Freight Transportation Shortage Strains Holiday Season
A shortage of trucking capacity and a rail system that has been experiencing record breaking volume for the past year is combining to add strain to an ready strong holiday shipping season. A spokesman for the American Association of Railroads stated, "The holiday shipping season seems to have started early this year, the industry has been shipping record volumes for the past two months." (Business Journal of Jacksonville, Nov 28, 2004) For the rail industry, the greatest seasonal peak is in intermodal rail service because it tends to to carry more retail goods than standard rail service. With average velocities down on all but one of the Class 1 US railroads, shippers are encountering delays and higher than anticipated costs moving their goods to the stores. Some retailers, such as Jacksonville based Stein Mart Inc are tapping into the negotiating power of large shippers like UPS. Stein Mart contracts with UPS to supply all of its stores. UPS, the intermodal's largest customer, has contracts with carriers that have penalties for late delivery.
Trucking capacity may be even tighter. Ongoing labor shortages and record demand have driven an increase in rates and a delay in services. Some trucking companies are even turning away freight from regular customers. Analysts suggest that the industry could hire 80,000 new drivers immediately and up to 200,000 in the next few years (Inc, Nov 2004).
The constraints on shipping may be heading for the consumer's pocket. Reduced shipping capacity has led to an increase in warehousing and an increase in shipping rates. Manufacturers may start to pass this on through higher prices. The capacity shortage has no easy solutions. For trucking, driver recruitment is the main issue, with employee turnover of 100% common in the industry. Higher pay and better benefits are one solution, but it will continue to drive and increase in freight rates. On the rail side, reduced track capacity has led to congestion and back ups at critical points. This leads to decreased efficiency and actually reduces supply in response to increased demand. Ongoing cooperation between railroad companies to route traffic and share lines may help to improve efficiency, but training new crews and creating new lines will have to be part of the solution. At $1 million per mile, this will also lead to increased costs and rates.
According to the Milwaukee Journal Sentinel (Oct 2004) the capacity shortage may even hold back the economy. Eric Starks, president of FTR Associates was quoted: "It could potentially be argued that it's a constraint on overall economic growth," he said. "To what extent, I don't think it's able to be quantified, but it definitely is a hindrance."