Capacity crunch exacerbates intermodal transport challenges

Jan. 6, 2015
  CAPACITY is at crunch level on the highway transportation side, and all indications are that it’s going to get worse, according to Charles Wilson, editor of Bulk Transporter. “The latest numbers suggest we’re at equilibrium right now, and any bounce in the economy means we’re in trouble,” he said. “Fleets have no spare drivers and no extra trucks. They are running flat out.”

CAPACITY is at crunch level on the highway transportation side, and all indications are that it’s going to get worse, according to Charles Wilson, editor of Bulk Transporter.

“The latest numbers suggest we’re at equilibrium right now, and any bounce in the economy means we’re in trouble,” he said. “Fleets have no spare drivers and no extra trucks. They are running flat out.”

Wilson, presenting for Adam Robinson, director of marketing/freight management for Cerasis Inc, during the 2014 Intermodal Bulk Liquid Symposium in Kemah, Texas, examined some of the reasons for the capacity crunch:

Fewer trucking companies, fewer trucks.

Over 5000 trucking companies went out of business in 2012 and nearly 400,000 trucks have been taken off the road. In other words, there are about 8000 fewer trucks available nationwide on any given day. Certain industry segments (flatbed trucks) have been hit harder than others (tankers). Overall capacity can no longer meet current demand, and industry experts expect it to keep getting worse.

•  Lack of drivers replacing retiring drivers.

A large number of long-time drivers are approaching retirement age. Help-wanted ads in local newspapers are dominated by the 800-numbers of trucking companies looking for CDL holders. On the Internet, anyone who visits a few trucking-related pages soon will find banner ads by driver-desperate carriers appearing next to a favorite cat video. The quarterly earnings reports of publicly traded trucking companies caution investors about the high cost and potential dangers of the growing driver shortage.

While many carriers are not expanding their truck fleets, other factors are also contributing to future trucking capacity crunch problems, among them reduction in productivity due to electronic logging devices, and fewer qualified drivers. The driver situation could become a bigger problem for the industry.

Bob Costello, chief economist for the American Trucking Associations (ATA), recently wrote that “Turnover is a good reflection of the driver market, and it is getting close to hitting 100% in large truckload fleets. The turnover rate in LTL is currently 15% while it’s at 82% for small truckload carriers. There are a lot of costs associated with that amount of turnover.”

Trucking faces increased competition for drivers as the industry improves, particularly from construction. From June 2012 to March 2013, construction employment increased by 184,000 workers and in February 2014, it saw the largest increase in seven years, up 48,000 jobs.

•  Economic factors decreasing equipment investment.

Economic pressures have forced equipment shortages too, adding to shrinking production capacity. Many carriers held onto tractors and trailers longer than they normally would because they could not afford to replace them. Now that most are in a position to replace older equipment, a sudden demand for new tractors and trailers has created added problems.

That makes sense, considering the recent downturn and slow growth. Looking at for-hire trucking, Costello said that about the same number of trucking firms added tractors as decreased tractors (39% to 37%) while 24% of fleets reported no change in their fleets. Some of the companies reporting no change have moved trucks to different work, from dry van to tank for example, but on the whole, the industry has added few trucks the last two years.

•  Government regulation affects trucking capacity crunch.

The Compliance, Safety, Account-ability (CSA) program went into effect in December of 2010 and was designed to make the roads safer by measuring trucking company performance and the performance of individual drivers. A substantial number of drivers have left the industry since the Federal Motor Carrier Safety Administration’s program was implemented.

Additionally adding to the trucking capacity crunch is the new Hours of Service rules, specifically the new 34-hour restart provision and its impact on scheduling for some segments, increasing prices for shippers, particularly those who rely on early morning deliveries. The new 30-minute driver rest break may or may not prove to have a significant impact on productivity. Still, there is a possible safety risk if drivers feel compelled to “make up for lost time” after the mandated mid-shift pause. Tightly scheduled routes with multiple deliveries will feel the change more than over-the-road operations. How many drivers actually are going to be back on the road in exactly 30 minutes, and not 45 minutes or more?

Wilson said there are other factors that will require more and more time and resources to effectively manage freight:

•  Money.

Economics remain the most important factor in how carriers evaluate and rate shippers, with carriers indicating market competitive rates and fair fuel surcharges as “critical” or “important” factors.

Payment was also a key area for many carriers ranking it as a “major factor” and considering it “important but not critical.” 30 day payment terms are considered acceptable by the majority of carriers and paying in less than 30 days would really differentiate a shipper. Volume potential and positive credit rating were also consistently rated as a major factor.

