Fragmentation makes freight shipping difficult
By: Phil Sneed
U.S. companies transport over 70 percent of their goods across the country using freight trucking services, according to the American Trucking Associations, and logistics management companies form a critical link between truck carriers and the businesses that require their services. That's because widespread fragmentation throughout the freight shipping industry makes it nearly impossible for a single producer to contract with all the individual carriers that will transport their goods.
Several factors contribute to this fragmentation, and it has a profound effect on drivers, carriers and the companies that need their goods transported nationwide. With the need for freight transport set to increase substantially in the coming years, and technological advancements that will make it easier for drivers to operate independent of larger carrier fleets, fragmentation in the freight industry is likely to become a more prominent issue.
An industry composed of smaller parts
For anyone who is unfamiliar with the fragmentation in the trucking industry, the following statistics may come as a shock. The U.S. Department of Transportation has found the 50 largest trucking companies handle just 30 percent of freight activity across the U.S. That number starts to make sense when you consider the scale of truck transport overall. The DOT discovered the industry is composed of 110,000 carriers and 350,000 independent owner-operators.
"The majority of carriers have 6 or fewer trucks."
Carriers that manage multiple trucks are smaller than many people realize, as well. Over 90 percent of truck carriers manage a fleet of 6 or fewer vehicles, and more than 97 percent of carriers manage 20 or fewer trucks, according to the DOT. These realities dramatically impact the way trucking companies work with the groups that need transportation for goods, and create a need for logistics companies that can consolidate carriers across the nation into a turnkey solution for shipping clients.
Relation to the driver shortage
Fragmentation in the trucking industry has a huge effect on driver pay, as the thousands of small trucking carriers across the nation compete to attract employees from an increasingly limited pool of qualified drivers. The American Trucking Associations reported the industry is currently short 30,000 drivers, and the problem is expected to intensify over time. This has significantly increased driver pay across the industry, which translates into increased cost for the organizations that need to move goods nationwide. In a survey of driver pay, the ATA discovered rising driver pay across many carriers, which it directly attributed to competition driven by the driver shortage.
The increase in driver pay, and competition between different carriers, will cut into margins for trucking organizations, and this problem could only become more acute as shipping volumes increase and the number of available drivers dwindles.
The potential for consolidation
Some changes in trucking industry regulation could force the current system toward a more consolidated approach. New laws regarding the amount of liability insurance needed for individual truck drivers could make it difficult for smaller carriers and independent owner-operators to make a profit while remaining compliant with laws, according to Fleet Owner. Increases in the cost of coverage will affect smaller operations more than larger carriers and cut into already razor-thin margins. As the regulatory climate becomes more burdensome for truck carriers, the industry may shift from its current patchwork of smaller businesses toward a more consolidated approach.
That change is unlikely to occur for many years, and in the meantime, the current fragmented system will continue to prevail. Companies that want to get the best deal on their shipping costs will need to work with logistics company that can not only procure the best prices from all the available carriers but also coordinate those carriers to ensure timely and consistent delivery.