The U.S. truckload industry faces unprecedented challenges to adding capacity despite remarkable efforts in 2014 to reduce the average fleet age, the president and chief operating officer of truckload and logistics giant Werner Enterprises Inc. said today.
Derek J. Leathers said the ongoing shortage of qualified truckload drivers and subpar industry profitability that discourages banks from lending funds for fleet expansion is keeping a tight lid on capacity growth. Estimates of the current shortage range from 30,000 to 150,000 drivers, though Leathers said he believes it is closer to the lower number. He added that a segment that is saddled with low- to mid-single-digit operating margins—which seems to be close to the norm—will find it hard to attract interest from banks or anyone else in a lending capacity.
The skyrocketing cost of buying a truck has also contributed to carrier reluctance to grow their fleet sizes. It now costs about $200,000 to acquire just one truck—a figure that also includes the investment in two to three trailers, Leathers said. Such an amount is nearly unheard of, he said.
Perhaps not surprisingly, carriers have "never faced a more difficult time" adding equipment, Leathers told the NASSTRAC annual conference and transportation expo in Orlando. The status quo is unlikely to change until driver demographics work themselves out and the industry improves its profitability in a sustainable manner, he said.
Leathers said stakeholders should not be fooled into thinking that recent data showing record numbers of orders for new trucks translates into more equipment hitting the road. Many of those vehicles will continue to be used to replace aging equipment. Omaha-based Werner's fleet averages less than 2 years of age, he said.
On that score, fleets are doing a terrific job, Leathers said. Heading into 2014, the age of the typical tractor was 6.6 years. At the end of the year, it had declined to 5.7 years, an amazing reduction in one year's time, Leathers said. Older trucks removed from service are unlikely to have an afterlife because they aren't designed to accommodate today's technological needs or comply with impending changes in various government regulations, Leathers said. "Trucks are leaving the industry," he said.
Another factor reducing truck utilization is the rapid growth of e-commerce, which has dramatically shortened a typical truckload carrier's length of haul as customers want their warehouses and distribution centers positioned closer to end markets. Total miles driven have dropped by 25 percent since 2007 as lengths of haul that were commonly 700 to 800 miles are down to 500 miles, or even into the high 400-mile range, Leathers said.
Despite the reduction in overall miles, about 10 to 20 percent of the nation's truck capacity moves around empty, mostly on backhaul moves after the driver has tendered his or her load and is unable to find return business at that location, according to Jack Holmes, president of UPS Freight, the less-than-truckload (LTL) unit of Atlanta-based United Parcel Service of America Inc. Holmes spoke on the same panel.
Leathers, one of the industry's most forceful and eloquent advocates, said a driver's three main concerns are quality of lifestyle, the condition of the truck, and compensation, in that order. He praised the NASSTRAC shipper group for stepping up a constructive dialogue with carriers over the challenge of attracting and retaining qualified drivers. "The talk-thru on the issue is as good as it's been in 15 to 20 years," he told the group.