The basic issues of trucking don’t really change – get the freight there on time, do it safely, stay on the right side of the law, keep fuel and other costs down. Yet we are living and working during a time where a lot is changing – technology, demographics, manufacturing, regulations and more. How will these changes affect your business? We’ve come up with 15 trends you should watch next year and beyond.
1. A worsening driver shortage
Driver turnover at large truckload fleets hit an annual rate of 103% in the second quarter of this year, according to the American Trucking Associations, the highest since the third quarter of 2012.
Expect it to get worse, as the economy continues to grow, existing drivers retire, and increasing regulations make it harder for drivers to meet government qualifications.
In fact, truckload turnover could reach over 150% in 2015, predicts Lana Batts, a longtime leader at ATA and the Truckload Carriers Association, now a partner in the merger/acquisition consulting group Transport Capital Partners and co-president of driver screening firm Driver iQ.
At many fleets, the standards for the quality of drivers they hire will be lowered, she says. It also will lead to more mergers as carriers “buy” access to more drivers. And watch for more driver pay increases and other incentives.
Many in the industry, however, are saying higher pay is not enough. Nor is regular home time. Anectodal evidence suggests that sectors that have always had low turnover thanks to higher pay and more home time, such as less-than-truckload and private fleets, are having more trouble finding drivers than ever before.
A longer-term solution will mean finding ways to bring a younger and more diverse workforce into the industry.
“I’m not sure we are taking seriously the void that will be left as they retire in increasing numbers over the next decade,” says Chris Kemmer of CK Commercial Vehicle Research. “Fleets know there is a shortage of techs and drivers and most want experienced people to fill those roles – however, we’re just stealing the limited resources from each other. We need MORE.”
Attracting that younger workforce, however, is a formidable challenge.
Many in trucking would like to see a path for drivers to get into trucking straight out of high school, currently not possible due to federal age minimums.
“The idea to allow younger drivers will gain speed, but the administration will not respond even though younger people have higher unemployment,” Batts predicts.
Even a regulation change wouldn’t address the fact that “truck driver” is not seen as an attractive career, no matter what the pay.
“Most Millennials are college graduates and would rather be a Starbucks barista or a teacher -- under no circumstances do they want to be a truck driver,” says John Larkin, managing director and head of transportation and capital markets research for the investment firm Stifel.
2. Tightening capacity
Acceleration of U.S. growth for several quarters would push freight growth up enough to push capacity utilization above 100% for six to nine months,” says Noel Perry, transportation economist and analyst for FTR.
The good news about tighter capacity is that it also helps lead to higher rates. Rate increases of between 8% and 10% are expected for the trucking industry no later than the second quarter, according to the annual State of Logistics report compiled by the Council for Supply Chain Management Professionals and Penske.
Kemmer foresees this leading to increased use of private fleets. “As shippers continue to hear about tight capacity and increasing rates, they could seriously consider growing their own fleet to control the capacity to haul their goods. Private fleets can oftentimes offer drivers a better work environment.”
In addition, watch for carriers to work more closely with shippers and receivers to reduce time wasted at the docks. Carriers are giving their capacity to these “preferred shippers” and either charging higher rates or turning down freight from those who don’t play nicely.
Shippers and carriers are also looking to intermodal to help ease capacity constraints, but the railroads have their own capacity problems – and the driver shortage causes problems getting the containers to and from the rail.
“Driver shortages in drayage markets are the worst in the industry,” says Perry.
3. Improving productivity
The driver shortage and regulatory burdens are hampering productivity.
Larkin notes that for long-haul operations, “we’ve seen a plateauing to 2,050 to 2,150 miles per week per truck,” while in the “old days, you would see 2,790 to 2,900 miles per week. But those days are behind us.”
Fewer miles mean more trucks for the same amount of freight – but it’s hard to put more trucks on the road when companies can’t find enough drivers.
That means fleets are doing all they can to improve the productivity of the trucks they have, from high-tech routing software and moving to drop-and-hook operations to lightweighting and double-decking systems for freight that’s otherwise not stackable.
