Five factors that could raise freight costs in 2020

While the macroeconomic picture for 2020 looks good, rising freight rates could produce some potential headwinds going forward, according to Morgan Stanley analysts Simeon Gutman and Ravi Shanker. Gutman and Shanker provided this forecast on Tuesday during the Retail Industry Leaders Association (RILA) LINK2020 supply chain conference.

Consumer spending, while expected to be lower than 2019, will still be strong, driven by low interest rates and healthy employment rates, said Gutman. At the same time, many industrial data points are also looking good.

However, these positive signs could be tempered by five factors that might affect truck rates in 2020, according to Shanker:

1. The final electronic logging device rule, which took effect in December 2019, could negatively affect capacity, which would, in turn, drive up rates.

2. Insurance rate increases could also reduce capacity by 3-5%.

3. The new Drug and Alcohol Clearinghouse, an online database that provides real-time information about drivers' drug and alcohol program violations, has the potential to reduce driver supply by 1-3% in the first year and up to 10% in the long term.

4. The International Maritime Organization's 2020 regulation requiring shipping companies to restrict their sulfur emissions could potentially increase diesel by 5-33%.

5. California's AB 5 rule, which imposes a stricter definition for what constitutes an "independent contractor," could make it harder to operate effectively in the state as a truck owner-operator. This could impact capacity in California, a key region for freight transportation.

"As we go through peak season, we expect to see a squeeze in freight rates," Shanker predicted.

The good news, according to Gutman, is that retailers will be more prepared for such a disruption, as the freight market turbulence of 2018 is still fresh in executives' minds.

"The bad news is that it's going to be hard to avoid this," he said. "This is not a one-time event. Demographics around trucker shortages and the increase in regulations means this is going to be the new normal going forward."