Difficult choices

Dec. 1, 2006
The past year has produced several major issues whose impact on the trucking industry will be felt for some time to come. Although the effect of the election may not be felt immediately, if history is any guide we can look for an increase in trucking-related regulations in the coming years.

The past year has produced several major issues whose impact on the trucking industry will be felt for some time to come. Although the effect of the election may not be felt immediately, if history is any guide we can look for an increase in trucking-related regulations in the coming years. Since Congress controls the purse strings for the administration, we can expect further emission regulations on equipment at the lower end of the GVW spectrum, for example.

We can also expect more user taxes, which are likely to take the form of toll roads, excise taxes, environmental taxes, operating license fees, etc. We don't expect a frontal attack on income other than unearned income, such as dividends and capital gains. Wage taxes will occur to allow for some relief in the pending shortfall in Social Security funding, but no change in entitlements will be likely.

The likely impact of the election on economic growth will be modest, with a slower growth overall. While economic data offers evidence that a dollar spent in the private sector results in more growth than a dollar spent in the government sector, there is growth in both.

Issues regarding fuel will become more troublesome as 2007 unfolds. There will be fuel contamination and it will have a negative impact, although primarily in a micro sense. In other words, while it will not cripple trucking, it will certainly be painful to the carriers that are directly affected.

The switch to ultra-low-sulfur diesel (ULSD) fuel will no doubt have some unintended consequences. Historic patterns of fuel consumption, maintenance and downtime can all be expected to change as the year unfolds. For starters, fleets will have to deal with the economic consequences of fuel that is more expensive and has lower energy content. In addition, they may be faced with making adjustments or modifications to equipment in ways that have not yet been fully documented.

There are at least 6-million diesel-powered vehicles operating in the U.S. that have been designed to work with fuel that has a higher sulfur content than ULSD. It seems unlikely that we'll be able to avoid problems with vehicle fuel systems, as well as equipment wear, if the proper oil is not used.

There is also some concern about using ULSD in off-road equipment, especially if supplies are limited. Several industries, including agriculture, logging, marine and construction, currently use the same fuel for all of their equipment. We still don't know how the new fuel will impact non-road diesel equipment.

As 2006 draws to a close, we are seeing a major push by several industries to consolidate. While trucking is not likely to become an industry with just a few carriers supplying transportation services, it will become an industry of larger fleets. There's more at work here than economies of scale in terms of operating expenses. There are also economies of scale in marketing and sales. In addition, the driver shortage will continue to pressure fleets to seek capacity in ways other than simply adding trucks to the fleet and hoping to fill the seats.

Hopefully, the commission recently established to identify and address the transportation issues will look beyond the current environment and develop a plan to alter distribution services in ways that enable private-sector initiative. This has to take place without crippling the most efficient transportation system on the planet.

And it all comes at a time when the economy's growth rate is expected to decline. Carriers no longer have the luxury of high rates of growth and inflation to mask strategic mistakes. Without that cover for 2007, the industry will be faced with difficult choices and little wiggle room.

About the Author

MARTIN LABBE e-mail: [email protected]

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