While rail transport is enjoying a rebound and cargo ports prepare for more activity following the expansion and widening of the Panama Canal later this year, over the road trucking continues to gain traction. And some industry observers question whether it can grow fast enough to keep up with rising operating costs.
Since the Great Recession of 2008-2009, the truckload (TL) sector has lost more than 20% of its capacity, making it the slowest to recover. Now TL executives are reluctant to invest more more money expanding capacity because they aren’t certain the business will support the additional costs, according to some analysts and carrier executives.
And looking at the state of the US economy, that outlook is not likely to change soon, according to Eric Starks, president of FTR Associates, a freight data research firm.
“In general, it’s kind of a choppy environment,” Starks told Logistics Management. “The market continues to move forward with some growth, but it’s not to levels most had expected at this point in the economic cycle.”
Costs Rising Faster than Rate Increases?
Carriers expect the market to support modest rate increases of between 2% and 4% by the end of this year, but question whether that will be enough to offset rising fuel and other costs.
Many argue that increased government regulation is negatively impacting productivity. Specifically, the Obama administration’s Compliance, Safety and Accountability initiative of 2010, which took aim at weeding out as many as 150,000 unsafe truck drivers from the pool of about 3.5 million long-haul truckers. Increased mandatory drug and alcohol testing, more extensive background safety checks and tougher scrutiny of unsafe TL operations has wheedled that pool of qualified drivers down even further.
Hours of Service Rule Changes
Another change was the change to the hours-of-service rules, which now require drivers to have a minimum of 34 hours off-duty before they can restart their next work week, plus those “restarts” are now limited to one per week. The new rules also require a minimum of two periods of off-duty between 1 a.m. and 5 a.m. on consecutive days, which is causing a scheduling and logistical nightmare for TL operators.
According to Starks, the hours of service rules change alone has resulted in a 3% to 5% increase in overall operating costs.
“It clearly had an impact,” Starks said. “Not everybody has been hit with a productivity loss, but a majority of the truckload industry has, and any type of productivity loss hurts the overall industry.”
Those hit worst are TL carriers who engage in long hauls of 800 miles or more, according to Saul Gonzalez, president of Con-way Truckload, the nation’s 17th largest TL carrier.
“We have been focused on dwell time between loads, trying to reduce wait time, and get our drivers assigned loads faster,” Gonzalez said. “We’re also working to reduce loads where the customer wants too much time, which ties up our truck and driver unnecessarily.”
While the goal of these changes may be increased safety, the result is a smaller pool of qualified drivers. And because there are fewer qualified drivers, companies need to pay higher wages to attract the few that remain.
Mergers and Acquisitions on the Rise
Some trucking companies are responding by trying to cut costs wherever they can. Others, however, are simply giving up.
Recently, Seattle-based Gordon Trucking was purchased by Iowa-based Heartland Express for $300 million. The acquisition made Heartland the nation’s fifth TL carrier worth $1 billion or more.
These types of mergers and other changes may simply be the TL industry shaking itself out and could result in more future profits overall, according to Lana Batts, partner at Transport Capital Partners, which specializes in trucking mergers and acquisitions.
“Expectations are that volumes and rates will go up,” Batts said. “Current rates haven’t met the cost increases, but expectations are getting quite high.”