Cargo traffic may face pre-COVID-19 level issues
Cargo traffic is a complex business, with wild swings and special aspects. Today, the increase in spot rates will be reflected in the growth of costs. What does this mean for carriers?
Nearly all carriers’ operating costs are at a much higher level than pre-COVID – up $0,38 per mile. And that’s just the maintenance, insurance and fuel costs.
The calculation doesn’t include the driver’s wages or the purchase/financing of equipment, which can almost double the amount. The truck fleet launched in 2019 spent $0,72 less than the 2022 fleet.
In 2019, diesel fuel prices ranged from $2,97 to $3,11 per gallon. With an average consumption of 7 miles per gallon, fuel costs in 2019 ranged from $0,42 to $0,44 per mile for a class 8 truck.
In April, the retail price for diesel fuel was $5,10 per gallon. At 7 miles per gallon, that equates to $0,73 per mile.
An increase of $0,30 per mile will have a significant impact on carriers’ cash flows.
Referring to TCA data, the cost per mile in 2019 was $0,07. In 2022, this cost increased to $0,09 per mile.
Using the same dataset, maintenance costs increased from $0,20 to $0,26 per mile. In total, insurance and maintenance increased by $0,08 per mile.
Virtually every trucking company increased costs by at least $0,38 per mile compared to 2019.
The most expensive is a truck.
A three-year-old used truck could be bought for $69000 in 2019, according to ACT. In spring 2022, the price of a 3-year-old truck almost doubled to $136000.
If a fleet is new and buys trucks in 2022, then it will be in worse conditions than existing carriers. Assuming a truck is driven by an employee driver, spot rates below $2,63 per mile it’s a disaster for fleets if this rate persists for long.
If retail diesel prices rise, the break-even point for carriers will also rise. If the fuel price falls, the break-even point will be lower.
There are different opinions about spot rates for fuel and freight, but one thing is for sure – there definitely will be instability.