Trucking prices climbed 9.4% in June, the most in a decade, and demand should keep pushing the numbers higher. That's a system exacerbated by a growing shortage of truck drivers and an increasing workload on truck drivers caused by an increase in digital orders, which causes trucks to be filled with single items that have to be brought to dozens of homes.
And while automation may someday help this problem, that's not a short-term answer. Instead, companies will have to work to maximize efficiency and manage their supply chains to get the most production possible.
Nick Sciple and Dan Kline tackle the topic in this segment of Industry Focus. A full transcript follows the video.
This video was recorded on Oct. 18, 2018.
Nick Sciple: According to the Labor Department, long-distance trucking costs advanced 9.4% in June from a year earlier, which is the largest increase we've seen in nearly a decade. That's only going to get worse. Demand for trucking is only rising because of e-commerce and all those sorts of things that we talk about every day here at The Motley Fool.
Dan Kline: We also went from a trucking system where a full truckload went to a Walmart or a supermarket or whatever big store destination. Now, there are literally full trucks full of individual packages driving around. Obviously, it takes less time to bring a full truckload of something somewhere than it does to bring multiple full truckloads, sort that into individual packages, and then go deliver those individual packages to people. We've created not only added demand, but the same amount of goods now requires more handling.
Sciple: Exactly. Like you said, taking a truck to 50 different homes is different than taking it to one individual household. One other thing to pull the thread here is that this is a problem that's not going to go away anytime soon. There's a lot of promise out here about driverless vehicles, maybe driverless trucking filling this gap. But this is something that may be five to 10 years away. The example that I used with you when we were preparing for the show is that for a long time, we've had autopilots in airplanes and large trans-ocean vessels. We still have to have people in those to make sure that everything's running smoothly. There's limitations in our driverless technology today. For example, LIDAR systems are very important for tracking technology for trucking. However, they struggle in adverse weather conditions, particularly the rain. If you're going to come up with a logistical solution that is going to address the entire U.S. retail landscape, you have to be able to work when it's raining.
Kline: The solution isn't going to be automated driving, at least not in the short-term. It is going to be logistical planning. You're going to have more companies do what Amazon, Target, and Walmart have done, which is absolutely work to maximize their supply chain, to know full well what the cheapest way to get the gross volume to a warehouse and then the individual item to you. That's going to be a mix of absolutely everything, from trucks to drones to pack mules -- probably very few pack mules --whatever works in each situation. You're going to see more third-party solutions like your FedEx and UPS, but even on and in-your-warehouse basis, that works sort of like cloud computing for smaller companies. The days of an inefficient Postal Service doing a lot of deliveries, that's not going to be supported by the workforce we have.
Sciple: Exactly. One last thing I want to mention before we go to the break and then the second half of the show is that, this trucking factor is really affecting logistical infrastructure. But, we also have to talk about tariffs. When you're putting increasing fuel costs, a tracking shortage, and tariffs on top of the existing logistical infrastructures of these businesses, that's really creating pressure points for these companies. The people who can really manage their logistical expense are going to be in a position to thrive here.
Kline: I think we have a retail world that is looking a little to the future. Your goal at Walmart, Target, Amazon, all the big players, is to not pass these costs along heading into the Christmas season. They've stockpiled goods, they've done whatever they can do. But when you get to January, I think you're going to see some pretty significant price increases for trucking reasons, for tariff reasons, for labor shortage reasons. We're masking that now. We'll probably see some lower margins heading into the fourth quarter, as well.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. Nick Sciple has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.