Fuel and drivers will remain carriers' top cost concerns
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ATRI deep-dives into motor-carrier CPM

Sept. 5, 2013
Research shows total average costs slipped by 4% from 2011 to 2012

Per the latest update to its An Analysis of the Operational Costs of Trucking report, the American Transportation Research Institute (ATRI) has found that the “average marginal cost per mile” (CPM) in 2012 was $1.63— marking a slight decrease from the $1.71 recorded for 2011.

“The slight decrease in average operating costs in 2012 was most likely due to the weak economic recovery and softening freight conditions experienced in the second half of the year,” ATRI observed.. 

The nonprofit research organization noted that in the wake of the Great Recession and a sharp drop in fuel prices, industry costs had decreased between 2008 and 2009— but those  costs then steadily rose through 2010 and 2011 before dipping last year.

“Although we have seen conditions improve since the Great Recession of several years ago, an uncertain economic future means we have to be ever diligent in watching costs,” Phil Byrd, Sr., president & CEO of Bulldog Hiway Express and first vice chairman of the American Trucking Assns. (ATA) remarked about the report.

“ATRI’s report provides critical financial data for carriers to use in benchmarking fleet performance and seeking opportunities for improved operations,” Byrd added.

According to ATRI, its operational-cost analysis identifies trucking costs from 2008 through 2012 that are derived directly from motor carriers’ financial and operational data. In addition to reporting on average costs per mile, ATRI has documented average costs per hour and includes cost breakouts by industry sector.

The organization said the information aims to provide motor carriers with a “high-level benchmarking tool and government agencies with real world data for future infrastructure improvement analyses.”

The report, prepared by ATRI research analyst Katherine J. Fender and research associate David A. Pierce, points out that beginning with downsizing during the recession in 2008 and 2009, the motor-carrier industry began to experience slight increases in freight demand in 2010 and 2011, with moderate growth continuing through the second quarter of 2013.

Per the report, less-than-truckload (LTL) carriers “once again” reported the highest operating costs in 2012 of $1.79 followed by specialized of $1.73 and truckload (TL) of $1.51.

Fender and Pierce observe that  “LTL carriers can have higher operating costs for a variety of reasons, including increased marginal costs associated with frequent pickup and delivery (P&D) operations in congested urban areas, including higher fuel and maintenance costs; increased overhead costs of handling many smaller shipments several times and associated dock personnel labor costs; need for multiple terminals located near urban areas and the associated need for more equipment; and increased labor costs that are associated with LTL-oriented collective bargaining contracts.”

Getting the 4%

The authors summarize the overall cost picture for motor carriers of all types succinctly: “After decreasing dramatically in 2009, fuel costs steadily increased and now comprise 39% of the total average cost in 2012. Driver wages, equipment lease or purchase payments, repair and maintenance (R&M), and driver benefits were the next largest cost centers. Tires, permitting and licensing, and tolls have each consistently represented 3% or less of total average costs throughout the [2008-12] study.”

They report that after increasing by a whopping 10% from 2010 to 2011, the total average costs for carriers decreased by 4% from 2011 to 2012 and stress that “Rising fuel, tire and toll costs did not outweigh the decreases in driver wages and benefits, equipment lease and purchase payments, R&M, permitting and licensing, or insurance premiums.

“Not surprisingly,” the authors continue, “fuel costs have continued to increase from 2009 and the 2012 CPM of 64.1 cents was the highest figure found over the five-year study.”

On the other hand, they say a drop-off in driver wages and benefits (4.3 and 3.5 cents, respectively), had the biggest impact on the overall cost change. What’s more, several other “key cost centers” (equipment lease or purchase payments, R&M, permits and licensing, and toll costs) also helped deliver an overall lowering of operating costs.

Noting that fuel prices were volatile following the recession, Fender and Pierce point that “fuel prices have remained relatively stable since 2011, however, with average prices remaining close to $4.00 per gallon.”

The report relates that the federal Energy Information Administration (EIA) is predicting that diesel prices will moderate over the next two years. The agency estimates an average retail diesel price of $3.81 per gallon for July through December 2013 and an average of $3.77 per gallon for 2014.

Gorilla roar

Turning their sights on the 80,000-lb gorilla standing in the decision-making space of virtually all for-hire carriers, the authors flatly state that the “severe and growing shortage of qualified drivers continues to impact the industry….  Driver-downsizing during the recession, an aging workforce, new government regulations and high training costs for new drivers have reduced the number of truck drivers in the U.S.”

