The U.S. trucking industry chalked up a record year in 2018, one that arguably was the best the industry has seen in decades, if not in its history. Most truckload and less-than-truckload (LTL) carriers set new high-water marks for freight tonnage, revenues, and profits as the economy surged, e-commerce continued its rapid growth, and businesses accelerated purchasing of goods as they pulled forward inventory in advance of the Trump administration's China tariffs.
"I've been in this business 40 years and have never seen a year that busy," notes Marty Freeman, executive vice president and chief operating officer of Thomasville, N.C.-based Old Dominion Freight Line.
That's proving to be a tough act to follow. First-half 2019 results for the industry in general, while modestly encouraging, battled against a tough comparison from last year's record performance and reflected the impact of other factors as well.
Demand for motor freight services in 2019 has softened. By one industry measure, whereas last year daily demand found six truckload shipments vying for one truck, this year there are three. Dry-van truckload spot-market rates in July versus last year were down nearly 19 percent, and the pricing pendulum has begun to swing back in the shipper's favor. Carriers are carefully trimming their fleets and scaling back truck purchases this year as new capacity brought online to handle last year's surging volumes is now competing for fewer shipments.
Last year, as truckload capacity tightened, heavier shipments—typically those around 10,000 to 15,000 pounds—migrated from truckload fleets to LTL carriers, boosting LTL tonnage. That trend has reversed itself this year; those heavier shipments are transitioning back to truckload operators. At the same time, the explosion of e-commerce-generated freight is changing the profile of shipments—and tonnage handled—in LTL carrier networks. It's driving smaller, lighter, and more frequent shipments to and from more distribution centers strategically located to enable next-day—and in some cases, same-day—delivery of goods to the end-user.
On balance, carrier executives are cautiously optimistic. For the most part, those interviewed for this story expect capacity to gradually tighten as the year progresses. E-commerce remains a growth opportunity and a challenge. Shippers still recognize they have a role in effective capacity management and carrier success, and can benefit from collaborative relationships as a "shipper of choice." Yet the road ahead is not without challenges. Several factors are at play, among them:
ELD DEADLINE LOOMING
December is the deadline the Federal Motor Carrier Safety Administration has set for trucking operators to fully implement upgraded electronic logging devices (ELDs) to improve compliance with current driver hours-of-service (HOS) regulations. For larger carriers, it's a technology mandate they are well on their way toward meeting. For smaller carriers, issues with timing and selection of a technology provider as well as implementation may lead to missed deadlines and end up affecting industry capacity at year-end.
There are a considerable number of smaller carriers that remain on the fence with ELD upgrade decisions, says Bart De Muynck, research vice president, transportation technology for research firm Gartner Inc. According to his research, 92 percent of small carriers—those with 50 or fewer trucks—are waiting until the fourth quarter to make the switch. As those carriers rush against the deadline to become compliant, "there will be delays, and in the wintertime, that could lead to truck-capacity shortages," he says.
On the positive side, carriers already using upgraded ELDs have seen the number of truck-driver HOS violations cut in half. "[With] fewer hours-of-service violations, you have fewer vehicles ordered out of service [and thus unavailable to haul freight]. That opens up capacity you might not otherwise have available," says De Muynck.
Then there is the issue of the data and who owns it. "Many of the ELD contracts state that the telematics vendor owns the data, and they can sell it ... to a third party. It's a very contentious point," he says. "It's the idea of 'infonomics.'" He notes that third-party technology platforms like FourKites are generating two revenue streams from ELD data: one for visibility and another for capacity management. "Carriers understand their data is getting monetized," De Muynck says. "At some point, they [carriers] are going to say 'Give me a cut of that revenue, or I won't give you my data anymore.'"
Old Dominion's Freeman sees multiple benefits from ELDs, which provide not just HOS-compliance information but also richer data on overall truck and driver performance. Old Dominion expects to complete its upgrade to new ELD technology by October. It is integrating its back-office and performance-management systems to utilize the new ELD-generated data for better fuel-mileage tracking, measuring driver behavior in areas such as progressive shifting, and getting advance alerts from engine fault codes to avoid breakdowns.
