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Trucking's capacity crunch here to stay

July 11, 2014

The availability of truck capacity for both the TL and LTL sectors is going to remain extremely tight and volatile for the foreseeable future, according to two industry experts – so tight that it will be particularly vulnerable to severe weather events and seasonal freight demand swings.

“When trucking is operating at 98% to 99% capacity utilization, as it is now, weather has a much greater impact and seasonal freight peaks cause problems as well,” noted Noel Perry, senior consultant with FTR Transportation Intelligence and principal of research firm Transport Fundamentals, in a conference call this week.

“What’s happened is that since the Great Recession we’ve taken out surge capacity, so it takes very little to shove capacity utilization over 100% now,” he stressed.

For example, Perry noted that when Hurricane Katrina hit New Orleans 10 years ago, enough extra capacity existed in trucking to handle the extra freight demand generated by that catastrophe. Yet when Hurricane Sandy made landfall in New Jersey two years ago, the industry struggled to provide additional capacity.

Now, the situation is critical as the rough winter weather experienced in the first quarter overwhelmed the industry’s ability to make trucks available. “But trucking had service problems not with its fixed capacity, but with its variable capacity,” Perry noted. “For while the industry is hauling less freight than five years ago, there is less capacity to carry it.”

Going forward, according to FTR’s data, truck tonnage is expected to increase 3.7% between 2014 and 2015, with rail freight up 1.9% and intermodal up 4.1% over that same period.

Yet Perry also pointed out that as surge capacity is what the industry is lacking, rate increases are becoming “segmented,” which is understating the pricing pressure shippers will face.

“Extra demand is increasingly being pushed into the spot market; no longer is it being given to the ‘baseload’ contract carriers,” he explained. “There’s a very big difference now between contract and spot rates and that’s why rates overall are not moving as much as we thought. But that also means the usual means of pricing is understating the pressure.”

In a separate conference call organized by Wall Street investment firm Stifel, Nicolaus & Co., Joel Clum, president of consulting firm Carrier Direct, noted that the biggest issue affecting the capacity is and will continue to be the shortage of truck drivers.

He said that 30,000 seats remain unfilled as of now with 96,178 more needed over the next decade. Yet tighter government regulations concerning driver credentials and several recent high-profile crashes involving FedEx and Wal Mart tractor-trailers means there is “no space anymore” for second-guessing driver hires.

“It’s a multi-million decision now if the wrong person gets behind the wheel of the truck,” Clum explained, which is adding extra pressure on hiring efforts.

He also emphasized, though, that many younger workers don’t want to go into the trucking industry as there are many comparable blue collar job opportunities that offer better lifestyle options. That’s one reason why 56% of the current driver population is over the age of 45, Clum noted.

“This is an ongoing problem that is not going to be solved soon or easily,” he added.

Finally, he said that “high levels of uncertainty” remain around how ongoing regulatory changes promulgated by the Federal Motor Carrier Safety Administration (FMCSA) will impact day-to-day trucking operations, particularly for small carriers.

“Small trucking companies are very concerned about the day-to-day impact this regulatory impact will have on them.” Clum stressed. “They are worried about whether they will still be able to compete as more regulations roll out.”

About the Author

Sean Kilcarr | Editor in Chief

Sean reports and comments on trends affecting the many different strata of the trucking industry -- light and medium duty fleets up through over-the-road truckload, less-than-truckload, and private fleet operations 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.

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