The right plan

The stock market is up as I write this column, and as a result, I am seeing more chatter on TV and headlines in the press implying much stronger economic growth. It is not wise, however, to create fleet business plans based on the stock market as the market has not been a good predicator of the economy. Over the past decade, the stock market failed to predict two bubbles (Internet and real estate/financial)

The stock market is up as I write this column, and as a result, I am seeing more chatter on TV and headlines in the press implying much stronger economic growth. It is not wise, however, to create fleet business plans based on the stock market as the market has not been a good predicator of the economy. Over the past decade, the stock market failed to predict two bubbles (Internet and real estate/financial) until after they popped. Investor expectations of the economy turn on a dime, while the economy does not turn as quickly. Fleets would be wise to focus on conditions within the supply chain instead — the level of inventories in relation to sales, and final sales to domestic purchasers, which pulls commodities through the supply chain.

Fleets should execute business plans based on the business environment, which is not as volatile as the stock market in the short term. The objective of business plans cannot be executed if tactics are deployed or eliminated based upon short-term movements of the stock market.

Supply chain indicators imply the growth rate of overall freight volumes will moderately accelerate and expand this year as savings and debt reduction limit acceleration in consumer spending that is being stimulated by employment gains.

Continued moderate freight growth does not imply the fleet environment remains static in 2011. The upward trend in fleet utilization and expanding freight volumes continue to swing the pricing pendulum towards carriers. Capacity expansion (see chart) has not been in carriers' plans for the past several years as the focus has been to reduce capacity to boost truck utilization and reduce capital expenditures to increase cash reserves, boosting liquidity.

I have seen projections of a 400,000-driver shortage in 2012. This estimate seems excessive to me since the Bureau of Labor Statistics estimated the for-hire trucking industry employed 1.25 million workers at the end of 2010, and freight growth does not support for-hire trucking expanding capacity by 30% over the next two years.

Discussions of a driver shortage, however, signal the economic recovery has changed the carrier business environment, and carriers must adopt different skill sets/tactics in response to changes in the business environment.

The expansion of the driver workforce requires changes in business tactics such as driver retention, advertising, recruitment and training, and carrier budgets.

The unemployment rate is high, so there is an available supply of labor to meet carrier expansion plans in the short term, but carriers cannot expect workers to beat down their door for employment; they must aggressively recruit individuals into the industry. Carriers can do this by forming ventures and/or relationships with agencies such as community colleges to recruit and train drivers. Developing programs with state and/or local agencies is not something that will happen overnight nor will it immediately increase the driver workforce in the short term, but the current political environment provides help in increasing the workforce in the medium and long term. No one tactic will solve the industry's driver needs in the future, so carriers should focus on short-term and medium-term solutions to increase the driver workforce. As the economic expansion ages, competition for workers among industries will increase, making it more difficult for carriers to increase their driver workforce, and politicians may become less willing to fund public and private/public programs as the unemployment rate decreases.

In short, continued moderate freight growth does not imply the business environment remains static. In fact, it should result in changes by carriers, such as expanding capacity. At the same time, the current political environment provides an opportunity for carriers and the for-hire trucking industry to develop public/private ventures that train individuals to meet the industry's workforce needs, including drivers and truck technicians.


Commercial Motor Vehicle Consulting publishes the monthly newsletter “Visibility of the Supply Chain” for general freight carriers. To order a copy, contact Chris Brady of CMVC at [email protected] or 516-869-5954.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish