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May 27, 2021

A Bloomberg Report: The Future of Logistics

Indiana’s economy is tied to freight movement, mainly because of its strategic location serving regional, national and international markets. Each year, 724 million tons of freight travel through Indiana, making it the fifth-busiest state for commercial freight traffic. By 2040, freight flow is expected to increase by 60%.

 


“Logistics companies need a place of financial affordability, stability and a reduced regulatory burden.”
Eric J. Holcomb, Governor of Indiana

 

 

The Indiana Department of Transportation (INDOT) is responsible for maintaining a seamless integration of transportation infrastructure. One-third of the freight on Indiana’s transportation network passes through the state without stopping; this means the carriers are stakeholders in the state’s freight system. INDOT’s goal is to partner with others to provide an integrated freight transportation and logistics system that ensures the efficient movement of goods, materials and services. Recent INDOT innovations have realized tens of millions of dollars in cost savings.

Among the highlights, INDOT now has Virtual Weigh Stations using in-ground sensors to weigh trucks as they travel along interstate and intrastate roads. As trucks cross the sensors, their weight, speed and axle spacings are recorded, even as a camera snaps a photo of the vehicle.

 
BloombergGraph.
   

Less capacity, higher rates 

Trucks traveling along INDOT roads increasingly command higher freight rates. The trucking industry closely follows the spot market rates -- the hauling prices that exist currently if a freight service provider were to get hired “on the spot.” If there are fewer trucks on the road during a given week, but there is a surplus of freight, spot rates will increase. It’s a key indicator, because many truck drivers and fleet owners have relationships with shippers and brokers so they can negotiate contracts quickly and get on the road. 

The nationwide shortage of trucks combined with the growth in e-commerce is pushing the spot market higher. Because of COVID-19, many truck fleets haven’t had the capacity to take advantage of stronger retail freight volumes. That overflow freight has moved to the spot market. A late-summer surge continued in spot market rates across all equipment types, according to DAT Freight & Analytics. 

BloombergFig8

In general, delivery companies are struggling to keep up with the demand. Market capitalization of the largest companies such as DHL, FedEx and UPS declined 15% to 30%from January 2020 to mid-May 2020. One reason for the declines is that the pandemic forced ocean cargo to be rerouted around Asia and shipping capacity on routes between Asia, and North America has been down significantly compared with pre-pandemic capacity. Those lost trips and weak capacity have led to lost revenue and poor financial results for delivery companies. 

Airlines also have shut down routes. With many global air cargo fleets grounded, there’s been a shortage of airfreight capacity and a quadrupling of costs for one-way charters of full freighters.

Combined, the ocean and air freight turbulence has increased shipping rates, leaving customers with no choice but to pay up.

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