Industry News

Released: June 21, 2012

 

NASSTRAC Urges Conference Committee Leaders To Enact New Highway Bill

NASSTRAC sent a letter yesterday to all Highway Bill Conference Committee members encouraging them to promptly enact a bill that will fund badly needed infrastructure construction and maintenance. Without efficient trucking service that can accommodate projected future demand for high quality freight transportation, shippers will be forced to devote increasing capital expenditures to inventories and warehousing for safety stock, said the letter. The result will be less money to spend on investments, growth and jobs, and higher prices for consumers, as supply chain efficiency declines.

"Maintaining a strong and growing trucking industry is impossible if we continue to underfund our highway infrastructure," says John Cutler, NASSTRAC's Legal Counsel. "While Map-21 will not provide all the highway funding needed, it's far better than inaction and will avoid further disruption of existing highway projects." NASSTRAC joins several other industry associations in calling for highway funding based on no less than MAP-21 levels.

NASSTRAC also urged the conference committee to incorporate beneficial provisions from H.R. 7, the American Energy and Infrastructure Jobs Act of 2012, with particular support of provisions that will improve motor carrier productivity. NASSTRAC supports provisions that would permit states to allow longer and heavier trailers, consistent with safety and highway wear and tear in order to accommodate increased demand without needlessly increasing the number of trucks on roadways. "The resulting productivity gains are needed to offset governmental measures reducing productivity, such as changes in driver hours of service rules," says Cutler. In addition, NASSTRAC supports streamlined procedures for permitting highway work, including building new highways and expanding old ones, and has gone on record to suggest that funding through higher tolls should be avoided.

> View NASSTRAC's letter to Highway Bill Conference Committee

 

Analysts Report Capacity At Equilibrium

Analysts at the NASSTRAC Shippers Conference & Transportation Expo last month reported demand and supply are at equilibrium. With the economy growing moderately at 2% this status should remain unchanged for now.

"There is a structural element for capacity being tight. The fleet age is at a generational high. The size of fleet is shrinking one to 2% over the course of next two years," said Benjamin Hartford of Robert W. Baird & Co. This has implications to all freight since truckload represents 70 percent of total domestic freight spend.

According to Derek Leathers, President and COO, Werner Enterprises' 19% - 20% of the truckload capacity that existed in 2007 has left the market. Companies that are merging or acquiring others are openly saying they are going to sell equipment because it's too old. Trucks are leaving the market. On the other side, demand is down 17% bringing the supply and demand of the market to equilibrium. Now as economy shows signs of life, capacity is getting tight.

Yet, there are no signs of capacity coming online any time soon. Equipment costs have increased 35% to 40% and access to capital is difficult. It is estimated that 200,000 to 220,000 trucks are needed annually to keep the U.S. trucking fleet constant. Combining that with the average age of today's fleet at 7 years only increases the number of units needed.

John Barnes of RBC Capital Markets made these highlighted observations per each mode:

• Truckload: Volumes are stable. Capacity is tight. Supply and demand at equilibrium. Carriers are not adding capacity. The driver shortage is worsening. If the GDP grows faster than its modest 2% capacity will be further constricted.
• LTL: There is ample capacity. Public fleets could handle 10% - 20% more today.
• Intermodal: Abundant capacity. Expect continued market share gain from truckload.
• Air: Ample capacity. Demand sluggish. Tonnage down 1.5% year-over-year.
• Ocean: Too much capacity.

 

All Signs Point to Rate Increases

The message of continuing price increases was echoed in presentations at the recent NASSTRAC Shippers Conference & Transportation Expo. The stated amount of the increase varied falling in a range of 2% - 7%.

"There is a cost pressure and a wave of costs coming to the truckload industry that are unlike any that we have ever seen," said Derek Leathers, COO Werner Enterprises. Presenters throughout the conference recounted facts on increasing costs in all areas especially drivers, fuel, equipment, and tires.

Benjamin Hartford of Robert W. Baird & Co. reported a 2% - 4% truckload price increase in 2012. His considerations to this statistic included fleet age being at a generational high and fleet size shrinking at 1% - 2% over the next two years setting the stage for positive pricing. Hartford reports other mode prices increasing in 2012 (LTL 2% - 5% and rail 3% - 4%).

John Barnes of RBC Capital Markets sees GDP growing moderately at 2%. If there is a more material recovery, capacity will be tighter driving the need for more than an RBC's forecasted 2% rate increase.

"At U.S. Xpress, we challenge ourselves to become more efficient and more effective," said John White, President, U.S. Xpress. "Yet we need 5% to 7% in rates," he added.

Last year, third quarter reports from the 11 publicly-traded carriers showed an average price increase of 4.1%. Eight of the 11 had financial results worse in third quarter 2011 than in the same 2010 quarter signifying the rate increase wasn't enough for them to make an appropriate return on their investments.

There are efficiencies being made. "In the last year and a half we have dropped idle by about 40%. On top of that, we dropped our dead head by 15%. Yet on a 500-mile move, because of fuel costs, my cost to move that load is up about $5 a load," said White.

The need to attract drivers is a key factor in rising prices. The lack of drivers translates to equipment sitting idle reducing productivity and utilization rates. Conference speakers agree that driver pay needs to increase. Driver income is not keeping up with inflation. Also, with the CSA requirements, it is becoming more difficult to find qualified drivers. Both shippers and carriers can improve the driver environment. Pay is only one aspect. Getting drivers loaded and unloaded efficiently goes a long way to keeping drivers on the road increasing their income potential.

Other strategies that can impact freight costs include:

• Moving freight on weekends improves truck utilization. Drivers on irregular routes work on weekends. At U.S. Xpress 70% of trucks on weekends are looking for freight.
• Selecting the most efficient mode. Moving an LTL to truckload or truckload to intermodal carries reduced pricing.
• Transportation/fleet outsourcing to a credible carrier can provide cost savings since leasing is still the lower cost.
• Using a holistic approach to the supply chain. Analyze the total cost to serve over a period of time rather than truckload rates alone.

 

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