Darren Hawkins, chief executive of LTL carrier YRC Worldwide, believes there is benefit from ELD-generated data that goes beyond regulatory compliance. "The industry needs a trusted third-party clearinghouse to gather and analyze ELD data [for] what it means related to traffic, freight flows, time-of-day issues, detention, and much more," he says. Hawkins cites the American Transportation Research Institute (ATRI) as the potential home for such a clearinghouse that, as a neutral party, could aggregate, analyze, and share consolidated insights and intelligence with participating carriers.
At the end of the day, ELDs' most compelling value proposition is safety, notes John Smith, president and chief executive officer of FedEx Freight. The company expects to complete its networkwide update by the end of September. "Safe operations are our top priority, and we see these ELD devices as enhancing our commitment to safety and [compliance with] hours-of-service regulations," he says.
Adds Satish Jindel, president of SJ Consulting Group, "Before, it was an unlevel playing field. Having ELDs and getting everyone to play by the same rules—that's good. What it does mean is that a certain amount of excess driving that had taken place is getting taken out," which reduces capacity. Overall, Jindel believes ELDs will positively affect the industry, ensuring discipline among drivers and better safety for the motoring public.
SHIPPER OF CHOICE
The Great Freight Market of 2018 cemented the concept that it pays to be a "shipper of choice," as carriers with scarce capacity gravitated to those shippers who demonstrated a desire to collaborate and cooperate with their carrier partners rather than engage in old-style confrontational, transactional relationships. Has the softer market put a damper on that?
"I think they [shippers] are definitely collaborating now more than ever," says Pat Martin, corporate vice president of sales for Richmond, Va.-based LTL carrier Estes Express Lines. Most shippers recognize "a good working relationship is important to make sure they are not causing undue expense for the carrier to move their freight." Often, a simple meeting between a shipper and carrier to compare operating processes can lead to subtle but important changes for both that can create benefit for the shipper and reduce costs for the carrier. "We try to impress upon customers the opportunity for both of us to win," he says.
Greg Orr, president of Joplin, Mo.-based truckload carrier CFI, has seen mixed results over the past six months. "Some customers still are trying to figure out what they can do to be a shipper of choice," he says, noting that while the trend is positive, those conversations are not happening with the same frequency they did in 2018. "We still try and provide whatever data, tools, and resources we can to help them," Orr says. Working together and sharing information, "we can help them minimize [cost] in the overall supply chain and support them [in ways] that make all of us better at the end of the day."
Pitt-Ohio Chief Operating Officer Jim Fields remains encouraged by the open dialogue and the continuing interest from customers in more collaborative relationships. The Pittsburgh, Pa.-based LTL carrier has "specific dialogue with customers on things they can do to mitigate increases, or at least lower increases and costs," Fields says. "Most of it is supporting where our biggest costs are—getting our trucks in and out of their docks" in a timely manner. "When you look at the number of trucks we put on the road, if we can reduce the amount of time at pickup and delivery by five minutes, that has huge implications for cost and productivity," he says.
YRC Worldwide's Hawkins wants to bring his company and shippers closer together and is exploring development of a "loyalty" program "that provides an enhanced customer experience for those who view us as a strategic partner." He also cites the collaborative value of a multitiered new-customer onboarding program "that reviews customer supply chain objectives, ensures data integrity and connectivity, [establishes] lines of communication, and reviews freight characteristics to minimize potential shipment damage." Hawkins adds that "shippers that invest in their relationships with carriers will be the winners in the supply chain."
Ricky Stover, executive vice president, sales and marketing at Salt Lake City, Utah-based nationwide refrigerated carrier C.R. England, says "most shippers ... have a sincere desire to be good partners and recognize that shippers and carriers have to collaborate more closely." Given what he calls the current uncertainty in the market, "we can overcome that better together," he says.
SMOOTH SAILING OR BUMPY ROAD AHEAD?
What's keeping trucking executives up at night?
"We are coming into some really critical periods," says Pitt-Ohio's Fields. "Fortunately, the economy is still doing OK, still growing." One of the big challenges, he believes, is managing the escalation of costs. "They're going up for all service providers," he says. He also cites the "acceleration" of technology and the ability of carriers to manage it effectively. "The speed of [technology] change has put a new dynamic into our industry," he says. "The companies that can embrace that change, understand how it can help their business, and make good decisions will be the ones to really take advantage of the opportunities that are coming."
