new truck inventory and record fuel prices will disproportionately hurt the bottom lines of independent operations. As expenses mount, owner-operators might have to make the difficult decision to sign on with the larger carriers or leave the industry altogether. This attrition will further weaken an already taxed supply chain.”-triplettransport.com
Replacement parts are just another addition into the strain on the trucking industry as a whole. Both material and employee shortages are to blame for scarce supply. With workers not present to manufacture goods and limited supply of material decreasing production it has created a borderline crisis to those in need of it.
A simple albeit high level example is a small carrier with a fleet of ten trucks has been in need of parts to repair either the tractor or trailer. These parts, like most, must be imported from outside the U.S. – let’s say China – and while the parts are on back order, other maintenance issue arise thus deeming the trailers/tractor inoperable, causing the demand for more repairs and parts.
This cycle can kill a small business in a matter of months as they would not have working equipment, while a mega carriers would be able to adapt and pinch where they needed to survive while also gaining more customers in the short term.
We will bypass the ongoing topic of the driver shortages in even pre pandemic times and go straight to what is happening today when it comes to the trucking workforce. On top of the already spread-thin workforce, truck drivers themselves are left footing the bill for food and hygiene products while on the road. All while things at home are costing them more than before, just like the rest of us.
Going back to the smaller companies, this can be another hurdle that they currently face. Whether they operate with primarily owner operators or company drivers, they may not be able to financially support their drivers.
Their drivers likely must find employment elsewhere that can offer higher pay so that they can afford to maintain their bills and regular expenses. This will result in a worker shortage, one that many companies all over the industry are suffering from.
Unfortunately, heading into the holiday season demand will only increase, even if just by a little and that will call for more diesel, more products, and more people. All of which are in short supply or extremely expensive.
There are solutions though. If you are a shipper or need to get your freight delivered safely and on time with as little headaches as possible, Meadow Lark can be your transport go-to. Give us a call if you find yourself scrounging for freight resources and let us work together for not just a solution but a strategy that can withstand the test of time,… and inflation.