Navigating Supply Chain Inflation with Dedicated Services
Everyone is talking about inflation.
You’ve probably been hearing about it and it’s easy to wonder what it could mean for the future. Inflation is a real and constant factor that affects the supply chain and in turn, your business. When supply chain inflation occurs, J.B. Hunt Dedicated Contract Services® has the capability to alleviate the pressure of fleet management for customers thanks in part to our density, scalability and flexibility.
Density, scalability and flexibility are valuable attributes to have when numerous challenges on the horizon are set to affect transportation. Record wage inflation, high fuel costs, labor shortages, equipment shortages, rising interest rates – the list could go on and on. Factor in overall economic inflation and the threat of it spiraling into a recession, and it creates additional strain if you’re managing a private fleet for your business or working with a smaller carrier. So, what does inflation mean for trucking? Let’s look at the facts.
Numbers Don’t Lie
When you stop and consider the current economic climate it’s hard not to worry about a future recession catalyzed by inflation. As reported by the Wall Street Journal, for the first time since 2000, the Federal Reserve has raised the benchmark federal funds rate by half a percentage point. This rate hike is one of six expected to be completed by the end of the year to try and tame inflation. It’s been 15 years since the Federal Reserve set such an aggressive pace to lift interest rates, but it isn’t unwarranted according to recent inflation data.
From January 2021 to January 2022, inflation rose 6.1%. To counter this rapidly rising inflation rate, economists have set median projections that expect the fed funds rate to rise by 2.75% by the end of 2023 and for that increase to hold through 2024. If these predictions ring true, the additional 2.75% increase to our current rate will put 2024 interest rates at the highest they’ve been since the recession of 2007 – when they reached over 5%.
Currently, the indexed economic trends for the United States support the idea of an upcoming recession:
- Final Demand Producer Price Index (PPI): Moved up 11.2% over 12 months ending in March 2022 – the largest year-over-year increase since data was first calculated in November 2010.
- Consumer Price Index (CPI) 2021: The annual average increased 12.14% from 2020 to 2021. This is similar activity to the increase seen in the mid-2000s – preceding the recession that would follow from 2007 to 2009.
- U.S. Manufacturing Purchasing Managers Index (PMI): Fell from 57.1% in March 2022 to 55.4% in April 2022. For reference, the closer we creep to a value below 50%, the closer we get to a negative economic situation.
The actions of the Federal Reserve, coupled with the status of the nation’s indexed economic trends, seem to be creating the perfect storm to further supply chain inflation and economic downturn. Add record high fuel costs and increased expenses on capital investments due to higher interest rates on top of that and you've got a mix that creates a strong reason to worry about what that will mean for your business.
Are you positioned to handle these rates? Because the pressures don’t stop there.
According to the American Transportation Research Institute 2021 Analysis, 26% of all private truck miles were empty and 81% of private fleet trips operated at less-than-full capacity in 2020, which was the first year that COVID disrupted the supply chain. The trucking downturn that was experienced during the pandemic closely mirrors the type of conditions we’ll see during a recession. That percentage of empty miles and less-than-full-capacity trips will feel staggering when operating through an inflated supply chain and record fuel costs – where every mile and trip is worth much more than while operating under normal conditions.
These tough conditions are going to make capital extremely tight. Companies will feel continued pressure to make hard decisions on where and how much they can spend.
Services Prepared for Disruptions to the Industry
So, when inflation and interest rates take a sharp incline in the coming months, will you be able to juggle a potential recession and higher operating costs while still working to outperform your competitors?
J.B. Hunt Dedicated has over 600 locations nationwide with 13,000 trucks across a wide variety of industries and those resources increase if we tap into the full carrier network available through J.B. Hunt 360°®. We’ve further prepared for volatility in the market by optimizing our fleets. For example, our company drivers receive specialized training so that they are prepared to handle freight for a variety of customers – which means we can utilize drivers and other assets where they are needed when fluctuations occur. In addition, J.B. Hunt has the capital to invest in transportation assets for your benefit so you can spend your capital elsewhere.
While a recession isn't 100% guaranteed, it’s safe to say that inflation is occurring, putting continued pressure on the supply chain and creating challenges for those trying to operate their own fleet or work with a smaller carrier. J.B. Hunt is a legacy logistics company that offers value to our customers through reliability and stability, even during industry disruptions caused by inflation – start tailoring your Dedicated Services with us today!