Looking ahead for trucking

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A lot of confidence is being expressed about the future of the trucking right now, despite the industry’s many well-known challenges, the foremost being a shortage of drivers, ever-increasing regulatory pressures, and of course the ever-present concern that the still-sluggish growth pattern that’s dogged the U.S. economy for years now could suddenly turn into a full-out stall.

Even with all those negative caveats thrown in, though, many industry denizens think the outlook for trucking is a lot brighter right now than it’s been for a while.

Take Philip Byrd’s comments at the recent American Truck Dealers (ATD) convention in New Orleans this past week. Byrd – chairman of American Trucking Associations (ATA) and president and CEO of Bulldog Hiway Express in Charleston, S.C. – said that although fuel costs and driver recruitment remain industry-wide challenges, he believes the forecast for heavy-duty trucking “remains bright.”

“Currently trucks carry 68.5% of tonnage [and] we project in 2024 trucks will carry 70% of tonnage,” he noted.

Dick Witcher, the outgoing ATD chairman, elaborated on Byrd’s comments with his own positive perspective on trucking’s future.

“Trucking is undoubtedly one of America’s greatest industries,” he said. “It employs over 6 million people nationwide. It moves 9.4 billion tons of freight annually. It delivers millions of goods out of factories and onto the shelves of our stores and businesses.”

Yet Witcher (at right) thinks that freight volume will only grow as the expansion of the Panama Canal – to cite but one example – is set for completion in 2015.

“Commercial vessels—four times larger than the ships which pass through the canal today—will have easier access to our ports in the East and Gulf Coasts, allowing for larger shipments at a faster rate,” he explained. “With more cargo coming on a single ship, I believe commerce patterns will change—a 400 mile radius from any Gulf or Eastern port can get cargo to the heartland in one day not three.”

Witcher thinks that will lead to new and/or restructured distribution and redistribution centers that will change the economics of trucking and move more owners to lower-cost Class 6 and 7 vehicles. “And as railways move only about 15% of international shipping containers, trucks move almost all the rest,” he stressed.

Yet Witcher also emphasized some big challenges trucking as a whole will need to successfully navigate in order to fully benefit from such big potential growth in freight volumes.

“The regulatory agencies of our government can have a deep impact on how we run our business day to day, with one noted commentator recently described the regulatory agencies as the ‘Fourth Branch of Government’ [as it] is their purpose it is to refine and implement the laws that Congress passes,” he said. “Their rulemakings, their compliance guidelines, their enforcement policies – all of these deeply affect the public, our industry, and the very fabric of how we function.”

Witcher said a prime near-term concern for trucking should be ever stricter federal emissions standards and fuel economy standards with the next series of such standards poised to hit in 2018.

“It takes 37 billion gallons of diesel fuel to move all of the freight and cargo that we have every year,” he explained. “We need to make sure that new fuel economy standards for trucks are not only good for the environment, but fair—and affordable—for the people who make them, sell them, and drive them.”

He also touched on something that that ATD’s representatives discovered in their recent conversations with Environmental Protection Agency (EPA) and National Highway Transportation Safety Administration (NHTSA) staff about plans for the 2018 emissions: most simply don’t understand the nuts-and-bolts of the trucking business at all.

“We came away amazed by the lack of understanding about our industry which they are jointly regulating,” Witcher noted. “Do you know they actually asked if a trailer came with a new tractor and why did trucks need to be so different from one another?”

On a positive note, though, he said both EPA and NHTSA promised to stay in touch with ATD and other industry groups as they recognized the last rounds of emissions regulations have not been a case study for success.

“They see the average age of a truck has increased and only 30% of trucks are in compliance with 2007 regulations,” Witcher noted. “Unless we have more responsive regulations for 2018 we will go through the same cycle as the last time.”

That at least would be a positive development on at least one front in the continuing battle to deal with trucking-themed regulations.

Turning back to the freight picture for a moment, though, finds or economic sectors – particularly industrial manufacturers – are expressing more confidence in the U.S. economic outlook. And if that “confidence” translates into more production and by extension more profitable freight, more truckers might finally be able to afford to replace their older equipment and thus solve that “30%” dilemma.

One measure of that growing “confidence” comes from the quarterly Manufacturing Barometer compiled by global consulting firm PricewaterhouseCoopers (PwC).

The firm found that optimism regarding the prospects of the U.S. economy during the next 12 months rose among U.S. industrial manufacturers to 68% in the fourth quarter last year from 60% in the third quarter. PwC added that, compared to the fourth quarter of 2012, some 20% more of the industrial executives surveyed are now optimistic about the domestic economy, with respondents planning for hiring to remain steady, for international sales regain momentum, and for economic “headwinds” to begin leveling off.

"Optimism regarding the U.S. economy continued to increase in the fourth quarter, while views of the worldwide economy, although improving, remain divided given continuing levels of uncertainty,” stressed Bobby Bono, U.S. industrial manufacturing leader for PwC.

“Our outlook indices tell us that executives are generally more positive in regard to the economic environments in which they operate, but aren't seeing significant improvement in financial results to make large investments in their businesses," he added. “As we continue to see the global macroeconomic environment improve, we expect U.S. industrial manufacturing executives, bolstered by strong balance sheets, to more aggressively compete for businesses in international markets and increase capital expenditures.”

Still, Bono noted that 85% of those executives polled by PwC expect positive revenue growth for their own companies in 2014, with 13% forecasting double-digit gains and only 3% expecting negative growth. The projected average revenue growth rate for own-company revenue over the next 12 months increased to 5.4% in the fourth quarter of 2013 from 4.2% percent in the third quarter.

Interestingly, PwC’s survey found that legislation/regulatory pressures and concern about lack of demand were the most cited potential barriers to growth over the next 12 months by industrial executives, totaling 47% and 42% respectively.

Yet while lack of demand remains a concern among U.S. industrial manufacturers, it is down 10% from a year ago, when it was considered the primary barrier to growth, said Bono. In addition, several other barriers are lower than a year ago, according to PwC’s poll results, including oil/energy prices (25%), taxation policies (22%) and decreasing profitability (20%), while concern over capital constraints and competition from foreign markets increased from the same period last year.

Truckers themselves are witnessing more profitable times now as well, it seems, with J.B. Hunt Transport Services noting that its net earnings in the fourth quarter last year totaled $92 million on $1.47 billion in operating revenue, compared to earnings of $84 million on operating revenues of $1.34 billion in the same quarter back in 2012.

The carrier that load growth of 13% within its intermodal operation helped drive an 11% increase in segment revenue, with its Dedicated Contract Services (DCS) division witnessing a revenue increase of 17%, primarily from the addition of new customer accounts. Meanwhile, the carrier’s Integrated Capacity Solutions (ICS) division achieved a 13% increase in revenue mostly from a higher load count and an increase in revenue per load.

Only J.B. Hunt’s truckload division posted declining figures – a decrease in segment revenue of 19% –but one primarily due to an 11% reduction in fleet size down to 1,857 units compared to its fourth quarter 2012 size of 2,093 units, along with lower utilization per truck and lower rates per mile.

The interesting piece of this remains J.B. Hunt’s transition away from “traditional” irregular route long-haul truckload segment. The carrier said its TL rates per mile, excluding fuel surcharges, decreased 2.7% on a 4.6% shorter average length of haul, with rates from consistent shippers decreasing 1% from 2012.

To me that all of that means trucking still seems poised to do well in the coming year but not in the “traditional” sense of the business. Shorter hauls, more dedicated contract carriage and especially intermodal business seems to dominate the future – trends that will only accelerate when the aforementioned expansion of the Panama Canal is finally completed.

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Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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