Trucking’s Rising Tides and the Bumpy Road to Growth Town
From Rocky Roemer and the May 2018 Roemer Report
With the President’s deregulation and tax agenda rising the tide, several of the U.S. economy’s bigger boats have been getting a pretty big lift including trucking. As of the end of April it looks like the nation’s economy is maintaining a pretty good head of steam even though spring is late this year. Back in March, the Bureau of Labor Statistics reported that total non-farm employment added 313,000 jobs in February, the largest job gain since 2016. The kicker though was in the trucking sector which gained some 5,600 jobs, a significant number, and one marking the fastest growth the industry since 2015.
To many in trucking, that news sounded Great and the broadcast media, for the first time in a long time, began covering the trucking industry’s role in sustaining our country’s economic growth and its importance as a jobs driver. For once, issues like driver pay, safety and turnover were front and center. Other issues facing fleets and owner operators are also getting more sober coverage—new regulatory mandates and relying on a crumbling infrastructure for example—in sharp contrast to the drumbeat of negative media drivers and the industry is often subject to. The industry’s building some real momentum, but is it sustainable?
With HQ in Toledo, Ohio, Roemer Report caught up with President and CEO of the Ohio Trucking Association, Thomas A. Balzer to get OTA’s read on the industry’s potential. Balzer says he thinks the trucking economy has real legs and is extremely upbeat about the prospects and opportunities for truckers and fleets in the coming decade. “As the economy continues to expand and we see it shift more toward e-commerce, it is changing the supply chain in very dynamic and positive ways.”
“The trucking industry will be,” intones Balzer, describing trucking’s key role in delivering the country’s economy, “as it always has been, that is, relied upon to deliver consumer’s goods quickly, reliably and flexibly.” Emphasis on relied upon indeed.
Balzer points out that tougher presidential trade policy has the potential to boost the trucking economy on an industrial scale: “The steel tariffs recently announced should facilitate a rebound in U.S. steel production, thus increasing the need to move raw materials,” notes Balzer, no doubt understanding that the demand for consumer goods will drive the purchase of more raw materials for the manufacture of durable goods and prompt capital spending by shippers so they can purchase enough trucks to ship it all.
Roemer Report checked in with national thought leader and ATBS CEO Todd Amen. Amen, has been opining on the economic environment of the trucking industry and its impact on independent drivers for decades. His optimism is on the rise. “For the drivers and the trucking industry,” says Amen confidently, “we’re looking at one of the best business climates in decades.”
Comparing recent history to current events, Amen explains that there is some debate as to whether or not the six-year period prior to 2014 was trucking’s last “best” decade, while he asks, “where did that economic blast of business go?” Out with loads of shovel-ready public works infrastructure outlays, no doubt. This time around, says Amen, “there is a significant difference, and the forecasts are strong for three reasons: One, the supply side (shippers available) is tight. Two, the freight economy’s prospects are ‘Super Robust’ and three, we are seeing ‘real’ economic momentum that is sustainable.”
For example, Amen says with business tax reform and the ability to claim 100% depreciation now, “People are buying!” But, he explains, “There will likely be a lag before that new capacity can become productive. Bringing this new capacity online is going to take time” and may be a limiting factor he warns.
Capacity utilization is high and that means the freight market is tight and could get even tighter. “In 2014 it was at 8.6 %, today it is down to 4%, its going to take a ton of new capacity to make up the difference.” He also points out that with fleets seemingly unable to hire drivers at a rate higher than attrition and in the face of ELD mandates and so forth, it’s going to take time, “as much as three years,” Amen expects, “to put new, needed capacity on the road.”
The near-term shake out? Things are going to get tighter and there is going to be some inflation—Amen noted that in February the spot market is up, some 4% and double-digit levels are expected with annual growth ranging from 2 to 5%
President and CEO of the Ohio Trucking Association, Tom Balzer: “As the economy continues to expand and we see it shift more toward e-commerce, it is changing the supply chain in very dynamic and positive ways.”
The Bumpy Road to Growth Town
But not everything is smooth sailing out there on trucking’s high seas, and if this intermodal switch in metaphors is forgivable, the road to “Growth Town” may get pretty bumpy – and for many carriers seeking to exploit the sharp uptick in demand there are some bumps – hopefully not roadblocks – in the road.. The persistent driver shortage, says OTA’s Balzer, isn’t going anywhere. “If anything,” he notes, “it will continue to get worse,” pointing out that the industry is already experience a capacity shortage as a result.
Kate Patrick at SupplyChainDive.com, explains “the jump in trucking” is dramatic and “likely a direct response to the capacity crunch and high truck driver turnover rate,” which, she says companies are trying to “mitigate.”
