Nearly everybody in the trucking industry is praying Ed Wolfe is right. The well-respected analyst for Bear Stearns is predicting demand for trucking services in 2008 will be the reverse of a typical March weather pattern—“in like a lamb, out like a lion.”

After being buffeted for nearly two years by the triple whammy of soft freight demand, sharply higher fuel costs, and flat or slightly lower rates, most top executives in the industry say they agree with Wolfe’s prediction. Or, more accurately, they are cautiously optimistic that will be the case.

All in all, truckers are due for a break. The slump in housing and the automotive market has cascaded into trucking, which is a demand-derived business reliant on the overall health of the industrial economy. While there are still pockets of excess capacity resulting in soft rates, carriers are bullish that the worst is behind them and 2008 could indeed be a breakout year for profitability.

After two years of the sharpest decline in trucking profits since the 2001 recession, the industry has seeds for hope. Already, the Federal Reserve has sharply cut interest rates, fuel prices appear to have at least stabilized, the weakened dollar has fueled growth in exports, several leading carriers have reduced truckload capacity, and some shippers are recognizing that higher rates are inevitable given the long-term trends in supply and demand. Plus, it’s an election year so nobody’s taxes—corporate or personal—are expected to rise.

The rule of thumb in trucking is that freight demand builds through every calendar year. Nearly everybody loses money in January, hopes to break even in February, and profits start to flow in March. As trucking approaches its peak demand season, 2008 may just be one of those classic recovery years with freight demand building slowly but rebounding steadily through the year as the general economy improves.

To better report the temperature of the market, Logistics Management asked a handful of leading trucking CEOs and executives to give their take on exactly what shippers could expect from their carriers in 2008. Here’s what they had to say.

Has the rise in fuel caused any fundamental shifts in your operations?

Last year, the nation’s truck fleet consumed 52.8 billion gallons of fuel, both diesel and gasoline. The trucking industry spent about $111 billion on diesel fuel in 2007, a 7.4 percent increase from $103.3 billion in 2006. Few hazard a guess on this year’s fuel bill; but any fuel conservation pays big dividends.

“The cost of fuel is high and it’s only going to go higher, so we need to use all of our resources sparingly,” says Chuck Hammel, president of Pitt Ohio Express, a leading regional LTL carrier. “We have put much more emphasis on using more fuel efficient (40-foot) straight trucks and sprinter trucks (smaller cargo vans), and the difference in additional miles per gallon is substantial.”

Operationally, Pitt Ohio is studying flexible territorial boundaries between its terminals that could change daily depending on its mix of freight, Hammel says. “Our objective is to move as little freight as necessary between terminals. Having flexible boundaries will help a great deal in lowering costs.”

Averitt Express, another top regional carrier, has invested in software that analyzes a driver’s route and selects the closest fueling station with the lowest diesel cost. “This results not only in saving money on fuel but reduces our drivers’ out-of-route miles as well,” says Phil Pierce, Averitt’s director of sales and marketing.

Carriers continue to tweak their terminal structure to achieve fuel savings. Steve O’Kane, president of A. Duie Pyle, says the carrier recently replaced its Webster, Mass., terminal with two facilities in Northborough, Mass., and Johnston, R.I., in order to get closer to its customers and reduce driving distances for pickup and delivery drivers.

“Obviously there were other factors beyond fuel consumption in the decision, but fuel was a component,” O’Kane says.

How have shipper distribution patterns changed in the past five years?

“Logistics professionals have achieved great gains in reducing inventory and improving supply chains,” says FedEx Freight President/CEO Douglas G. Duncan of his customer base. “Companies are looking for ways to expand these strategies to support global supply chains. With that, predictability is critical, whether a company is operating fast cycle logistics or planned replenishment.”

Nearly every carrier surveyed said shippers are moving freight in smaller shipment sizes in shorter lengths of haul with an emphasis on next- or second-day delivery. “Distribution patterns now favor regional lanes,” says Roy Slagle, senior vice president of sales and marketing for ABF Freight System, the nation’s fifth-largest LTL carrier.

“Expedited and guaranteed shipping continues to play a more prominent role. Continued sourcing from Asia has changed the dynamics of supply chains, which now favor regional distribution, and supply chains now require a provider who can respond quickly to a wide variety of unique and often complex requirements,” says Slagle.

Pyle’s O’Kane adds that declining shipment size and reduction in the B2B market have ushered in major shifts in distribution patterns. “The falling shipment size has been a multiyear trend, and may have been accelerated by a faltering economy, but looks to be a longer-term trend of smaller, more frequent orders. The B2B reduction is a statement about manufacturing here in the U.S., and even more so in the Northeast. But consumerism continues to go up, so the freight mix, and the delivery requirements an LTL driver faces each day, have changed.”