They point out that previous ATRI research found that 83% of carriers surveyed reported that the Federal Motor Carrier Safety Administration’s (FMCSA) Compliance, Safety, Accountability (CSA) safety regs “had made it somewhat or much more difficult to find new, qualified drivers in 2012. Additionally, construction and natural gas production have grown dramatically recently and carriers must compete with these high-paying jobs for drivers.”

On the other hand, Fender and Pierce contend that “It is still unclear, however, how large of an impact the driver shortage will have, as the industry continues to expand its workforce. The U.S. Bureau of Labor Statistics (BLS) projects that employment for ‘heavy and tractor-trailer truck drivers’ will increase by 21% through 2020, resulting in over 330,000 new jobs. This presumes that a qualified driver pool exists to fill this estimated demand.”

By the numbers

Turning to other costs areas, the report shows that average costs in the R&M realm came out to 13.8 cents per mile in 2012—indicating a slight decrease from the 15.2 cents per mile reported in 2011.

“The overall trend for the past five years has been increasing R&M costs, however,” the authors advise. “The decrease in 2012 R&M costs corresponds to a slight decrease in the average Class 8 vehicle age (6.5 years in 2012, down from 6.6 years in 2011)and indicates that R&M costs follow the same cyclical pattern that equipment replacement schedules follow.”

While tire CPM had remaining relatively stable in 2008 and 2009 (3.0 and 2.9 cents, respectively), carriers indicated that this cost area climbed markedly to 3.5 cents in 2010, 4.2 cents in 2011 and 4.4 cents in 2012. The authors note that “in a change from previous years, LTL carriers reported slightly higher tire costs in 2012 (4.5 cents than TL or specialized carriers (4.4 cents each).

The average toll CPM for all respondents was 1.9 cents in 2012. Carriers running in the Northeast had the highest average toll costs (3.2 cents) while carriers operating in the West had the lowest toll costs (1.1 cents).

Driver pay

The authors found that, across the three major carrier sectors, “driver wages mimicked sector trends in total costs for 2012…. LTL carriers reported the highest driver wages (46.8 cents per mile), followed by specialized carriers (43.7 cents per mile) and TL carriers had the lowest (38.5 cents per mile).” In addition, they noted that the CPM for “driver benefits” also declined in 2012 from the year before-- from 15.1 to 11.6 cents.

Drilling further into driver wages and benefits, Fender and Pierce report that, per survey respondents, the average truck driver pay per mile was 41.7 cents in 2012—down from the 46.0 cents reported in 2011. In terms of hourly wages, the 2012 CPM translates to $16.67. And the average wage per mile for a company team driver was 36.5 cents per mile in 2012.

“While driver wages were expected to increase in 2012, slowing economic and freight growth likely limited wage increases,” the authors remark. “Of the survey respondents who provided driver pay information for both 2011 and 2012, 36% reported decreased driver wages in 2012 and another 36% indicated no change in driver pay. Driver wages increased in 2010 and 2011 (11% and 3%, respectively) and although 2012 pay contracted according to the survey participants, it was still 1.4 cents per mile above 2009 driver wages.”

Respondents reported an average incentive/bonus pay of $1,493 per driver in 2012. “While incentive/bonus information was not collected in previous surveys (and year-to-year comparisons are therefore unavailable),” advise the authors, “several carriers were consulted and indicated that incentive/bonus pay is becoming more common throughout the industry.”

Wrap-up

Summing up, Fender and Pierce credit the decline in average operating costs  from 2011 and 2012 to being “most likely due to the weak recovery and softening freight conditions experienced in the second half of 2012.

“Fuel costs and driver wages continue to constitute the majority of costs for motor carriers (65% in 2012, an increase from 62% in 2011),” they state. “Given current fuel prices, motor carrier fuel costs are almost certain to continue to be the first or second largest cost center for fleets.”

Turning again to drivers, Fender and Pierce emphasize that “increasing freight demand, new government regulations and an aging workforce will continue to intensify the shortage of qualified drivers. This will likely require carriers to increase wages and benefits in order to recruit and retain drivers. All of these factors will likely place upward pressure on motor carrier operating costs in the near future.”

To request a copy of the report directly from  ATRI, click here.

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