There’s been a lot of talk in the industry lately about rising destination charges on new cars. Some assume that automakers are pushing up the prices to cushion their profits, but there’s perhaps a more straightforward answer: It’s gotten much more expensive to transport vehicles due to the pandemic.
At Cox Automotive, our Manheim Logistics brands – Ready Logistics and Central Dispatch – touch 10 million vehicle moves a year. And while those are almost all on the used car side, the logistics supply chain challenges are the same for both new and used vehicles. Below is a look at the data we’re seeing and the trends we’re watching.
Vehicle transportation costs across the automotive industry have risen noticeably since 2019. On Central Dispatch, the largest self-serve automotive marketplace that connects shippers and transporters, the carrier cost per mile increased nearly 18% from 2019 to 2021. While there are several factors influencing that increase, the biggest ones are:
- COVID caused a shortage of carriers, which persists to this day. In fact, the American Trucking Association said that the problem went from a shortage of 61,500 drivers pre-pandemic to 80,000 today – a 30% increase. And filling that gap is becoming harder as consumer delivery companies are increasing their wages to attract more drivers, and many potential drivers are finding it’s much easier to deliver a package than a 1–2-ton vehicle.
- There’s increased demand for transporting wholesale vehicles farther distances due to low supply and more dealers buying these vehicles digitally. The average vehicle move in Q1 2020 was 225 miles, and in Q3 2021, that number more than doubled to 460 miles.
- The price of fuel continues to rise. In October 2021, a gallon of diesel was approximately $1.30 more expensive than the same time a year ago – a significant increase.
The fact is that these challenges aren’t going away anytime soon. The shortage of carriers combined with the increase in demand for transportation is all happening in a relatively low-demand transportation market, with North American vehicle production down 22% from 2019 to 2021 and wholesale auction volumes down 9% in the same period.
When the chip shortage resolves, more new vehicles will head to dealerships and more used vehicles will find their way to wholesale. The already overtaxed transportation supply chain is going to be squeezed further – perhaps leading to more cost increases.
Given all that, I’d bet the increase in new-vehicle destination charges has a lot more to do with the headwinds facing vehicle transportation than a way to add more profits.
Joe Kichler is vice president of Manheim Logistics.