Rising fleet costs in summer 2021: Insights and analysis

Freightwaves is predicting “an extremely active summer for domestic surface transportation providers.” According to insights from the Bank of America, two primary factors are making the American economy heat up: 1. The $1.9 trillion COVID stimulus signed by the White House on March 11th. 2. “Unambiguously positive” coronavirus news.

A report from Sunset Transportation predicts that the booming economy will translate to big business for fleets. As goods production recovers from the impact of COVID, more shipments will be on the road and the demand for freight services will continue to grow.

The post-COVID economic boom will give fleet and freight companies a lot of new business – but it will also increase operational costs. As one respondent told Overdrive, “I think the price of fuel and wages will grow faster than freight.”

When businesses hit the gas and accelerate into a bull market, they need to watch out for three rising expenses: 1. Fuel. 2. Drivers. 3. Trucks.

Fuel costs will continue to rise

It’s not unusual to see high fuel prices in the spring, but this year, costs will continue to rise well into the summer. The US Energy Information Administration (EIA) forecasts that nationwide gasoline prices will increase by 71 cents per gallon. In regions like California where fuel costs are already reaching $5 per gallon, this will hit particularly hard.

With fuel accounting for 36% of the average fleet’s budget, it will be important to find ways to reduce fuel use as much as possible. Fortunately, fleets that use cutting-edge telematics tools can cut their fuel use by 30%.

Driver wages will go even higher

The truck driver shortage has been a topic of discussion for years. The pandemic has made the problem even worse. Businesses are responding to the shortage the only way they can – raising wages.

A major trucking company, GP Transco, just announced that it will raise driver base pay to 60 cents per mile. Knight-Swift Transportation Holdings Inc. told the Wall-Street Journal that its wages for recently certified drivers have risen by 40% over recent months. Cowen & Co. analyst Jason Seidl wrote that “this is the tightest driver market we have seen in our nearly three decades of being involved in the trucking sector.”

One of the best ways to combat the trucker shortage is to keep current drivers happy. If the job market stays tight, fleets will want to make sure they don’t lose the drivers they have.

Trucks will become increasingly expensive

It’s getting harder to buy new and used trucks. Supply chain shortages and bad winter weather negatively impacted truck production. While those problems have cleared up, Volvo workers are currently on a strike which shows no signs of ending soon. The combination of problems means that truck production could be slow for quite some time.

Because new trucks are hard to come by, used trucks are increasingly expensive. JD Power reports that prices for Class 8 used trucks have increased by 22% at auction and 4.7% at retail.

In 2021, there will be more opportunities to do business and make profits. But with an accelerating economy come growing expenses.