December 2015, TruckingInfo.com - Feature
From the economy to driver recruitment/retention, there will be several familiar faces in the trends to follow closely in the new year.
Some things never change and some things change faster than others. So it goes with trucking and so it will go in 2016. The all-too-familiar driver shortage will keep capacity tight while bedeviling motor carriers to attract and retain professional, safety-minded truck operators. The state of the economy has arguably taken a back seat to other concerns, but where it may be headed will loom large for everyone engaged in trucking. Here’s a look at what’s driving those two top trends and four others that appear likely to broadly impact trucking next year.
The economy will bear close watching in 2016. The jury is out on how much it will go up or down and how fast it will get to where it ultimately goes. At press time, The Conference Board’s latest forecast pegged the U.S. economy as “running faster than trend now,” at perhaps 2.5% annualized, and “this faster pace could well continue through the first half of 2016.”
The Conference Board sees the economy as being influenced by “solid domestic momentum but cautious investment in a weak global environment.” On one hand, strong job growth, a “little pick up” in wage growth and in housing as well as sustained low gasoline prices are “all boosting consumer optimism and driving above-average growth in consumer spending.” On the other hand, American businesses continue to be “very conservative on new elective investment,” while the strong dollar and weak economic growth are limiting export opportunities.
Put it together, says the Conference Board report, and “the economy might return to trend at some point in 2016 because low investment and productivity continue to be a weak spot. And labor shortages might add to upward pressure on wages and start to pinch corporate profits…But if investment or trade turn out to be more positive than anticipated, above average growth may even extend longer.”
Macro economist Bill Witte, FTR senior consultant, contends that “2016 will be déjà vu all over again,” projecting economic growth to average between 2 and 2.5%. Still, he regards his forecast through the end of 2016 as “significantly less optimistic than it was nine months ago.” Yet his model points to “continuing growth,” similar to what’s been happening since mid-2014.
He’s optimistic about 2016 because “there’s no component of the economy that is growing at an unsustainable level,” so there are no bubbles to burst. On the other hand, Witte says, “the downside risks to the economy make the outlook more pessimistic,” and he doesn’t foresee “any events that will add to the upside. We could have a year better than my model [indicates] and end up at 2.8% growth.”
Those downside risks he mentioned, especially domestic overseas economies slowing down, could constrain growth to only 1%. “International may be the biggest risk [for 2016] but it is hard to quantify its magnitude. The problem is a slowdown [in one country or region] will produce large effects on other countries, making it more significant for us. Plus there can be impacts on global financial markets.”
Witte is very circumspect on the potential impact of the Federal Reserve raising interest rates. “By itself, what the Fed may do does not matter much in my model.” He says raising short-term interest rates by 1% per year for several years would have “very little impact.” However, if the Fed does move on interest rates, he thinks there could be “a spillover effect” that could cause a drop in stock prices or lower consumer confidence, “which is the biggest driver of the economy.”
All in all, Witte doesn’t see a recession likely in 2016 “because the pattern of the U.S. economy is now very balanced with no sector showing ‘irrational exuberance.’”
More pessimistic is economist Noël Perry, FTR senior consultant. He is “concerned that now, eight years into recovery, the economy will start to slow [to where] we’re facing a growing risk of recession.” He’s also worried about the global economy, especially given the problems China is having. “Chinese manufacturing is in recession now.”
With that in mind, Perry regards the risk of the economy slipping into recession next year as small, but says the likelihood will increase in 2017. He also factors in a specific risk. “Trucking has experienced more growth than has the GDP — this has been the best freight recovery since 1990. The exposure is, could this change?” And if it does, he says, it would happen just as the economic recovery starts to show its age. “History tells us freight slows before a recession occurs,” Perry adds. “So, we could have slow growth in freight in 2016. And a recessionary condition in 2017.”
Sum it up and the forecast calls for more gloom than boom, but no doom. At least not in the next year.
Finding and keeping qualified truck drivers, especially for long-haul operations, will remain a critical operating issue for truck fleets — and their customers — in 2016 and for years to come.
“Truck drivers will be the limiting factor for the growth in trucking capacity,” Rosalyn Wilson, senior business analyst at Parsons, said when presenting the latest Council of Supply Chain Management Professionals’ State of Logistics report. She stressed that “most of the problems that the freight logistics industry will face in the next three years will boil down to capacity issues. Freight volume is expected to increase at a moderate rate, but capacity is not going to keep pace.”
That being said, Wilson cautioned shippers to “be aware that a trucking shortage allows carriers to be selective in who they do business with…Shippers who hold drivers for long periods of time waiting to load or unload, or who do not treat their drivers well, will fall to the bottom.”
According to Chris Kemmer, principal of CK Commercial Vehicle Research, the driver shortage “plagues” most fleets that participate in CKCVR’s Fleet Sentiment survey, “especially their ability to grow to take advantage of good freight demand. Many are simply not adding to their fleet because they don’t have enough drivers to fill current seats, let alone additional seats.”