Has the sharp rise in costs caused you to rethink any aspect of your operations?

Trucking companies are retooling their operations at a dizzying rate, and fleets are being downsized to meet demand. Truckload carrier Knight Transportation, for example, shed 103 company trucks in the 4th quarter of 2007. Rival TL competitors J.B. Hunt, Schneider National, and Werner Enterprises similarly reduced their fleet size during the quarter as well.

Specifically, the medium-to-long haul dry van TL market has been affected by the continuing decline in length of hauls due to regionalization of freight, rapid growth in imports, and growth in intermodal rail competition. “Certainly we’ve seen decline in volumes,” says John J. Steele, executive vice president of Werner Enterprises, a $2 billion truckload giant that is the fifth-largest TL carrier in the country. “Our average length of haul is 550 miles, and that has been coming down as we’ve been growing our regional business and focusing less on long haul business. Going forward, we expect to continue to grow our dedicated, regional, expedited, and freight in and out of Mexico. It’s likely we’ll have less emphasis on, but a continued presence in, medium to longer-haul van business as competitive pressures and lower profitability of that market make it not as attractive as before,” adds Steele.

Pitt Ohio has formed an operations research group that is using the latest science and engineering to develop optimum operations planning, terminal location, and equipment mix. “All our costs have gone up and our rates have stayed the same over the last 18 months, and that has us looking for ways to become more efficient,” Hammel says.

According to nearly all executives interviewed, rising costs have put more emphasis on improving productivity instead of pursuing top line growth through expansion. “The current environment places a premium on a carrier to better manage existing capacity to ensure profitability,” Hammel says.

Pitt Ohio terminal managers, for example, are now providing daily information on performance so they can address trends at the local level immediately. “The change here is that we moved from weekly to daily information. This has helped create a better sense of urgency to contain unnecessary costs,” Hammel says.

Has intermodal become more of a competitive option for shippers?

At J.B. Hunt, intermodal now accounts for 51 percent of total revenue and 81 percent of earnings in its most recent quarter. Not every truckload carrier has made the commitment to intermodal that giants Hunt and rival Schneider National have, but intermodal seems increasingly to be an option when the time/service matrix is right to choose rail.

Werner’s Steele says intermodal accounts for about 2 percent of total revenue, but he adds that he feels the impact of intermodal competition on longer haul lengths. “The impact of higher fuel prices has forced some shippers to see intermodal a little more attractive than in the past,” Steele says. “Higher fuel prices affect truckers more than it does the railroads.”

Even some traditional regional LTL players are using intermodal at least as a marketing option for shippers. “Our goal is to provide complete transportation solutions to meet the diverse needs of our customers,” Pierce of Averitt Express says. “Imports to the U.S. have doubled over the last 10 years and we’re dealing with rising fuel costs. So intermodal is key for shippers with volume freight moving across the country.”

As such, Averitt has partnered with Pacer Stacktrain to provide fully integrated intermodal service. Pierce said the combination of Averitt’s asset-based regional trucking network and Pacer’s container fleet is attractive to shippers seeking low-cost transcontinental movements. “We provide our customers with options,” Pierce says.

What’s your biggest challenge in the next two to five years?

“People,” says Pyle’s O’Kane. “The driver supply issue is very real. We don’t only need drivers and dock people for the future, but we need to make the next generation of leaders ready for the challenges they will face in this ever-changing business.”

ABF’s Slagle summed it up in two words: “Infrastructure and congestion.”

FedEx Freight’s Duncan says the trucking industry has “an opportunity and an obligation as an industry to focus on sustainability.” He also is greatly concerned about the nation’s infrastructure. “While I believe there is greater awareness among a number of key stakeholders about the need for solid infrastructure, I do not believe we have a clear vision for the future,” he says. “To that end, we must all work together—shippers, providers, and government—to move beyond articulating the problem and developing holistic solutions.”

Others cited changing federal regulations such as hours of service, environment laws, and emissions as constant challenges to the industry and its cost structure. Then there is the continuing threat of industry consolidation. Of the 50 leading carriers in 1980, the year trucking was deregulated, only five remain today.

“My biggest fear is the mass consolidation that is happening in our industry,” Pitt Ohio’s Hammel says. “A regional carrier like ours needs to find a way to stay relevant in the marketplace when global supply chain issues dominate our shippers’ agenda. Some consider consolidation a threat. We perceive it as an opportunity to provide a customized customer-focused solution.”

As shippers continue to redesign their supply chains, carriers are doing the same with their service offerings. Whether that results in higher profits for carriers, they say, largely depends on the overall health of the U.S. economy.