Longer combinations and heavier trucks might help. Large trucking companies and shippers insist that the current federal limits are outdated and are preventing productivity increases that could go a long way toward relieving highway congestion.
On the other side are owner-operators, safety advocates and labor unions that say heavier trucks are an unacceptable safety risk. And the railroads oppose any capacity increase for trucks.
The 2012 highway bill ordered the Federal Highway Administration to do a comprehensive analysis to provide Congress the background for a decision. The analysis, originally due this fall but now delayed until early 2015, will look at the safety and economic implications of changing the federal limits.
4. Debating autonomous trucks
Daimler made headlines this year when it demonstrated its “Future Truck 2025” rig, showing the driver sitting back and perusing a tablet while the truck automatically maintained its lane and distance from other vehicles, even changing lanes, without a hand on the wheel.
Another project, which Paccar is involved in, is working on “platooning,” where technology allows a group of trucks to follow each other much more closely than would be safe with strictly manual human controls, saving fuel for all the trucks in the platoon.
Some believe such technology could help alleviate the driver shortage. But critics argue that autonomous vehicles could be vulnerable to being hacked by terrorists, and that there are ethical issues to deal with, not to mention questions of liability.
“So-called safety groups will stop the idea of ‘driverless’ trucks in its tracks,” Batts says. “Ironically, they don’t like drivers, but they dislike the idea of a ‘driverless’ truck even more.”
5. Changing wait times for new equipment
In recent months there’s been a surge in truck orders, with an October Class 8 order spike that surprised many analysts. Some fleets are expanding, some are buying more fuel-efficient newer equipment, and some believe newer trucks will help them attract and retain drivers.
“Look for locked-up build slots for 2015 for both trucks and trailers,” Kemmer says. “Larger fleets are placing orders earlier than normal, so available build slots will be at a premium for those that wait. There will be less flexibility for preferred delivery dates for new equipment, even for trailers.”
But Noel Perry warns that the industry could be heating up too fast. “This recovery has avoided the normal recovery over-order of trucks. One might be building. If so that means the next downturn will have the usual big under-order.”
6. The global economy
One thing that could put a damper on all this, Perry warns, is the global economic situation.
Europe and Japan are already in recessions, he says, and several South American countries (Argentina, Venezuela) are in dire straits. Russia is highly vulnerable to falling oil prices. “If the problems should spread to China, it could drag down the U.S.”
In addition, Perry says, there’s the potential for a global financial crisis.
“The bubble of huge overhangs of debt in most global economies will could burst in 2015,” which could “infect the U.S. banking system already stressed by the Federal Reserves’ highly stimulatory policies,” potentially leading to another recession.
7. Funding for infrastructure
Will Republican control of both houses of Congress will change the pattern of short-term patches designed to pass on the difficult task of long-term funding for roads and bridges?
Funding is the keystone of the legislation that Congress is supposed to pass by the end of next May, when the current federal highway program expires. The program is running on a 10-month extension of a two-year bill funded by money scrounged from the general treasury – the 12th such stopgap in the past five years.
The program is congenitally underfunded because the fuel taxes that feed the Highway Trust Fund cannot generate enough money to keep up with demands on our infrastructure. That’s partly because vehicles are getting more fuel-efficient, and partly because demands on the system are growing while the tax has not been increased since 1993.
Everyone agrees that something must be done. A modern, well-maintained infrastructure is crucial to U.S. competitiveness in the global economy.
Suggested solutions range from increasing fuel taxes and indexing them to inflation, the approach that the trucking industry favors, to getting the federal government mostly out of transportation and devolving the problem to the states, which some conservative Republicans favor.
In between these extremes, ideas include changes in methods of taxation such as a sales tax instead of the traditional per-gallon tax, plus such add-ons as infrastructure banks and increased use of private investment money.
Another alternative is the idea advanced by the Obama administration and Republican leaders to use corporate tax reform to generate a large, one-time infusion.
