AS A CONVERGENCE of economic, regulatory, and technology trends alters the playing field, the trucking industry is undergoing a period of significant change. These trends will give rise to new challenges and opportunities, and it will be important for shippers to understand them as they seek ways to control transportation costs—often by working with trucking companies on mutually beneficial initiatives.
Truckload volume is once again experiencing stable growth, after suffering a nearly 25-percent drop during the recession of 2008-2009, according to figures from the American Trucking Associations. The accompanying shakeout in the industry—including a record number of carrier bankruptcies—led overall capacity in the truckload sector to fall by approximately 15 percent during the recession. By 2011 truckload had regained much of its footing, and volumes grew a healthy 6 percent in 2012.
However, the lessons learned by motor carriers in all segments during the recession, when many of the weaker players fell out, have caused big industry players to take steps to help themselves weather future economic storms. These carriers are initiating major cost-control and efficiency-improvement programs, and they are seeking to improve profitability by reducing empty mileage.
Fuel and labor together represent two-thirds of a motor carrier's expenses, so trends in those areas are key indicators of operating costs. In the last decade, fuel costs have fluctuated significantly, leading to major rate increases and forcing truckers and shippers to seek alternatives to the status quo.
However, the last two years have been less volatile in regard to fuel price changes. As shown in Figure 1, diesel fuel prices are experiencing their longest period of stability in over a decade. Between mid-2011 and mid-2013, diesel prices have ranged between US $3.72 and $4.12 per gallon, a 40-cent variance. Compare that to the prior two-year period, when prices almost doubled, and to the five-year period prior to the price crash in late 2009, which saw prices nearly triple.
Few in the industry believe that the last two years of fuel price stability will continue indefinitely, so truckers and shippers are undertaking efforts to mitigate high diesel prices. One approach is the expanded use of liquefied natural gas (LNG). Natural gas operations can reduce per-mile trucking costs by 20 percent or more, and the incremental cost of natural gas vehicles can pay for itself relatively quickly. To fully capitalize on this opportunity, however, it will be essential to expand the LNG fueling infrastructure.
Labor costs and availability could potentially be less predictable than fuel costs in the years ahead. The trucking work force, largely made up of middle-aged "baby boomers," is facing a growing driver shortage as older drivers retire and the occupation becomes less attractive to younger people. This is putting upward pressure on driver salaries and making driver recruiting more difficult.
As part of the Federal Motor Carrier Safety Administration's Compliance, Safety, and Accountability (CSA) program, the agency has promulgated a series of new rules aimed at increasing trucking safety. The most significant of these rules involves drivers' hours of service. As of July 1, 2013, the new rule reduces a driver's average maximum allowable hours of work per week by 15 percent, from 82 to 70 hours. This is designed to reduce fatigue among drivers, but it will also limit the available supply of trucking capacity, unless companies aggressively recruit new drivers. Given how difficult it is now to attract and retain new drivers, it's likely that the reduction in hours will compound ongoing capacity challenges.
Federal regulators are also in the process of developing rules requiring electronic onboard recorders (EOBRs) in all trucks as a means of monitoring the safety of motor carrier operations. While some operators see this as an additional burden, many fleets are already adopting EOBRs as well as a broader range of telematics tools to increase fleet safety and efficiency.
The impact of technology on the trucking industry extends well beyond what is being required by federal regulators. Improved telematics and mobile communication devices provide trucking companies with dramatically improved visibility into the location and productivity of their trucks, enabling fleet managers to increase efficiency in a targeted way.
Route and load optimization software is helping companies deliver more loaded tons per vehicle mile, which significantly reduces empty trips. The combination of telematics devices and back-office optimization systems helps trucking companies better manage their work forces and integrate their operations with those of their partners in the supply chain.
Implications for shippers
On balance, the economic, regulatory, and technological trends discussed here almost certainly will put upward pressure on freight costs. The driver shortage and further restrictions on drivers' work hours will likely increase labor rates and potentially limit available capacity. In response, some trucking companies are diversifying more into intermodal operations, which can help them keep costs under control and hedge against a labor shortage or fuel cost increases.
In this environment, shippers would be well served to continue to better integrate their supply chain with their logistics and transportation service providers. They can do this most effectively by gathering and making use of all available real-time data, which will allow them to identify and take advantage of the most efficient and economical choices at any given time. Shippers also may benefit from using software that forecasts and tracks shipments to match their loads to operators' available capacity, such as the excess capacity that's often available on backhaul routes. While it will not be easy for some companies to undertake some of these initiatives, it is an effort well worth making.
Trucking is indeed facing pressures that can drive up costs, but the innovations and technological advances that are becoming more widely available can enable shippers to maintain economical transportation options.