During a year when the industry took on a major role in helping rebuild from devastating natural disasters in Texas, Florida and California, overcapacity and a driver shortage continued to hamper trucking. That doesn’t mean the future doesn’t hold promise. Dan Clark, head of BMO Transportation Finance, discusses what 2017 was like for the industry and what to expect in 2018 and beyond.
American Trucking Associations characterize the trucking industry as a barometer of the U.S. economy. The industry can also serve as a gauge of more than just dollars and cents. The past year has been colored by turbulence, especially for those ravaged by natural disasters that spread throughout the country, particularly in Florida, Texas and California.
When Dan Clark of BMO Transportation Finance attended the America Trucking Associations’ Conference in Florida, he received a unique look at the utilization of trucks in response to these natural disasters. As Clark tells it, a GPS map showing 1,000 monitored trucks in Texas depicted a situation where no freight was moving south of Austin as Hurricane Harvey neared the Lone Star State. Once Harvey hit, devastating parts of Southern Texas, particularly Houston, the map went dark. However, when the storm moved back out toward the Gulf of Mexico, the map lit back up and, within hours, freight was being pushed south toward communities that needed help the most.
A similar situation occurred in Florida during Hurricane Irma, with 100 trucks loaded with supplies in Northern Florida heading south with police escorts as soon as the storm moved on and I-95 reopened.
While the freight those trucks carried will never be able to replace lost lives and destroyed homes, what Clark describes illustrates how important the trucking industry is to the U.S. As head of BMO Transportation Finance, Clark has an insider’s view of the ways 2017 shaped the industry and how it will fare into the future.
The Driver Shortage
One thing that is clear from speaking with Clark is the shortage of drivers in the last few years has gotten worse. According to a report from American Trucking Associations, the industry could be short by as many as 50,000 drivers before the end of 2017.
“In addition to the sheer lack of drivers, fleets are also suffering from a lack of qualified drivers, which amplifies the effects of the shortage on carriers,” says ATA Chief Economist Bob Costello. “This means that even as the shortage numbers fluctuate, it remains a serious concern for our industry, for the supply chain and for the economy at large.”
Clark echoes Costello, pointing to a lack of drivers as a major reason the industry has been stuck in a replacement cycle, with expansion nearing a standstill. That doesn’t mean carriers don’t want to expand, it’s just that they can’t without more people to actually drive additional trucks.
“Talking to the fleets and various customers around the country, they would add additional units in a minute if they knew they could get drivers,” Clark says. “Currently, you’re seeing up to 10% to 15% of some fleets’ trucks just sitting because they don’t have enough drivers. For a lot of fleets, that’s really capping the amount [of] freight they can move.”
The shortage isn’t affecting all parties equally, though. Some smaller operators, which generally have less of an ability to forecast and measure metrics, are growing on the strength of the freight market. But that growth is more of a red herring than a sign that capacity will improve.
“The problem with that is, it’s reasonable to assume the larger fleets have a better line of sight on the market and availability of drivers than the smaller fleets,” Clark says. “If smaller fleets are adding capacity because they’re seeing freight in the market, and they then have issues seating those trucks, many cannot afford to have those trucks sitting idle.”
According to Clark, this shortage is a primary driver behind a more tepid environment. Otherwise, the industry, in large part, is exhibiting strong fundamentals. The freight market is continuing to strengthen, and a number of segments are either performing well or rebounding from stagnant performances in years past. Clark points to the reefer market as one such segment that has continued its promising trajectory over the last couple of years.
A more sporadic segment that is improving is flatbed, which Clark says is “moving.” When oilfields dried up, flatbeds were hit hard. Now that oil prices are back in the high $40s and low $50s, in addition to increased freight activity, flatbeds are “hot,” according to Clark, although he does not expect the segment to stay there. That gets back to its sporadic nature.
Small Fleet Trouble
As noted previously, small fleets could be squeezed more by the driver shortage in the near future, but there are other issues that will affect this part of the industry as well. Two regulatory concerns for the industry are the implementation of electronic logs and a new fuel tax.
Electronic logs will require all drivers and fleets to convert their process of record keeping (hours driven, fuel intake, etc.) from pen and paper to digital only. While technology should make for improved efficiency, there will likely be a punishing learning curve, especially for small fleets without the resources and budgets to implement the new mandates seamlessly.
The initial difficulties will be twofold as it will not just be a matter of getting used to new processes. First, electronic logs will constrain capacity as companies must put additional resources into implementation. Then, there’s the impact on the already shallow driver pool, which could become even smaller as older drivers choose to retire over such a drastic shift in day-to-day operations.
“There’s talk that with this transition, some of the older drivers that have been around for quite some time, may opt for retirement. These guys are used to running hard and making the appropriate amount of money. This may limit them, and they could decide to hang it up,” Clark says.
Bigger fleets are mostly prepared for the incoming challenges, but smaller fleets will struggle to deal with this advancement.
Clark says, “For the most part, the bigger fleets have adjusted and are ready for it, but those medium and small fleets, and owner operators who have not yet implemented electronic logs, are likely to see some pressure on their operations.”
The mandatory use of electronic logs is not the only regulatory matter that will be worth keeping an eye on. Clark also notes that the industry is pushing for a 20-cent fuel tax. While a seemingly odd move for an industry so reliant on diesel, Clark explains that the rationale for the support is based on a desire to improve the country’s infrastructure, therefore improving the efficiency of the industry as a whole.
The Future is Coming
As smaller fleets see more challenges in the coming months and years, there will likely be more closures and consolidation.
“2018 should bring an overall pricing increase and steady growth. The bigger fleets are going to be more competitive when it comes to adapting to new legislation,” Clark says. “But when the dust settles, the industry should be more stable and see steady growth and profitability.”
Technology will continue to change the landscape of the industry far beyond electronic logs. Driverless vehicles and electric freight trucks are just some of the futuristic advancements that have already been hinted at in the last year. Obviously, driverless technology would help combat the driver shortage, but Clark thinks the idea has a long road ahead. As for electric trucks, especially as companies like Tesla enter the space, concerns about battery power and the integration into the U.S. transportation system as a whole mean the electric revolution is still years away.
For now, dealing with an overcapacity issue is the biggest obstacle, although it doesn’t appear that the industry will be completely derailed by it.
“We had a transportation downturn over the last couple years and its one of the only times in my 38 years that hasn’t been tied to a general economic downturn. It just became an overcapacity issue that caused it. I think the industry overall is in good shape,” Clark says. “Trucks have gotten so expensive now it is not quite as easy for the smaller fleets and owner operators to make ends meet. Many large fleets benefit from scale and buying power. The disparity between the two is slowly becoming magnified.”
As 2018 continues, there are a number of trends in the industry that should continue to drive growth. AmeriQuest’s Patrick Gaskins believes technology will play a major role, while also pointing to tax reform and rising interest rates as contributing factors.
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