8. More scrutiny of driver screening
As fleets scramble to recruit drivers and speed them through the screening process, Batts predicts that more carriers will get into trouble with the Federal Trade Commission and the Equal Employment Opportunity Commission and face more class action lawsuits aver failure to disclose and/or receive authorization for background screening and disparate impact against minorities in hiring.
She says local and state governments will make it harder to get criminal histories and use them in the hiring decision without there being a direct relationship to the job.
Earlier this year, Swift Transportation agreed to pay $4.4 million to settle a federal class action lawsuit, alleging that it violated the Fair Credit Reporting Act for several years by not informing driver applicants they had a right to get a free copy of background check reports used by Swift and could dispute the information on those reports.
“I think the Fair Credit Reporting Act will continue to give trucking companies fits in 2015,” agrees Rob Moseley, an attorney with Smith Moore Leatherwood specializing in transportation issues. “Even the more sophisticated carriers are doing this wrong.”
9. Increased use of data
“Big data” is the buzzword, and fleets of all sizes will only use more of it in 2015. The information can come from many sources, both inside and outside of the fleet, and even in real-time from the truck, as in telematics. On-dash video camera systems are providing an additional type of data to add into the analytics equation.
Rich Zambroski, truck excellence manager at Element Fleet Management, predicts increased use of telematics, especially in heavy-duty trucks. Telematics devices are used for idle time reduction, monitoring policy abuse, route optimization or PM scheduling.
No matter what industry you’re in, he says, telematics “can show you what you’ve been missing by providing better insight into your fleet and can help you execute on scalable improvement plans, change driver behavior – which is key for ROI – and measure results.”
10. Downsizing and rightsizing medium-duty fleets
“We are increasingly hearing about fleet managers’ desire to build trucks with the GVWR of 26,000 or lower,” Zambroski says. “The need for Commercial Driver’s License for vehicles of 26,001 GVWR and higher deters fleet managers from purchasing such trucks if not absolutely necessary.”
Large companies such as FedEx and UPS have for a number of years been moving from larger package-truck vehicles to smaller Sprinter cargo vans to save on fuel and other costs. Other manufacturers are now offering these Euro-style vans, so we expect to see the trend continue, even among smaller fleets.
11. Growing focus on fleet sustainability
2015 could see the cheapest diesel fuel in years. The Department of Energy’s November Short-Term Energy Outlook reported that diesel fuel prices, which averaged $3.92 per gallon in 2013, are projected to fall to an average of $3.82 for 2014 and $3.38 in 2015.
Nevertheless, fuel economy technologies and alternative fuels will continue to be investigated and adopted by fleets where it makes operational and financial sense.
For many companies, using alternative fuels or Smartway-member fleets are part of corporate-wide sustainability goals. And even at lower prices, fuel is still one of carriers’ largest costs.
A new report from ACT Research projects that Class 8 penetration of natural gas power will total 23% of the units sold in 2025.
12. Changes in manufacturing & supply chains
Retailers and others are beginning to put distribution centers closer to their customers to meet the demands for same-day delivery. Some are putting DCs right next to rail lines to maximize their use of intermodal.
Some companies are bringing manufacturing facilities back to North America instead of Asia. The boom in gas and oil production due to the advent of fracking technologies means relatively cheap energy for manufacturing. And increasingly sophisticated manufacturing technology, such as automated robots and 3-D printing, means companies don’t need to go oversees to access low-cost labor anymore, Larkin says.
Shippers also are moving to “continuous optimization” of their supply chains, Larkin says. “Back in the old days, maybe every five years, someone would say, ‘let’s run your freight through the optimization model” and maybe move a few distribution centers or change a few loads from intermodal to truckload and vice versa. Today, the mix of modes the shipper uses on Friday may be different from what it uses on Monday.
And look at Amazon.com, Larkin said, which “has redefined the supply chain around e-commerce.” Instead of regional DCs and using FedEx or UPS for delivery, Amazon is opening fulfillment centers in the middle of cities and operating its own delivery trucks. And then there are those drones…
13. Hours of service and electronic logs
On the regulatory front, the big rule due in 2015 will be the electronic log mandate.
