Trucking challenges keep on piling up

March 5, 2012

Higher fuel prices, upward pressure on driver pay and a suddenly more sluggish freight market are creating more challenges for the trucking industry– challenges that may continue to build as 2012 progresses.

“There’s still a lot of general uncertainty facing carriers,” Mike Mulqueen, senior director for product development at Manhattan Associates, told Fleet Owner.

“Fuel prices are more volatile and rising back near the high levels of four or five years ago and [carrier] fuel surcharges are not covering all of that, especially when it comes to empty miles and idle time,” he said.

David Parker, chairman, president, & CEO of truckload carrier Covenant Transportationnoted in the company’s year-end earnings report noted that diesel prices as measured by the Dept. of Energy averaged approximately 73 cents per gallon higher in the fourth quarter of 2011 compared with the same period in 2010 – an increase of 23.3%.

“We plan to continue managing our idle time and truck speeds, investing in more fuel-efficient tractors to improve our fuel miles per gallon, using fuel hedges from time to time to reduce our exposure to rapid increases in fuel prices, and partnering with customers to adjust fuel surcharge programs which are inadequate to recover a fair portion of rising fuel costs,” Parker said.

That’s just one of many factors Manhattan’s Mulqueen said are “completely out of trucking’s control.” Others include the ongoing impact of regulations, such as the Federal Motor Carrier Safety Administration’s CSA program, along with emission and fuel efficiency mandatespromulgated by the Environmental Protection Agency.

“In the case of CSA, we’re finding that there are higher numbers of citations in certain geographic regions,” Mulqueen said. “So a carrier can suddenly find itself facing higher scores based on where it's operating that week – and shippers are incorporating those scores into the [freight contract] bidding process.”

On top of that, the U.S. economy remains in the doldrums, despite several positive developments, including a decrease in the nation’s overall unemployment level this January.

For example, a recent surveyby the National Federation of Independent Business(NFIB) indicated that optimism barely budged among small businesses last month, despite January’s employment figures.

NFIB said its Small Business Optimism Index rose just 0.1 points in January, settling at 93.9. While the increase marks five consecutive months of improvement, the readings from January and February 2011were actually higher, thus indicating no net gain for the calendar year.

While small business owners appeared less pessimistic about the outlook for business conditions and real sales growth, that optimism did not materialize in hiring or increased inventories plans, noted NFIB chief economist Bill Dunkelberg.

“The most positive statement that can be made about January’s reading is that the Index did not go down; a change of 0.1 points is essentially no change and it is hardly indicative of a surge in economic activity,” Dunkelberg said. “Nothing happened last month that would significantly improve the small business outlook. That the Index remains below its level a year ago of 94.1 means no progress was made in 2011.”

A retrospective on the last 12 months of the NFIB Index suggests that for small-business owners, 2011 was a flat year, he added, and January’s reading indicates that the U.S. economy will continue to crawl along at a slow and weak pace.

Specifically where trucking is concerned, the ongoing shortage of drivers continues to create multiple issues for the industry. However, Manhattan’s Mulqueen stressed that not all carriers are being affected equally by it.

“It’s a bifurcated situation where drivers are concerned,” he explained, “because private fleets don’t have a shortage; it’s an easier and better paying job compared to the typical long-haul over the road position.”

As a result, many for-hire carriers are increasing driver pay – but are doing so at a time when other business costs are also on the rise, pointed out Covenant’s Parker.

“We experienced pressure on expenses in several areas,” he said. “Salaries, wages and related expenses increased approximately 3.8 cents per mile in the fourth quarter of 2011 due to driver pay adjustments since the fourth quarter of 2010, along with higher worker compensation expense.”

Parker also noted that operations and maintenance expenses increased approximately 1.7 cents per mile in the fourth quarter last year compared with the fourth quarter of 2010 primarily because of inflationary pressures related to tires and vehicle parts and additional maintenance completed when trucks experienced lower utilization.  

“Other [cost] factors that impacted our results included higher insurance and claims expense and less effective absorption of fixed costs due to lower freight revenue per tractor,” he noted.

As a result, Covenant lost $14.3 million in 2011, even though total revenue increased 0.4% to $652.6 million over 2010. This happened in a year in which the company posted profits of $3.3 million. In particular, Covenant said freight revenue decreased 6.3% to $512.0 million in 2011.

Still, Manhattan’s Mulqueen believes the trucking industry is in many ways more robust today due to coming through the “Great Recession” and is thus better positioned to deal with upcoming challenges.

“For a time there, carriers were just trying to survive – and a lot of carriers got culled from the ranks,” he explained. “Those that remain, however, know the business issues and know the problems this industry faces. They have learned and continue to learn how to operate more efficiently and effectively.”

About the Author

Sean Kilcarr | Editor in Chief

Sean previously reported and commented on trends affecting the many different strata of the trucking industry. Also be sure to visit Sean's blog Trucks at Work where he offers analysis on a variety of different topics inside the trucking industry.

Voice your opinion!

To join the conversation, and become an exclusive member of FleetOwner, create an account today!

Sponsored Recommendations

Report: The 2024 State of Heavy-Duty Repair

From capitalizing on the latest revenue trends to implementing strategic financial planning—this report serves as a roadmap for navigating the challenges and opportunities of ...

Fleet Industry Benchmarks: How does your fleet stack up?

Discover how your fleet compares to industry benchmarks and gain insights from a 2024 Benchmarking Report on maintenance spend, turnaround time, and more. Join us to identify ...

Build a Tolling Program to Manage Toll Fees and Risks

Fleets looking to effectively manage their operational costs should consider their tolling costs. Download the PrePass whitepaper, “Build a Tolling Program to Manage Toll Fees...

Reducing CSA Violations & Increasing Safety With Advanced Trailer Telematics

Keep the roads safer with advanced trailer telematics. In this whitepaper, see how you can gain insights that lead to increased safety and reduced roadside incidents—keeping drivers...