Kemmer notes that many fleets “indicate they are being much more selective in how they use their capacity and are working hard to improve productivity to increase that capacity if they can.” She says Class 8 demand might even be propped up by fleets “continuing to upgrade their equipment with new trucks that are likely to get better utilization” through less downtime, or will help attract drivers.
On the other hand, Kemmer says regulatory-induced reductions in capacity are “exasperating the driver shortage” to the point “some freight just won’t get moved as efficiently” as it has been. “Shippers and logistics companies understand this and are moving in the direction of locking up the required capacity to move the goods they are responsible for. But they are also likely to pay more for the certainty they won’t be adversely affected by any reduction in available capacity.”
Shippers, she contends, have both a vested interest and a role to play in helping to alleviate the toll taken by the driver shortage. “They offer some of the solutions, for instance, keeping drivers moving goods and not sitting waiting to be loaded or unloaded. This could add hours back into the system as the Fed is taking hours out.”
To be sure, trucking is dreading the hit that capacity and driver pay will take with the pending reinstatement of the 34-hour restart provisions of the hours of service rule.
“Significant negative impacts on the industry from the 34-hour restart provisions first implemented in July 2013 have been documented by numerous sources,” states the American Transportation Research Institute in a recent report on trucking’s top concerns.
In ATRI’s research, 80% of motor carriers indicated a loss of productivity directly
attributable to the now-suspended rules, and driver pay impacts were estimated to range from $1.6 billion to $3.9 billion annually.
A year ago, Congress suspended the restart requirements and compelled the Department of Transportation to conduct a study of whether or not the more restrictive provisions provided “a greater net benefit for the operational, safety, health and fatigue impacts.” The requirements were to be suspended until DOT submitted its final report to the House and Senate appropriations committees.
At press time, it appears that report will land on Capitol Hill as early as this winter. However, the bill that forced the restart rollback law is silent on what will happen when the study is done. Presumably, if it shows that one restart version provides a greater net benefit than the other, then the Federal Motor Carrier Safety Administration will adopt that provision as part of the rule.
“We won’t suddenly be back under the restart rule once Congress receives the mandated study,” says David Heller, director of safety and policy for the Truckload Carriers Association. “Congress will want to review it and determine whether the study shows if the 34-hour restart helped or hurt the industry. They could even send it back to DOT for further refinement.”
Heller notes that FMCSA, of its own accord, is now also conducting separate studies of the effects of making changes to the current 30-minute and sleeper break provisions. Congress may opt to wait to see those studies as well before making any changes to the hours of service rule, including reinstating the 34-hour restart rule.
Factor in the glacial swiftness that is especially a hallmark of this Congress, and it may be a very safe bet to conclude Capitol Hill will not get around to changing anything about HOS anytime soon.
A related concern is that the FMCSA’s rule requiring the use of electronic logging devices, due out the end of this month, may also make the driver shortage worse. Some fleets expect it will be taken as a negative intrusion by some drivers, especially those most experienced, and drive them to quit the business. However, the mandate is expected to provide a two-year initial compliance window and what will amount to a four-year “grandfathering” to enable fleets already using electronic logs to transition to what will be the legal specs for the devices going forward.
Maintaining safe equipment and hiring safe drivers to operate it is not only the right thing for a fleet to do, it is the most cost-efficient. Still, government regulations will force fleets to keep upping their safety game next year. So will public opinion, which expects trucking to take more positive action in the wake of some highly spectacular truck crashes that crowded the news in 2015. The latter is one reason the Senate this fall twice turned back a legislative effort to allow 33-foot-long double trailers to operate on highways regardless of state laws.
When it comes to safety regs, trucking’s biggest bogeyman — FMCSA’s Compliance, Safety, Accountability enforcement regime — remains the leading target for reform. The American Trucking Associations contends that “numerous reviews of how FMCSA administers the program and the data it uses have found it fundamentally lacking,” which is why the lobby has repeatedly called on the agency to remove the scores CSA produces from public view “while it fixes these serious issues.”
Indeed, ATRI ranked the agency’s continued challenges with CSA second in its latest survey of top issues facing the industry. ATRI says CSA moved up as a concern because both carriers and drivers continue to question the relationship between the scores the program generates and actual safety performance.
“Research has documented that CSA’s safety measures, the seven Behavioral Analysis and Safety Improvement Categories under which carriers and drivers are scored, are not a good predictor of carrier crash risk,” says ATRI. “Additionally, there are disparities in how states collect and report safety performance data, and shippers are potentially misusing the data in the selection of carriers to haul freight. There is also a concern with the use of CSA scores as part of a Safety Fitness Determination proposed rulemaking.”
What happens with the highway bill will determine if trucking will soon gain relief from CSA’s shortcomings. The House version, passed in October, would remove certain CSA data from public view until the DOT’s Inspector General completes a thorough review of the program. That data would include crash records, violation histories and percentile rankings with CSA’s Safety Measurement System. However, like some other pro-trucking measures, CSA reform will have to make it through the House-Senate conference process intact to become part of the final, yet-to-be-passed highway bill.