Besides requiring most drivers to eventually switch from paper to electronic logs, it will set standards for the devices and the supporting documents that regulators need to confirm compliance. It also will ensure that electronic logs are not used to harass drivers.
Carriers will have two years to comply with the requirements, but attorney Moseley is advising clients to go to electronic logs quickly.
“With the CSA’s relative system, if everyone else goes to electronic logs and you are still on paper, you will be the one accruing most of the violations,” he explains.
Also high on the trucking industry’s list of concerns is the 34-hour restart provision of the hours of service rule.
The provision requires drivers to take off two periods between 1 a.m. and 5 a.m. during their restart. The Federal Motor Carrier Safety Administration says this will improve safety because nighttime sleep is more restorative than daytime sleep.
ATA opposes this restriction, arguing that it can reduce carrier productivity and may increase risk by putting more trucks on the road during Monday morning rush hour. The association is pushing legislation that would suspend the provision pending more research into its impact.
14. Continued tweaking of CSA
The FMCSA will continue to refine its CSA program. CSA (Compliance, Safety, Accountability) uses data from crashes and roadside inspections to flag carriers for enforcement action.
The agency is constantly working on improving CSA. This year, for example, it added the results of court rulings on carrier challenges of roadside inspection citations to the CSA database. In 2015 it will look at steps to simplify the CSA safety measurement system.
But the agency does not accept all of the criticisms of CSA. American Trucking Associations and other groups say that the CSA data is neither consistent nor accurate, and that it should be available only to the carriers, the agency and enforcement personnel.
As one agency official recently said, FMCSA “respectfully disagrees” with that assessment.
The impasse has led carriers to push Congress for legislation that would force the agency to hide CSA truck safety data from public view. Rep. Lou Barletta, R-Pa., offered a bill in 2014 that would shield the information until the agency corrects shortcomings in the system. The bill is likely to resurface in the new Congress.
Another CSA issue will be crash accountability.
The agency includes non-fault crashes in the safety measurement system. It does so because its ability to distinguish fault is limited and there is a statistical probability that some of the crashes will be the carrier’s fault.
Carriers say it is illogical and wrong to include non-fault crashes in a system that measures safety performance.
The agency studied the issue and has drafted a report that is supposed to outline a possible solution. The report, which must go to Congress, is overdue and not yet available, but it is likely to turn on the question of cost: Will the expense of determining fault be worth the value it achieves?
Another major CSA issue in 2015 will be the agency’s proposal to establish safety fitness: the rule that will use roadside inspection data and investigations to decide if a carrier is fit to operate. That proposal is scheduled for publication in March.
15. More regulations
Beyond the major regulatory issues outlined above, the FMCSA and other federal safety agencies will be working a crowded agenda next year.
Starting at the top, the Obama administration must nominate a new FMCSA chief to replace Anne Ferro. Ferro retired in August and was replaced in an acting capacity by chief counsel Scott Darling.
One major item due in 2015 that carriers have been seeking for years is the creation of a national clearinghouse for drug and alcohol test results. It is scheduled to be published in September.
The rule will require employers to report positive test results and refusals, and prospective employers to query the database, with the applicant’s permission. It will give carriers a way to make sure that the applicant has completed the return-to-duty process, and to ensure that carriers are doing the required testing.
Other top regulatory issues to watch for next year:
• Due any time is a proposal from FMCSA that could lead to higher insurance minimums for carriers in a couple of years.
• Also due soon is a final rule that would relieve drivers from filing a truck inspection report if the truck has no defects.
• The agency has granted authority to a small number of Mexican carriers that have been providing long-distance service into the U.S. under a pilot program, but expect to see continued resistance to this business from labor and owner-operator interests.
• The agency is reviewing comments on a rule intended to protect drivers from coercion by carriers, shippers, receivers or brokers. The rule is due soon.
• The agency is trying to figure out how to write training requirements for entry-level drivers. Look for more in 2015 on a move to negotiate a solution.
• The National Highway Traffic Safety Administration is close to proposing a rule that would require speed limiters on new trucks.
• NHTSA also will propose new fuel efficiency standards for trucking equipment.