In the spring of 2013, TMW Systems released the results of a survey involving over-the-road, long-haul truckload carriers. Operating in one of the most competitive segments of the trucking market, truckload also represents the core business of most diversified transportation service companies. As we approach the release of the 2014 version of the TMW survey, we thought it might be interesting to revisit the key findings from the prior study and examine how things have played out in the marketplace.
At the start of last year, the most common concern mentioned by truckload carrier executives in the survey responses was maximizing asset utilization—increasing the revenue-generating ability and productivity of their existing trucks.
Utilization was followed closely by recruiting and retaining qualified drivers as a major concern. An aging population of commercial drivers is fueling the worry, with increasing driver attrition blamed on negative CSA scores and relatively low numbers of new drivers entering this increasingly regulated job category. The availability of qualified drivers, more than access to credit, industry freight rates or competition from rail, is likely to be the single greatest constraint on the trucking industry in expanding to meet the demands of a resurgent economy.
Not apparent in the TMW survey but reported last year by energy industry observers, competitive pressures are pushing driver pay upward in areas that are part of the domestic drilling boom in oil and gas from shale. The companies that service these well sites also need commercially licensed truck drivers. They are now competing for the available pool of those drivers with traditional motor carriers in certain geographic areas and the energy industry has shown ability and willingness to pay whatever the market will bear to get access to the resources it needs.
Unlike prior boom and bust economic cycles following the U.S. trucking industry deregulation, the prospect of rising freight rates is unlikely to draw enough new startup carriers to the industry to increase capacity and shift pricing power strongly back in favor of shippers any time soon. In fact, other economic studies of the trucking industry during 2013 reflect quite modest upticks in rates, despite wide-spread talk of capacity constraints. With increasing costs for governmental compliance, driver recruiting and volatile fuel pricing, motor carriers have largely been unable to convert even slightly improving rates to boost their profitability.
When the Federal Motor Carrier Safety Administration announced last March that it would not delay enforcing a July 1 start date for a highly controversial change in Hours of Service rules for commercial truck drivers, despite pending court challenges to the new rules from industry, it set conditions in motion that may have far-reaching effects for shippers.
As expected, the truckload carrier segment is reporting productivity declines of 3-5% attributable to new HOS compliance. In a late October news release, Schneider National, a premier truckload, logistics and intermodal service provider, announced a 3.1 percent drop in productivity on its single-driver shipments and a 4.3 percent decline for team-driver shipments since the new HOS rules took effect.
Adding fuel to the fire, according to John Larkin, managing director of Stifel Transportation & Logistics Research Group, the HOS rules were exacerbating the driver shortage. Quoted in the same news release, Larkin stated, “Virtually all of the proposed federal rules and regulations either reduce the size of the driver pool or reduce the productivity of the drivers remaining in the pool.”
In November, the American Transportation Research Institute (ATRI) announced the results of its own exhaustive survey of more than 400 motor carriers as well as drivers on the effects of the new HOS rules. Among the key findings reported:
- Over 80 percent of motor carriers surveyed have seen some productivity loss following the July 1st HOS rule changes.
- Nearly half of the carriers indicated that they require more drivers to haul the same amount of freight.
- From the more than 2,300 commercial drivers surveyed, 82.5 percent reported that the new HOS rules were having a negative impact on their quality of life.
- In contrast to government’s stated safety reasons behind the HOS rules change, more than 66 percent of the surveyed drivers indicated increased levels of fatigue operating under the new regulations.
According to the October Schneider National news release, many shippers are also indicating that the carriers they work with – as well as their own private fleets – are experiencing both on-time service and productivity declines.
“To put it in the simplest of terms, capacity continues to tighten, productivity has been reduced and it’s harder – and more costly – than ever to acquire and retain drivers,” explained Dave Geyer, senior vice president/general manager of Schneider’s Van Truckload division. “This trifecta is a cost burden that carriers cannot bear alone.”
Stay tuned for further news this year on how motor carriers are adapting to this environment and what impact that is having on shippers.
Monica Truelsch is the Director of Marketing for TMW Systems. Truelsch joined TMW in 2004 and served as Manager of Partner Relations and Director of Product Management prior to her current role. Before TMW, she was the Sales and Marketing Manager for the “High Tech High Temp” business group of GrafTech International and Vice President of Software Sales for the Americas at Alpha Technologies LLC.