Patrick notes that because trucking is often considered a good barometer at gauging the health of the U.S. economy, the sharp increase in trucking jobs we are seeing now is interpreted as a positive sign. “But,” and it’s a pretty big one she finds, “given the discord over the ELD mandate and driver misclassification,” she says, “even high wages and attractive benefits packages aren’t enough to bring down the turnover rate, which is almost at 100%.”
That can dampen a positive interpretation of the jobs gains explains Patrick: “A jobs increase won’t do much to alleviate tight capacity in the industry unless trucking companies and 3PLs can keep drivers in those jobs. Otherwise, if trucking volumes continue to climb, late shipments and delays could result.” Patrick foresees trucking growth could be nearing a ceiling “if industry decision-makers can’t find a way to grow at a sustainable pace that accounts for driver tensions and capacity limits.” It seems to us she’s got that right.
But the hiring that fleets need to achieve and the uptake of new drivers throughout the entire industry required to span the gaps in capacity is going to be challenging. Overall industry tightening in the interim is unavoidable. Amen says the likely outcome is shippers will be moving from the spot market to more contracted freight to guarantee the availability of trucks and drivers to get goods and services to market.
ATBS CEO Todd Amen: “For the drivers and the trucking industry, we’re looking at one of the best business climates in decades.”
Not to Mention Regulation
Regarding ELDs, Amen notes the “safety” effect of these devices has not yet been factored into operating expenses like insurance premiums. “Insurance is lagging,” he says, but is firming with the uptake of the devices and their incorporation into operations. ”When the ELD mandate is fully enforced, predicts Amen, “the data will help underwriters factor in the effects of compliance and perhaps offer a path to premium discounts.”
“It is smart business to be government compliant,” says Amen. But with ELDs, small carriers could be at a disadvantage if risk and liability is not apportioned in a relative sense, and potentially penalized because the volume their ELD data is not sufficient to “prove” safer operations statistically. “Small guys are always interested in innovation when it comes to safety and compliance,” says Amen, “but not at their expense.”
Although the constraints caused by the driver attraction/repulsion merry-go-round will continue, the industry is responding to capacity constraints, explains SupplyChainDive’s Patrick, by adding new trucks to the market, “so that even with a high turnover rate, capacity wouldn’t be as aggravated.” The 3PLs “like UPS,” she says, “are already planning big investments–attributed to increased cash flow due to recent tax cuts–so this could be a viable solution for many companies.”
To get to Growth Town, and keep the U.S. economy buoyant, the trucking industry is going to need plenty of boats, er, trucks and plenty of drivers. Fortunately, among the positive outcomes of increased demand and a tightening of the freight capacity available, is the necessity to purchase new vehicles to meet new demand. The good news is, and pundits, analysts and ATRI studies agree, one of the things that attracts and is helping retain drivers is providing a better healthier work environment; and that includes access to state-of-the-art vehicles and safety equipment. Welcome aboard!
Report: Implementing GPS in the United States Postal Service Supply Chain
We have learned that applying technology to a problem may not solve the problem. It is the people using the technology as a tool that solves problems. At JBA, we have learned that technology is a lever, that can work for you – or against you.
The US Postal Service is embarking on another GPS project. The USPS Office of Inspector General (OIG) examined the project to assess chances for success. This is an interesting exercise with lessons for anyone implementing a technology project.
From the OIG report;
The U.S. Postal Service has spent about $7.6 million since fiscal year (FY) 2010 on its Logistics Condition Reporting System (LCRS). The system was intended to collect and report Highway Contract Route (HCR) Global Positioning System (GPS) data and monitor HCR performance. Because of inaccurate data reporting and system compatibility issues the Postal Service is replacing the LCRS and the GPS devices.
Our prior audit work identified that the Postal Service did not develop a strategic framework for the GPS program or a detailed implementation plan.
The Postal Service manages a trailer fleet of 3,600 owned trailers, 8,500 leased trailers, and a changing number (from 40,000 to 50,000) of HCR contracted trailers. Management identified that accounting for trailers has been a problem and has resulted in missing or lost trailers, as well as excess trailers at some facilities and not enough at other facilities. The Postal Service plans to use GPS trailer tracking to measure usage, location visibility, and estimated time of arrival; and to optimize travel routes.
In June 2016, the Postal Service initiated a new GPS technology solution to manage trailers. This technology solution will rely on new GPS equipment and a new hardware and software system known as Enterprise Transportation Analytics (ETA). The ETA system will include three modules for managing owned, leased, and HCR contracted trailers. Management is modeling the hardware and software on the Delivery Management System currently used to manage delivery routes.
