Transportation Best Practices: 2012 Truckload Roundtable Carriers gain upper hand
March 01, 2012
The market outlook for truckload (TL) shippers has been an increasingly difficult story to tell. The reasons for this vary, but at the top of a growing list of issues we find the prolonged driver shortage, increasing diesel prices, the seemingly endless shifting of government regulations, and the rollout of new trucking safety programs.
These challenges remain at the forefront for TL shippers at a time when supply chain operations costs continue to grow at an accelerated clip. But while the TL market is becoming increasingly difficult to manage, our panel, consisting of some of the foremost trucking experts in the country, insists that this is no reason for shippers to throw in the towel on the mode just yet.
Joining Logistics Management this year to help provide insight into the current truckload market as well as how shippers can better mange this critical mode of transport are John Larkin, managing director of the Stifel Nicolaus’ Transportation & Logistics Research Group; Noël Perry, managing director and senior consultant at FTR Associates; and Donald Broughton, managing director at Avondale Partners LLC.
Logistics Management (LM): How would you describe the overall condition of the truckload marketplace over the last year?
Noel Perry: Over the course of 2011 there was a modest pause in a surprisingly strong trucking rebound, with capacity remaining relatively tight. A couple factors combined to create a rough equilibrium in pricing pressures. The slow volume growth eliminated the strong cyclical pressure on capacity that had significantly increased capacity utilization in 2010. Were it the only factor, capacity utilization would have fallen in 2011.
However, the slowly growing effect of CSA information sufficiently restrained truck capacity to offset the slow tonnage growth. As a result, capacity utilization remained in the 96 percent range, still below the peak of the last upturn, but tight enough to create higher-than-inflation rate increases.
John Larkin: Indeed, the truckload marketplace in 2011 was characterized by balanced supply and demand. Slowly growing freight volumes combined with the significant reduction in capacity that took place during the great recession, and that continued as the FMCSA began rolling out its plethora of safety-related regulations to create an environment that allowed carriers to move prices up significantly, but not as spectacularly as might have been possible if the economy had demonstrated more robust growth.
LM: What effect did these conditions have on TL rates?
Larkin: Well, TL prices continued to rise as truck manufacturers worked to incorporate improved fuel efficiency, reduced emissions, and enhanced safety into their products. Used trucks were in short supply and, as a result, used truck prices rose dramatically. Fuel prices remained volatile as some shippers talked of re-tooling their fuel surcharges.
But, of course, the driver shortage once again was the primary issue challenging carriers. The CSA program alerted everyone to the need to hire safer drivers while the downsizing of the industry’s driver recruiting and training infrastructure made it difficult to attract new workers into the industry.
LM: How should shippers view the current TL
Larkin:The current truckload market is somewhat uncertain from a shipper’s perspective, and they’ve been anticipating capacity shortages over the past several years. However, any capacity shortages have been limited to brief periods and specific regions. If the economy continues to expand at a modest pace, capacity shortages should become more frequent and more widespread as few carriers are looking to significantly increase the size of their fleets. With more rapid economic expansion, the capacity shortage could become more severe, quickly. Those shippers that had not locked in capacity at a reasonable price might find themselves coping with skyrocketing spot market prices.
Donald Broughton: Shippers are going to have to improve the way they optimize the loading and unloading time or pay a significantly higher price for transportation services—tighter HOS rules and the implementation of EOBR’s (electronic on-board recorders) make this inevitable. Shippers are also going to have to find a systematic way to vet the CSA score of the carriers and drivers being used, or insert a well-capitalized broker between themselves and the trucking company, or they will find themselves being named as defendants when accidents occur.
Perry: Both John and Donald are right on. This market is not a good one for truckload shippers, and ongoing regulatory changes are making supply chain management more complex and expensive. Capacity is tight enough to force annual cost increases above inflation. Conservative truckload management teams are becoming more aggressive about pricing; but more importantly, the combination of further economic growth and regulatory changes could push capacity utilization into the critical range, above 100 percent.
LM:In late December, the FMCSA issued its final HOS rule. What is your take on this rule in terms of the impact it could have on the truckload market?
Larkin:The HOS rule issued in December of 2011 was a nice compromise in my view. The FMCSA allowed carriers to retain the coveted 11-hour driving day, but inserted the 30-minute rest period into the driving day and changed the number of hours that a driver can drive during his tour of duty. The parameters around the 34-hour restart have changed to force carriers to spend two consecutive nights resting.
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