This post is a two part series on the ever growing trucking capacity crunch shippers and logistics providers are navigating currently in the industry. This post will first focus on what is the trucking capacity crunch and what are the contributing factors. In the next post, we will focus on how shippers can deal with the capacity crunch in order to avoid increases in freight and transportation expenditures.
“State of Logistics” Report Notes Trucking Capacity Crunch
In the annual in-depth analysis of the U.S. logistics industry, “State Of Logistics” report from the CSCMP and Rosalyn Wilson (read this year’s summary of the “State of Logistics” report), Wilson warned of an increased trucking capacity crunch, concluding that a major trucking capacity shortage is in the works for the U.S. transportation and logistics system; a crunch that is driving shippers to find other options, especially intermodal service, for moving their freight.
“Capacity issues are on the horizon and I urge everyone to begin making contingency plans for the day when you cannot get a truck,” said Rosalyn Wilson, senior business analyst with Declan Inc. and the primary author of the annual State of Logistics report published by the Council of Supply Chain Management Professionals (CSCMP) and sponsored by Penske Logistics.
Ms. Wilson went on to say “Right now, capacity in the trucking industry is in a tenuous equilibrium state,” she explained in a press conference held at the National Press Club in Washington D.C. last year, and while true shortages remain rare right now, available capacity is just not “abundant” in her words.
“The bottom line is that by every measurement, the trucking industry is compressing,” warned Wilson. “There are less trucks, less drivers, and fewer [trucking] companies. Carriers have ‘leaned’ their fleets and will continue to do so. As a result, paying higher [trucking] rates going forward won’t be as much of a worry for shippers as not being able to find a truck to move their freight.”
What is the Trucking Capacity and is this a New Phenomenon to the Trucking Industry?
Essentially a trucking capacity crunch refers to having less truck containers and truck container space available for freight, making it very difficult for a shipper to find a full truckload to even haul freight to specific destinations, or causing a dramatic increase in full truckload pricing.
Trucking capacity crunches of note have been on the rise in the last decade due to many factors. We saw major capacity crunches in times of recession, such as in 2001, 2004, 2006, 2009, and now again here in 2013.
Currently, in 2013, according to Bob Costello, chief economist of the American Trucking Association the trucking industry is looking at a severe capacity crunch in the coming years beyond 2013 with a variety of factors contributing to the situation.
The last time this much capacity exited the market was during the recession of 2000-2001 – when 1,100 carriers a quarter went out of business. After the last recession, truckload rates continued to rise through 2006. A flashback to Fall 2005 brings an ominous remembrance.
What Contributes to the Trucking Capacity Crunch?
1. Less Trucking Companies, Less Trucks
Over 5,000 trucking companies went out of business in 2012 and nearly 400,000 trucks have been taken off the road. In other words, there are about 8,000 fewer trucks available nationwide on any given day. Certain industry segments (e.g., flatbed trucks) have been hit harder than others (e.g., tankers). Overall capacity can no longer meet current demand and industry experts expect it to keep getting worse.
2. Lack of Drivers Replacing Retiring Drivers
A large number of long-time drivers are approaching retirement age. Help-wanted ads in local newspapers are dominated by the 800- numbers of trucking companies looking for CDL holders. On the Internet, anyone who visits a few trucking-related pages soon will find banner ads by driver-desperate carriers appearing next to a favorite cat video. The quarterly earnings reports of publicly traded trucking companies caution investors about the high cost and potential dangers of the growing driver shortage.
While the industry is not replacing trucks, other factors are also contributing to future trucking capacity crunch problems, among them reduction in productivity due to electronic logging devices, fewer qualified drivers and increased demand for trucks and less supply. The driver situation could become a big problem, Costello said.
Again, Costello from ATA notes, “Turnover is a good reflection of the driver market and it is getting close to hitting 100% in large truckload fleets. The turnover rate in LTL is currently 15% while it’s at 82% for small truckload carriers. There are a lot of costs associated with that amount of turnover.”
Trucking faces increased competition for drivers as the industry improves, particularly from construction. From June 2012 to March 2013, construction employment increased by 184,000 workers and in February, it saw the largest increase in seven years, up 48,000 jobs.
3. Economic Factors Decreasing Equipment Investment
Economic pressures have forced equipment shortages too, adding to shrinking production capacity. Many carriers held onto tractors and trailers longer than they normally would because they could not afford to replace them. Now that most are in a position to replace older equipment, a sudden demand for new tractors and trailers has created added problems.
That makes sense, considering the recent downturn and slow growth. Looking at for-hire trucking, Costello said that about the same number of trucking firms added tractors as decreased tractors (39% to 37%) while 24% of fleets reported no change in their fleets. Some of the companies reporting no change have moved trucks to different work, from dry van to tank for example, but on the whole, the industry has added few trucks the last two years.
4. Government regulation Affects Trucking Capacity Crunch
Compliance, Safety, Accountability (CSA) went into effect in December of 2010 and was designed to make the raods safer by measuring trucking company performance and the performce of individual drivers. Industry analysts believe as many as 200,000 drivers could lose their jobs as a result of the new regulation.
Additionally adding to the trucking capacity crunch is the New Hours of Service Rules, specifically the new 34-hour restart provision and its impact on scheduling for some segments, increasing prices for shippers, particularly those who rely on early morning deliveries. The new 30-minute driver rest break may or may not prove to have a significant impact on productivity. Still, there is a possible safety risk if drivers feel compelled to “make up for lost time” after the mandated mid-shift pause. Tightly scheduled routes with multiple deliveries will feel the change more than over-the-road operations, Albrecht agreed. He also questioned how many drivers actually are going to be back on the road in exactly 30 minutes, and not 45 minutes or more.
A trucking capacity crunch is palpable and is a drain on shippers’ who are tasked with not only being efficient, having to save money, but also get freight to their customers on time. In the next post we will cover some ways a shipper can combat the trucking capacity crunch in order to make their lives easier. Working with an experienced logistics provider is a great first step, but there are also many other ways both logistics providers and shippers can work together and with other shippers and carriers to stay ahead of the crunch.