The Future of Trucking
Posted on Tue, Mar 02, 2010 @ 08:55 AM
Trucking, more specifically over the road (OTR) trucking is a unique business unlike any other. Since “deregulation” we have seen a pricing/rate pendulum swing back and forth repeatedly favoring shippers in times of over-capacity (too many trucks in the industry) and truckers in times of under-capacity. That said, rates today remain substantially unchanged from where they were 20 years ago. This despite dramatic increases in trucks, fuel, insurance and every other associated cost.
What does this mean for the industry? What does this portend? As the economy rebounds however slowly from the most recent recession (depression?) we will enter another period of under-capacity. This will most certainly drive rates up as shippers vie for available trucks to move their freight. In previous cycles truckers would put more trucks into service and this would mitigate pressure on rates. This time that scenario is doubtful at best. Why?
The quickest way for most carriers to increase capacity has always been to sign on owner operators or independent contractors. That may not be so easy this time. Many owner operators have lost their trucks due to repossession or sold them and simply walked away from the industry. Getting that capacity back in the credit reality of this post-recession period is therefore dubious at best.
The other downside of the virtual zero-growth rates of the past two decades is the effect on recruiting new drivers for company-owned trucks. OTR trucking invariably pays drivers by the mile or a percentage of the load. Both amounts obviously are tied to the rate. No rate growth equates to no pay growth. OTR truckers are, for all intents and purposes, the last true commission employees in our economy. No guarantees. No minimums and generally no draw. Worse still, is that they can’t set their own hours or control their income.
Why? Because the deregulation we’ve all heard about is somewhat of a misnomer. While rates have been deregulated, federal and state regulation of trucking equipment and maintenance, driving hours and driver minimum qualifications, hiring and training has actually expanded every year. Drivers are limited in the hours they can drive, and for good reason, effectively capping their earning ability. The result is a lack of new entrants at a time when aging baby boomers are retiring at an alarming rate.
Like them or hate them, America needs trucks. Everything you touch today, everything, moved at some time in the supply chain by truck. Every item in every grocery, department, and convenience store got there by truck. Everything in your office even your car moved by truck. From raw material to finished product, even if it moved by plane, train or ship part way it ultimately came by truck. An expanding population will require even more trucks at a time when drivers have walked away from the industry or are retiring and new entrants are scarce. Without trucks, America grinds to a halt.
Think that’s hyperbole? You only need look back at shortages we have experienced in grocery stores, gas stations, etc. around the country after natural disasters. Empty store shelves after Katrina… gas stations without fuel after Rita… and to a lesser extent elsewhere after blizzards, etc. While these shortages were due to infrastructure problems (trucks couldn’t get through to the stores) trucks without drivers will not be able to deliver goods either. Significant driver shortages, such as those forecast by the Department of Labor over the next 10 – 20 years will result in product shortages and empty shelves. Shippers simply will not be able to get their raw materials or get their finished product to stores.
There is only one solution… but it’s expensive. Driving jobs need to be desirable and to be desirable they need to pay good wages. Driver pay needs to rise and rise significantly. The only way for that to happen is for shipping rates to rise significantly also… 30 – 40%. Shippers don’t want to hear it and ultimately the costs will be passed along to consumers but the alternative, the status quo, is much less palatable.
Written by Kevin Mullen, Director-Safety ADS Logistics Co, LLC