Estes Express's Martin echoes Fields' observations about technology. "Today, data—how you capture, use, share, and manage it—has become just as important as the movement of the freight itself," he says, noting that a cohesive, informed technology strategy is crucial. "Our ability to give [customers] visibility from the pickup all the way through to a clear delivery is critical. They are expecting shorter and shorter transit times and [setting] tighter delivery windows. We have to have the technology in place to deliver on those expectations ... to realize that dream of pure transparency to their shipments."
Technology is important, but without drivers to move the freight, the industry will see increasing challenges in maintaining, much less growing, capacity. Even as autonomous truck technology advances, meaningful impact from driverless trucks on capacity is years away, carrier executives say.
For now, driver recruitment and retention remains a universal concern and challenge. A recent analysis by the American Trucking Associations threw this challenge into stark relief: If current trends continue (of more drivers reaching retirement age and fewer younger drivers replacing them), the industry could face a shortage of 160,000 drivers by 2028.
Bottom line: While demand for trucking capacity will continue to ebb and flow in cycles, drivers will be the constant chokepoint. And that makes shipper-carrier relationships that much more crucial.
Many carriers are tackling the challenge head on. C.R. England operates five driver training schools as well as a "finishing" program for advanced training. Over the past year, it has implemented focused driver support initiatives and given its drivers two pay raises collectively totaling $30 million annually—the biggest driver pay increase in its history. "We're doing much better on driver availability now than [we have] in a number of years," notes Ron Hall, C.R. England's vice president of equipment and fuel. As of late July, the company had 6,523 professional drivers, about 300 more than at the same time last year.
Old Dominion also operates an in-house driver training school that takes dockworker candidates and provides them with education and hands-on training to become truck drivers. Last year, the company graduated 575 newly minted drivers from the program, which mostly fulfilled its needs for additional drivers as its freight volumes grew.
CFI's Orr cited challenges posed by recently enacted federal regulations intended to set across-the-board standards for entry-level driver training. Essentially, under the new rules, candidates who want to enter the industry will need a certificate of completion or diploma from a certified driving school in order to get a commercial driver's license (CDL). Third-party schools today already are at capacity. "They are not building the capacity to handle the [coming] surge," Orr says. "That's potentially a chokepoint in the industry's ability to produce enough drivers with the required training. And that will impact capacity."
CFI engages with local community colleges, supporting their formalized driver-training curriculum and providing graduates with a path into a driving job. Once hired, those graduates are put through an over-the-road "finishing" program with an experienced CFI driver-trainer to complete their training before going solo.
Crumbling infrastructure and increasing congestion also made the list of top concerns from carrier executives. "America's roads and bridges are dangerously deteriorated, and our interstate system is over 60 years old," notes FedEx Freight's Smith. "Our federal and state governments need to work toward modernizing our infrastructure ... and [to] adopt common-sense policy solutions, such as [allowing the use of] longer-combination vehicles to increase the efficiency, safety, and capacity of our transportation system."
"Maybe it's the potholes that have caught our attention as a nation," surmises YRC Worldwide's Hawkins. "Or maybe it's the traffic and congestion." He cites an ATRI study that found that drivers suffer some 1.2 billion hours of congestion-related delays on the national highway system annually—the equivalent of 425,000 commercial truck drivers sitting idle for an entire year. That's an image oddly out of sync with the nation's growing e-commerce-driven appetite for next-day and same-day delivery.
Looking at the big picture, SJ Consulting's Jindel sees reason for optimism in trucking's future, citing yet-to-be-realized technology advancements and benefits, continued stable demand and solid growth projections for trucking services, and no viable replacements. He has three observations:
"The number of people coming into the industry is not going to increase [appreciably], creating a cap on capacity. That's going to favor [carrier] pricing, so manage capacity for profitability because you don't have control over demand.
"The cost of shipping in America is cheaper than in just about any country in Europe, so be happy."
And finally, "It can't be exported to India or China."