Truckers and Shippers Prepare to Meet Over-the-Road Challenges

Q: What challenges do domestic transportation service providers face today as a critical part of the value chain for manufacturers and retailers?

A: One of the most competitive segments of the trucking market, truckload (TL) companies also represent the core business of most asset-based, but diversified, transportation companies. Their most common concern, according to a recent survey of over-the-road, long-haul truckload carriers, is maximizing asset utilization—increasing the revenue-generating ability and productivity of their existing trucks.

In addition to utilization, recruiting and retaining qualified drivers represents a major concern for carriers. An aging population of commercial drivers is fueling this concern, with more driver attrition prompted by negative CSA scores, and 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 resurging economy.

Unlike prior boom-and-bust economic cycles following trucking industry deregulation, rising freight rates are unlikely to draw enough new startup carriers to the industry to increase capacity and shift pricing power back in favor of shippers any time soon. There simply will not be enough drivers to fill the additional trucks. Much of our product R&D now is going into tools that help carriers visualize and consistently improve utilization.

Q: Will there be any major changes in transportation industry dynamics soon?

A: The Federal Motor Carrier Safety Administration’s March 2013 announcement that it would not delay enforcing a July 1, 2013, start date for a highly controversial change in Hours of Service (HOS) rules for commercial truck drivers—despite pending court challenges to the new rules from industry—set conditions in motion that will have far-reaching effects for shippers.

Industry observers have already remarked that importers and exporters should focus on highway—not ocean—transportation challenges this year. Capacity for over-the-road trucking will contract further when the new HOS rules take effect in July 2013, and the truckload carrier segment is likely to experience productivity cuts of three to five percent—if not more—as a result of compliance. Freight networks may need to be re-engineered to accommodate curtailed driving hours, and more freight may shift from TL to less-than-truckload carriers.

The net effect for supply chains from the new HOS rules imposed on the trucking industry will likely be to lengthen them even more than slow-steaming has. Upward pressure on truckload rates will contract 3PL margins and take a larger bite out of shipper budgets.