Logistics report: Turbulent times for trucking

WASHINGTON D.C. – The 21st annual State of Logistics Report, sponsored by Penske Logistics and released by the Council of Supply Chain Management Professionals (CSCMP) this week, doesn’t paint a rosy picture of trucking’s future

WASHINGTON D.C. – The 21st annual State of Logistics Report, sponsored by Penske Logistics and released by the Council of Supply Chain Management Professionals (CSCMP) this week, doesn’t paint a rosy picture of trucking’s future.

According to the report’s author Rosalyn Wilson, trucking – the largest component of the transportation sector – suffered the most during what’s been dubbed the “Great Freight Recession,” with truck tonnage down 8.7% in 2009 over already depressed 2008 levels.

“There was abundant capacity competing for fewer and fewer loads,” said Wilson, a transportation consultant with the Delcan Corp. “[Such] fierce competition led to price wars, which often dropped rates below cost on the spot market.”

Pressure on rates forced some 2,000 trucking companies out of business last year, she noted, with another 2,000 carriers expected to close their doors this year due to higher operating costs and low demand for freight services.

Watch video of the speech here: State of Logistics Pt. 1 State of Logistics Pt. 2 State of Logistics Pt. 3

According to the American Trucking Association (ATA) the nation’s freight pool contracted by 12.5% in 2009 and heavy truck utilization is currently at about 75% – which is not enough to generate new truck sales, Wilson said.

Another critical issue is a looming driver shortage that poses new, more complex problems for the industry. Since 2007 about 142,660 drivers have exited the field, reported Wilson. But since shipments were plummeting at an even faster rate during the same period, that loss of drivers wasn’t a cause for concern then.

Now, however, freight is starting to increase again. Wilson said truck tonnage has expanded by 6.5% over the last seven months. That means fleets are not only short of drivers, they are short of younger ones to fill the seats of older baby boomers now poised to retire – if they haven’t left the industry already.

About one in six truck drivers is 55 years or older, she pointed out, with less than a quarter of the current trucker population being 35 or younger.

Wilson told FleetOwner that even with the slow resurgence of freight occurring this year, the industry will be short some 200,000 drivers in 2010 and another 200,000 in 2011.

This issue will be further complicated as tougher driver safety standards are imposed by the Federal Motor Carrier Safety Administration (FMCSA) via its new Comprehensive Safety Analysis 2010 (CSA 2010) program, scheduled for implementation in November.

“Some 5% to 10% of the current driver population could be lost due to CSA 2010,” Wilson said. “Also, it’ll require more training to be in compliance, but no one has the money to afford that right now.”

Wilson added that while trucking capacity is now much more in line with current demand, as freight grows, there won’t be sufficient “parked” capacity to quickly respond. “There is a large inventory of used trucks which could be picked up, but tight credit will hamper large investments in new trucks. Truck drivers will also be in short supply,” she said.

The one potential bright spot in all of this for trucking could be the intermodal market, Wilson advised. “Growth in intermodal could make the truck driver job more attractive by shortening lengths of haul and drive time, while increase home time,” she said. “In the long run, this could be a good solution as it would help change many of the negative lifestyle factors in trucking.”

John Lanigan, executive vp & chief marketing officer for BNSF Railway, part of a panel of experts that reviewed the report’s findings, echoed Wilson’s view concerning intermodal.

“We’re meeting now with a lot of small- to medium-sized trucking companies that are interested in building intermodal business with us,” he told FleetOwner. “This is part of the rail-truck evolution that’s seen these modes go from blood competitors 25 years ago to complimentary partners for moving freight.”

Lanigan, a 16-year veteran of Schneider National who has spent the last eight years with BNSF, added that he doesn’t expect to see the intermodal business, or the broader truckload market for that matter, dominated by just a few big carriers despite the recession’s impact.

“The aggregated market share of the big carriers like Swift, Werner and Knight is only 10% to 12% of the truckload freight out there,” he explained. “That hasn’t changed a lot over the past decade or so. And for every 2,000 carriers that go out of business now, there will be 2,000 new ones to replace them in two to three years.”

Near term, though, Delcan’s Wilson believes the advantage in the freight business will swing back to the transportation providers – rail, trucking, ocean and air – and believes shippers should start working now to get ahead of this shift.

“Capacity is going to tighten and rates are going to rise,” she said. ”Shippers would be wise to be first at the table negotiating rates and capacity – such as guaranteeing a minimum level of business in return for guaranteed carriage or limited rate hikes two or three years out.”

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