A Bumpy Road Ahead for the Trucking Industry?
Written by Mark Di Vincenzo
As the nation’s economy shows signs of recovery, things are picking up for the trucking industry. Demand for services is rising and predictions of slow and steady growth in 2012 is cause for some optimism.
The industry, however, faces serious challenges this year—everything from worries about rising fuel prices and driver shortages to federal regulations and aging highways and bridges. All of these challenges, of course, revolve around the economy.
“Worry over the fragility of the economic recovery is exacerbated by an unsettling barrage of bad financial news in Europe, threats to global oil supplies in the Middle East and northern Africa and a gridlocked domestic political climate,” according to a report by the American Transportation Research Institute, an industry group made up of presidents and CEOs from trucking companies.
Here are the industry’s most serious challenges.
Driver and truck shortages
During the recession and its immediate aftermath, carriers lost as much as 20 percent of their business, forcing them to downsize by selling trucks and laying off drivers. Today, with the economy picking up a bit, there is a demand for trucks to haul merchandise, but there is a shortage of trucks and drivers.
The economy isn’t the only factor to blame. Industry officials also attribute the shortages to Baby Boomer retirements, which picked up in 2011, when the oldest boomers turned 65. The industry needs to address retention problems and the competitiveness of driver pay and benefits, according to the transportation institute.
Industry officials worried a lot about fuel prices in 2008, when diesel prices peaked at about $4.70 per gallon. Prices dropped by as much as 40 percent in 2010 but began rising in 2011. Price hikes haven’t stopped this year, rising to a national average of $3.94 per gallon by mid-February, according to the U.S. Energy Information Administration. This increase concerns trucking companies because fuel and oil is their second largest expense—after wages and benefits—and because the industry has no control over this expense.
The federal “rest-period” regulation
Trucking companies are fighting the federal government on a rule to give drivers a 34-hour rest period each week that would require them to be off two consecutive nights, prohibiting driving between 1 a.m. and 5 a.m. during the rest period.
The Federal Motor Carrier Safety Administration rule will reduce flexibility and may undermine safety by forcing drivers onto the road during rush hour, said Sean McNally, a spokesman for American Trucking Associations, an Arlington, Virginia-based group that represents trucking companies.
A deteriorating infrastructure and funding for it
Thousands of roads and bridges throughout the nation need to be repaired or replaced, said Chip Overbey, senior vice president of Old Dominion Freight Line, in Chesapeake, Virginia.
The trucking industry is lobbying federal lawmakers to make sure the federal government continues to pay for the bulk of this work, and it is concerned that a short-term extension of the federal, six-year transportation bill does not identify any new funding for highway infrastructure. The industry also says current highway construction projects are causing congestion, which is causing delays. Congestion and the inevitable delays drive up costs, particularly wages for drivers and fuel costs, and anger customers waiting for deliveries.
Banks say they have money to lend, but as with most other industries, trucking companies say they have found it very difficult to get loans. They need money for a host of needs, including buying new trucks and investing in technology to help with planning and communication. Small Business Association-backed bank loans have dropped significantly as a result of tightened credit, and trucking companies need to learn how to tweak their business plans to make the case that there is growing demand for their services but to include realistic projections about revenue and operating expenses.
The changing nature of freight. TVs, computers, phones and a host of other products are smaller now. They fit differently in trucks and need to be handled differently, Overbey said, and trucking companies need to figure out how to adjust. This reality may sound like a good thing, but it creates problems. Companies don’t want to dispatch trucks that aren’t full, so they need to figure out how to reschedule deliveries and change routes so their trucks are full when they leave warehouses.
Originally posted on American Express OPEN Forum