What are some the challenges affecting the trucking industry?
By: Phil Sneed
The economic downturn, which started in 2007, has had a lasting impact on many sectors of the U.S. economy. Most individuals and families vividly remember how the housing bubble burst, leading to panic on Wall St. and in households across the country. While the housing market was spotlighted, it was not the only industry to see a dramatic shift. The trucking industry has also seen such volatility.
According to the National Bureau of Economic Research, the Great Recession officially ended in June 2009. However, the effects are still being felt to this day, even as stock markets reach new highs. The economy has not been the only cause of uncertainty within the trucking industry, as buyers, sellers, drivers and logistics management companies are all, and continue to be affected by economic, environmental and other factors.
The housing bubble peaked in 2004, when 69 percent of Americans owned a house, according to the U.S. Census Bureau. The stock market subsequently collapsed due to the housing bubble bursting in what became known as the worst financial crisis since the Great Depression.
When the economy begins to slump, companies have to respond to stay afloat. The Bureau of Labor Statistics wrote in February 2010, "Employment in trucking generally follows the larger business cycle." Employment within the industry peaked in January 2007, roughly 11 months before the recession officially started. By February 2010, approximately 14.3 percent of truckers had lost their jobs.
"The trucking industry is closer than ever to 100 percent utilization."
Since then, the industry has rebounded strongly, but is still facing a driver shortage. The American Trucking Association currently estimates the industry is short 30,000 to 40,000 drivers. As a result, companies are stretched very thin. The Council of Supply Chain Management Professionals recently released its State of Logistics report and found the trucking industry is closer than ever to 100 percent utilization.
As a result, smaller carriers are most at risk during economic uncertainty, particularly when it comes to driver retention. According to The Wall Street Journal, federal regulations over driving hours have been strongly enforced to cap the number of miles driven per day, and subsequently, the amount of money a driver can earn.
Trucking and logistics companies, in addition to drivers, also have to account for more disruption, including the changing environment. Truckers have long been accustomed to driving through all types of weather, rain or shine. However, recent country-wide weather patterns have contributed to more transformational changes.
The most recent example of extreme weather occurred during the 2013-2014 winter season. Frigid air settled over many Northern states and brought hazardous winter conditions to a good portion of the 48 continental states, including Texas. Called a polar vortex, this weather had an extreme effect on just about every aspect of the trucking industry.
In the midst of the severe cold stretch in early January 2014, Fleet Owner reported multiple interstates were shut down across states including Indiana and Maryland. Closed portions of the road obviously create an obstacle for drivers. Around the same time frame, The Journal of Commerce reported the polar vortex struck key stress points. The cold delayed the add-ons and drop-offs of loads from intermodal rail terminals.
Risk management firm Riskpulse found 25,000 to 50,000 trucks, as well as 100 to 200 trains were affected per day during the early days of January 2014. Conditions were especially hazardous in Illinois, Ohio, Wisconsin, Indiana and Michigan. Later in the month, a winter storm affected many of the southern states. Heavy snowfall and thick layers of ice also affected trucking significantly.
Moving forward, trucking companies will have to adapt to weather conditions. There is some good news, however. During the polar vortex, smaller fleets operating in unaffected portions of the country benefited from the surge in spot market rates. These smaller operators were also relied upon by larger trucking companies to help deliver shipments as service levels and budgets were hammered.
"Shippers hope to maintain a stable carrier base and still strategically source capacity."
With so much volatility in the market, sellers and buyers are looking maintain their current business model while also adapting to economic and environmental changes. For example, shippers hope to maintain a stable carrier base and still strategically source capacity under contract rates. Any surges in freight volume, meanwhile, will fall to the spot market, where rates vary depending on supply and demand dynamics.
Meanwhile, carriers want to secure volume freights under rates that provide similar stability, but fit within their network. This stability will help increase driver retention.
Economic changes, such as the collapse in prices and environmental shifts, are having a profound impact on the state of the trucking industry. Low oil prices have made trucking a strong competitor to rail shipments and helped companies regain lost customers, but a driver shortage has pushed the sector to almost full utilization. Coupled with severe weather, trucking companies have to properly adjust to known and sometimes unforeseen circumstances.