STATE OF THE TRUCKING INDUSTRY: High freight volume and strong rates signal good year ahead

By Eric Myers

We are well into 2018 now and starting to see a more-clear picture of the state of trucking. I talk with small and large carriers every day and listen to some of the experts in trucking.  This article will explore some of the top issues that have the trucking industry’s focus, based upon the conversations I am having.  

First, let’s set the stage as to where trucking is currently, based on historical numbers of freight volume and rates.

Freight volume continues at all-time highs. The Freight Transportation Services Index (see the chart on this page), published by the Bureau of Transportation Statistics, measures the amount of freight carried by for-hire carriers each month.      

Any number over 115 on the index is considered “good” and anything over 121 is considered “excellent.” It has been more than a year since the index went below 121. Freight volume has been strong for the past several years. The experts whom I read say that volume should remain steady for the next several months with up to 4 percent growth.

Rates have stayed strong as well. The Cass Information Systems Shipper Expenditure Index has been up each month since last summer (see the chart on this page). Cass handles over $25 billion in billing and payments for various shippers around the country and tracks those payments.  

The good rates should continue through the next year. Experts say that they will continue to increase 8 percent to 12 percent through 2018 based on the following reasons:

      • Fuel prices will continue to edge up slightly, giving truckers a larger fuel surcharge, which they add to their rates.

                • Capacity is not currently meeting demand. As a commoditized industry, trucking sees supply and demand as having the biggest impact on rates . In many markets right now, there are not enough trucks to handle the freight that needs to be moved.

       • Electronic log devices (ELDs) are causing drivers to be more conservative with their work days so that they do not run out of drivable hours in a location that will cause them problems. This effectively takes capacity out of the marketplace when drivers shorten the miles-per-day they drive.

       • Equipment sales are up. Fleet owners are modernizing their equipment to take advantage of efficiencies or comply with electronic logging. While not directly related to rates, similar to driver pay increases, increased equipment costs will trickle down to rates. Carriers will take those rate increases when they can. And they can in a tight capacity market as it is now. 

What are trucking companies thinking about?

Driver shortage has been a top issue for the industry ever since I have been in trucking and even earlier, based on what I have read. It is back to the top of the list for concerns of trucking company owners, based on surveys as well as anecdotal conversations. The American Transportation Research Institute (www.atri-online.org) annually publishes the “Critical Issues in Transportation.” Among all respondents, the driver shortage issue surged six spots to top 2017’s list of industry concerns, surpassing the ELD mandate, which fell to second position, and the hours of service rules. which moved down to the No. 3 issue. 

The driver shortage impacts other areas as well. Like many industries with labor shortages, trucking is throwing money at the problem. Driver pay is increasing to retain and attract drivers. That does help, but we are seeing some of the leaders in trucking attack the issue other ways as well. Some carriers are moving from pay-per-mile to hourly pay to more equitably compensate the driver who has less and less control over how many miles he or she can drive during their regulated hours of service. This is a tough trend to change since most carrier contracts with shippers are based on mileage from origin to destination. Carriers with good relationships with their customers are starting to convince the shippers that the change is needed to properly compensate labor.

We are also seeing length-of-haul decreases. This is happening for several reasons. Electronic logs have created higher compliance with hours of service and shortened length a carrier can drive. Increased congestion on the roads has shortened miles that can be driven. The driver pool is changing. More and more drivers want to spend more time at home than the generations before them who did not have a problem being on the road for weeks at a time. And e-commerce is skewing the numbers slightly with more and more “last mile” deliveries being reported in the length of haul. 

And e-commerce is changing logistics. Bric-and-mortar retailers are falling by the wayside and e-commerce is expected to go from 15 percent of retail to 30 percent-plus in the next several years. That simply shifts the amount of freight that is now going to the retailer to the consumer’s home. Amazon, one of the largest e-commerce players, is making significant investment in its transportation infrastructure.  

Finally, we are seeing consolidation in the trucking industry pick up speed. Big trucking companies and private equity funds are scooping up smaller trucking companies. In 2017, there were more than 45 publicly announced logistics deals within the U.S., according to Thomson Reuters data, topping the 38 deals announced in 2016. Executives at larger trucking companies and private equity firms have said they are aggressively hunting for deals.

I work with mostly family-owned trucking firms, many of which launched after industry deregulation in 1980. These founders have hit — or are approaching — retirement age with children pursuing different careers. For many, their options are sell out or shut down. 

Outlook

I believe there is a lot of money to be made in trucking in the next several months and years. For those who have the capital to pay quality drivers and acquire good equipment, there will be money to be made by taking advantage of rising rates. 

Trucking is still an industry with a relatively low barrier to entry, but I see that barrier getting slightly higher. There are fewer and fewer unsophisticated trucking operators out there.  Companies who have survived have had to improve their knowledge of technology, finance, equipment and other areas.  Those who have improved have seen — and will continue to see — the rewards.

Eric Myers is the managing director of Accutrac Transportation Factoring, headquartered in Park City. Accutrac works with trucking companies of all sizes to provide factoring and working capital.