Larkin – managing director and head of transportation capital markets research for Stifel Capital Markets – recently spent some time at the annual meeting of the National Strategic Shippers Transportation Council (NASSTRAC) and came away with a few interesting observations about just some of the many challenges facing motor carriers – for-hire and private alike – in these busy days.
Larkin’s first insight deals with how the “modal mix” for delivering freight may be undergoing some major changes – shifts being brought about in no small part by the rapid growth of e-commerce, changes to how goods are packaged for transport, and supply chain reorganization efforts.
“With distribution and fulfillment centers ever closer to the end markets, with the continued miniaturization of products and packaging, and with manufacturing moving closer to local distribution and fulfillment centers, the truckload (TL) sector seems to be losing a little market share,” he said.
As a result, intermodal, less-than-truckload (LTL), and private and/or dedicated fleets seem to be generally picking up some market share; at least from where Larkin sits.
But why is this happening? “Has weak truckload demand been a function of this shift or is end demand that weak?” he asked.
Larkin for one thought that the TL fleet downsizing that’s been going on over the last year or so – alongside “inventory normalization” and the ongoing slow but steady economic recovery – would have combined to generate tighter TL supply and demand.
But that’s not happening. Indeed, he said there’s been a “surge” of sorts of dedicated fleet focus by large TL carriers of late.
But if trucks are repositioned from the “free-running TL market” in Larkin’s words, into dedicated fleets, won’t the potential TL capacity shortage – “always anticipated yet never arriving,” he noted –ultimately be exaggerated? Or will the proliferation of “small fleets” fulfill the need for capacity in the irregular route TL space?
Here’s another twist to add to that potential trend: maybe such “small fleets” – ones many consider to be more flexible and technologically-savvy that their bigger brethren – really aren’t up to the task of capturing and holding onto market share in the TL sector.
“The acceleration of the automation trend in trucking will enable the large carriers to widen their efficiency advantage, their cost advantage, and ultimately their service advantage, from the perspective of customers,” Larkin explained.
“Others … argue that technology will enable savvy small carriers and brokers to, at least, quasi-level the playing field with large carriers and brokers," he added." [But] the truth is that small carriers and small brokers – [the] major laggards in the adoption of current technology – will struggle to survive over the medium term and have little chance of long term survival.”
Larkin also believes that without the “intelligent harnessing of technology” it will be impossible to optimize routes, set pricing, freight selection, make in-route adjustments to pick up additional freight (if unused capacity remains on a tractor-trailer), calculate operating efficiency, etc.
Yet he put something a contradiction to this analysis into play, too, noting in discussions with one “plugged-in industry tech guru” revealed that Amazon – that 900 lb. gorilla of the freight world – is in the process of making it easy for as many as 30,000 owner-operators to qualify as last-mile delivery service providers for its goods – but operating Sprinter vans, panel trucks, straight trucks, etc., of a size not requiring a commercial driver’s license, instead of Class 8 big rigs.
That gets back to solving perhaps what is the trickiest trucking problem of them all: finding not just people willing to drive trucks for a living but folks willing to make working the freight industry a lifelong career choice.
“The development of additional human talent” is going to be tough, Larkin said, “in an industry that historically has not always attracted to sufficient numbers of the best and the brightest.”
That’s a challenge that’s going to be with us for some time, I think.