Picture a constraint on truck-freight capacity for at least the next two to three years that starts this summer. Add in a driver shortage expected to range as high as 150,000 and a projected productivity loss of 4% to 8% from Hours of Service (HOS) reforms as proposed by the Federal Motor Carrier Safety Administration (FMCSA) and it is clear motor carriers must change with the times. Immediately… if not sooner.
And the challenge for carriers will only grow from here, according to Max Fuller and Patrick Quinn, co-chairmen and co-founders of Chattanooga-based U.S. Xpress Enterprises. “[What is happening is] going to change the whole supply chain; shippers will have to carry more ‘buffer’ inventory and they’ll have less assets to pick from to carry their freight,” said Fuller during a conference call with reporters yesterday, on the eve of the company’s 25th anniversary.
Quinn pointed out that adding new capacity-- be it by existing carriers wishing to expand their fleets or start-ups trying to enter the business-- will be almost impossible due to the cost of new trucks and trailers.
“I think it’s very challenging – almost impossible, actually – to start up a trucking company today,” he said. “Financing is so much tighter today, plus many banks and finance companies have left the trucking business. You almost have to have millions in the bank to start a trucking company now.”
Fuller added that bankers have told him that anywhere from a third to half of the equity in trucking evaporated over the last few years – an unprecedented loss that in the end creates fewer transportation options for shippers going forward.
“We’re trying to figure out ways to be more responsive in this new environment; to figure out how to handle additional volumes without more trucks,” he said. “But most [in trucking] are continuing to do the same things the way they’ve always done them. And that means there will be fewer options for shippers.”
Quinn noted that trucking has changed “drastically” since he and Fuller founded U.S. Xpress in 1986. Along the way, they have seen carriers completely alter the types of trucks and services they offer. The carrier originally started out as a pure long-haul, coast-to-coast truckload carrier with an average length of haul between 1,400 and 1,500 miles. Today, he said, such long-haul business makes up less than 15% of U.S. Xpress’ volume and its average length of haul has dropped to less than 500 miles.
Going forward, the other huge challenge facing carriers is government regulatory efforts, said Quinn. “The cost impact of health-care reform is still unknown at this point, as is the impact of CSA [the FMCSA’s Compliance Safety Accountability initiative] and HOS reform,” he explained. “But we know the last two revisions of HOS resulted in a 12% loss of productivity.”
Altogether, it means shippers must rethink how they move their goods from here on out, said Fuller. “It means a customer will no longer be able to call today and get capacity tomorrow. [Instead] they’ll call today and maybe get capacity the day after tomorrow – or the day after that,” he said. “It’s really going to change things.”