  Overall productivity and efficacy on the shipper and carrier side.

Driver productivity is continuing to be a focus for carriers and one of the most critical factors in shipper freight profiles or practices. Carriers consider dwell time as an “important” or “critical” factor in determining the preference status of a shipper. In-transit delays are also a major and important factor. The ability to use drop trailers, shipper load count and type of freight are also key factors in efficacy.

Carriers rank driver-friendly practices highest based on those that enhance driver productivity, such as onsite parking and available restrooms for drivers. Regular updates on loading and unloading status and a guard shack for drivers to receive instructions are also high on the list.

•  The FTR Shippers Condition Index and the outlook seem bleak for rest of the year.

The most recent edition of the Shippers Condition Index (SCI) from freight transportation forecasting firm FTR showed one of the highest readings of the year with their most recent report. FTR describes the SCI as an indicator that sums up all market influences that affect shippers, with a reading above zero being favorable and a reading below zero being unfavorable and a “less-than-ideal environment for shippers.”

According to FTR Transportation Intelligence, its Trucking Conditions Index (TCI) increased to a reading of 8.49 for July—one of the highest points this year—reflecting rising prices and service lapses caused by the current capacity tightness.

Jonathan Starks, FTR’s director of transportation analysis, noted in a statement that the firm’s TCI could go even higher before winter if the economy accelerates. The reasons for this have to do with both spot rates and contract rates heading up in a full capacity environment.

To date in this economic recovery, aside from the weather-plagued winter of 2013-2014, freight growth has been both fairly stable and relatively modest. This has allowed fleets to operate with very little excess capacity and keep contract rates relatively low as they focused on baseload contracts. Contract rates will be moving up, but it will be wise to watch spot rate activity to see how demand and capacity are matching up.

Findings of the long-range freight outlook include:

•  Overall freight tonnage will grow 23.5% from 2013 to 2025 and freight revenues increase by 72%.

•  Growth in overall freight volume is pegged at 2.8% per year from 2014 to 2019, then it tapers off to 1.0% during the next six years, through 2025.

•  Trucking’s share of freight tonnage will increase from 69.1% in 2013 to 71.4% in 2025.

•  Rail intermodal tonnage will grow 5.5% annually through 2019 and 5.1% a year through 2025—yet rail market share will shrink from 14.5% of all tonnage in 2013 to 13.8% in 2025.

What is a shipper to do?

The capacity crunch is here, and many shippers find themselves forced to compete with one another for carriers. In fact, it is so vogue now to say “Shipper of Choice” when shippers discuss their strategies for ensuring that they have adequate transportation to meet their distribution needs.

Lori Pavlish, global supply chain EHS and compliance at The Dow Chemical Company, and Ron Beeson, global logistics manager for The Lubrizol Corp, gave five quick tactics to keep in mind to stay a “shipper of choice”:

•  Tender accordingly.

Your carriers have their sweet spot just like everyone else. Proper documentation. Get it right the first time. Make sure you understand how your outbound and inbound aligns with your carrier needs and then tender accordingly and timely. Make transportation a win-win partnership. Do your own report card. How many times do you have to redo or rehandle an order? Often or not so much? Find ways to improve.

•  Reduce dwell time.

Be efficient. Find efficiencies, ways to keep your yards, ports, rail, and plant clean, and clearly marked, and your loads ready. Help keep the wheels in motion. Have the resources to load efficiently and help your loading driver get on his or her way. Make it nice to do business, from the arrival to departure. Time is money.

•  Respectful treatment.

Value drivers and the service carriers we partner with. It is the reason you continue to find capacity for the customer/shippers. Greet them with a collaborative partner mindset. You should think this way. If you think about it, without the carriers at all, how would you get your product to your customer?

•  Open communication.

Being a shipper of choice means assuring your carriers with ongoing communication and complete, detailed load information and availability. Make communication with carriers a top priority. If you are not using the right tools or have the right people in place to effectively sustain and scale your transportation efforts, consider looking for outside help.

•  Quick payment.

You need quick invoices and real-time information. Recognize the importance and vital role your carriers play in the success of your logistics business. It’s just another way to show your respect and give reason to join your carrier community. Make your payment process quick, making sure you stay shipper of choice.     ♦

About the Author

Rick Weber | Associate Editor

Rick Weber has been an associate editor for Trailer/Body Builders since February 2000. A national award-winning sportswriter, he covered the Miami Dolphins for the Fort Myers News-Press following service with publications in California and Australia. He is a graduate of Penn State University.