On top of CSA, there is a rash of safety rules still to come in 2016. The Drug and Alcohol Clearinghouse rule, which is widely supported by trucking, was supposed to be done by January; now it looks like it may be out in March. Other regs in various positions along the rulemaking track include one to set entry-level driver training standards — already two years late — and one that would up minimum insurance levels for motor carriers.
And while a federal mandate requiring electronic stability control (ESC) systems on new Class 7-8 trucks won’t take effect until 2017, and a rulemaking that might lead to mandating collision- mitigation systems on commercial vehicles is in its infancy, industry suppliers see more and more fleets moving to adopt such systems voluntarily.
High-tech remote diagnostics services that were first introduced a few years back under the umbrella of “telematics” are now being expanded and marketed hard by truck makers as “connectivity” solutions they say help ensure not less downtime for customer vehicles, but maximum “uptime.” Along with emphasizing this technology focus, truck makers will no doubt keep competing to provide the best and most comprehensive range of parts and repair services at their respective dealerships during 2016.
Despite the proprietary technology at the heart of OEM-based connectivity offerings, don’t count out the role independent service providers, including shops operated by fleets, will continue to play. Their position will be strengthened starting next month, when an agreement inked between the Commercial Vehicle Solutions Network and the Truck and Engine Manufacturers Association goes into effect. The deal will give independent service providers as well as fleets access to service information for model year 2010 and later trucks and buses over 10,000 pounds GVW sold in the U.S. and Canada.
According to Marc Karon, chairman of the Commercial Right to Repair Coalition, fleets will gain “expanded availability of places to take their trucks to get repaired.” However, manufacturers will not be required to provide unrestricted service information related to security settings or make it possible to make changes to any vehicle or engine settings that would affect emissions or safety compliance. Also, manufacturers will not be compelled to share their information for free.
The connected vehicle concept being pushed by OEMs is only the tip of the mounting technology iceberg that will challenge truck operators to jump ever deeper into a sea of positive change. Many fleets will want to consider leveraging the power and scope of the many technology solutions becoming available to help better manage their operations.
Going forward, it’s all about big data, IT integration and supply chain visibility, contends Julia Grove, senior marketing manager at SkyBitz. “More technology means that fleet managers now have access to major amounts of data they can use to make decisions. From driver behavior to maintenance requests, all this information can be used to increase efficiency, lower fuel costs, enhance service offerings and improve customer service.”
System integration, of everything from transportation management systems to accounting software to GPS tracking, is “becoming a critical component of any fleet management operation.” Groves adds that “shipping and freight customers now expect on-demand visibility on the exact location of their assets. They want to be able to see where their products are and how long it will take for them to arrive.”
Taking that a step further, there’s the “Uberization” of trucking that has been in national consumer and business headlines recently. The concept is that technology similar to Uber and other apps that allow city residents to get a ride using their smartphones could be used to match shippers and truckers. With a number of these apps being announced in 2015, look for this concept to potentially expand next year.
And the impact of technology is not limited to computer software or mobile apps. Over the next year, technology will be a watchword throughout trucking. On the equipment side, expect to see even wider adoption of automated mechanical and fully automatic transmissions to save fuel and appeal to a broader spectrum of drivers as well as further electronic integration of truck powertrains. By year’s end, two new highly engineered motor oil specs will be rolled out industry-wide to better protect newer engines and enhance fuel economy. The list will go on — wider use of lighter weight but higher strength materials in trucks and trailers; even lower rolling-resistance tires and further aerodynamic enhancements to predict just three more that will keep fleets calculating potential ROI.
Keep those cards, letters, phone calls, emails, and tweets coming to lawmakers, because the highway funding issue will bleed into 2016 if not beyond. Yes, at press time it seemed more likely than ever that Congress will pass its first multi-year highway bill since 2009. The full House-Senate conference committee was slated to meet after the Congressional Thanksgiving recess to meld the long-term transportation passed by each chamber — hopefully before the latest short-term funding patch expired on Dec. 4.
That may have been wishful thinking, given that funding of the measure itself is the chief difference to be worked out between the two bills. The House and Senate bills employ different funding mechanisms. And while both bills lay out six years of policy dictates, both bills are fully funded for only three years.
Trucking and other stakeholders are not holding back on the message that Congress can do more now to fix the highway funding crunch. For example, last month 40 national associations sent a letter to Congressional leaders urging them to direct the conference committee to forge a final bill that lasts less than six years but “significantly increases surface transportation investment” over its term.
“The resources generated by the House-passed legislation would enable conferees to deliver the highway and public transportation investment levels necessary to support continued economic growth,” the signatories contend. But they point out that the proposed House investment levels would “unfortunately fail to keep pace with the projected annual inflation increases.” And they say that while the Senate’s investment levels exceed the House’s, they would still “barely surpass projected increases in construction materials costs.”
The letter goes on to state that “holding highway and public transportation investment at or below purchasing power levels will not create job growth, reduce traffic congestion, or address the nation’s backlog of needed surface transportation infrastructure improvements.”
So, whether or not a long-term highway bill is signed by year’s end by President Obama, the issue of how much should be spent on highway construction and repairs will likely remain unresolved into next year — and for who knows how long beyond.