The Postal Service is using a two-phased approach for implementation beginning with owned and leased trailers in April 2017, and then HCR contracted trailers in July 2017. Management projects the GPS units and the ETA system to be fully operational by July 2017, with a FY 2017 cost of about $18.5 million.
Our objective was to assess the Postal Service’s plan to improve its management of trailers by using GPS data.
What the OIG Found
The Postal Service’s plan to improve its management of trailers by using GPS data was insufficient. Specifically, management did not develop a plan with metrics to show how benefits would be achieved, did not use analysis to substantiate savings, and did not identify associated savings and operational benefits for leased and HCR-contracted trailers.
The Postal Service developed system requirements and plans for GPS unit procurement, but did not develop performance metrics to measure the achievement of intended GPS initiative benefits for all trailer categories. This occurred because management tested ETA system functionality using hand-held mobile device scanners as opposed to using actual trailer-mounted GPS units. Additionally, management has not established a schedule to pilot the GPS units prior to deployment. As a result, management could not obtain sufficient data to set operational baselines and metrics.
In June 2016, management approved about $2.4 million in funding for ETA system hardware and software, along with the GPS units for owned trailers. The approval projected annual savings of over $1.2 million by increasing the utilization of Postal Service-owned trailers and reducing the number of leased trailers. Management based the projected savings on institutional knowledge rather than analysis, making it impossible to substantiate the projected annual savings.
Additionally, the Postal Service plans to purchase about 47,000 GPS units costing about $16 million for its leased and HCR-contracted trailers (at $2.4 and $13.6 million, respectively) in FY 2017. However, management did not identify any associated savings or operational benefits from this purchase because they consider it to be a current operating expense.
Consequently, without sufficient planning, we estimate that the Postal Service incurred about $2.5 million in unsupported questioned costs in FY 2017.
What the OIG Recommended
We recommended that management suspend GPS implementation — except for the ETA systems module development — and establish initiative milestones in the following sequence:
- Test and validate the ETA system when all modules are fully operational;
- Conduct a pilot program with the fully operational ETA system and the GPS trailer units to validate the complete technology solution;
- Develop a plan with established and validated performance metrics using the ETA system and GPS data; and
- Deploy the remaining GPS units based on decision points from the above analytics.
Additionally we recommended management identify and validate specific cost savings to support the GPS technology investment of about $18.5 million.
US: State of the Trucking Industry Report April 2017
The facts, statistics, and views of the US economy for Q1 2017, as it relates to the trucking industry.
ATRI RELEASES FINDINGS ON FLEET FUEL ECONOMY AND FUEL USAGE
Arlington, VA – The American Transportation Research Institute (ATRI), in conjunction with the University of Michigan Transportation Research Institute (UMTRI) and research sponsor ExxonMobil, today released results of their investigation of fleet fuel economy and fuel usage. Nearly 100 fleet managers provided their views on current and future trends in fuel-saving technologies as well as the advantages and disadvantages of alternative fuels. These fleets operate just over 114,500 heavy-duty truck-tractors and approximately 350,000 trailers.
The study found the median fleet-wide fuel economy of 6.5 miles per gallon was being achieved through the use of a variety of fuel-saving technologies. For truck-tractors, aluminum wheels, speed limiters and low rolling resistance tires were reported as the most common fuel-saving technologies. For trailers, low rolling resistance tires, aluminum wheels and weight-saving technologies were identified as the most common technologies.
Fuel-saving technologies which have shown the best and worst returns on investment were also investigated. Aerodynamic treatments and idle reduction technologies or strategies were identified by respondents as technologies which have shown both the best and the worst return on investment.
“This report shows which technologies fleets are using and which ones they are more skeptical about,” said Steve Niswander, Vice President, Safety Policy & Regulatory Relations with Groendyke Transport, Inc. and Chairman of ATRI’s Research Advisory Committee. “It also serves to highlight the difficulties fleets face when deciding which technologies are the best investments.”
The report found limited use of alternative fuels with biodiesel blends identified as the most common alternative fuel being used today.
The Technical Report, titled A Survey of Fuel Economy and Fuel Usage by Heavy-Duty Truck Fleets, and Executive Summary, are available at www.atri-online.org.
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ATRI is the trucking industry’s 501(c)(3) not-for-profit research organization. It is engaged in critical research relating to freight transportation’s essential role in maintaining a safe, secure and efficient transportation system.
UMTRI is dedicated to achieving safe and sustainable transportation for a global society. UMTRI continually strives for innovation in motor-vehicle safety, sound policy, and sustainable business practices in the world of transportation.