Why Car Shipping Prices Rise (or Fall)
Many customers complain to us that pricing seems to rise or fall without any explanation. To us, it’s “business-as-usual”; pricing in the auto transportation world depends on all sorts of different things, and we’re just used to it. It’s easy for us to forget that our customers don’t live and breathe the industry, and wouldn’t just understand the ups-and-downs, or what makes the logistics sector tick. So I asked everyone around the office about the things they consider to be the biggest contributing factors to price changes in our industry, and here’s what they had to say.
Sean Gavin, LTL Dispatcher:
There are lots of contributing factors: diesel gas prices; the economy in general. As we all know, a 5 cent piece of candy in the 40’s now costs $1.25. Our parents would never let us forget. Recent government regulations also have to be factored in. ELDs (government mandated electronic logging devices that strictly enforce driving times) stretched out the amount of time it took to get from Point A to Point B, which increased all carriers’ costs and drove prices to the customer up. We have also started to face the problem of having an overall lack of drivers. You might see talk of a “driver shortage” in the news once in a while, but we see it all the time in publications geared toward the trucking industry. The government has lowered the age to get a commercial license, but new drivers are getting harder and harder to find. Qualified ones are even harder to find, and putting them in higher demand means that they demand higher pay, as is the American way. But paying driver more does mean our costs go up, and higher costs again mean higher prices to customers. There are lots of others I’m not thinking of, but that’s a start. (By the way, you can read another post Sean wrote for us here.)
Sean beat me to it!
But if you think of it, the demand is what also can force the price to skyrocket. When there is more freight and not enough trucks, the highest paying customers get preferential treatment.
Look at Tesla. They were shipping a few thousand vehicles a month and paying top dollar. This made the cost for a space for a vehicle go up by another 10 to 20 percent.
It’s the cost of doing business, as Sean touched upon. Insurance rates going up plays a major role in whether a business can stay afloat or not.
Insurance is a major contributing factor. Workers’ compensation increases annually around 10% along with general liability insurance. Then there’s health insurance, which the governor allows a minimum increase of 7% annually, but most insurance companies ask for 10% or more. We also must provide a Certificate of Insurance for each facility we do business with or premise we enter, with a minimum aggregate insured amount of $2,000,000.00 (you read that right: two million dollars) required under New York state law. These insurance payments increases annually, and should you have a workers’ compensation claim, the experience module rating increases 10 fold, with a minimum increase of $30,000.00 annually for 7 years until the EM decreases. The same goes for any general liability claim. Insurance as a whole can eat up 25% or more of your annual budget.
And finally, the word from the big man himself.
Frank Sr., Owner:
There are two types of customers that will be affected differently depending on the season.
Starting from mid-March thru Memorial Day, when snowbirds want to come home from Florida, northbound cars are coming up in the hundreds. We have extreme demand for trucks going northbound, so if you’re going southbound at that time, your rates go down. The reverse goes for October thru mid-January, when we have extreme demand going southbound so northbound pricing is cheaper.
We have a demand drop during summer with dealerships, and since we’re in between snowbird seasons, we can lower prices to capture more business. We also have a lull when cars are switching to the new year’s model until the end of August. Dealers are aware of the seasonal change and will buy more return freight at the cheaper prices.