For more than two years, shippers have braced for a hard crunch in truck capacity, a blow that seemed inevitable in 2010 as the economy began to recover. The gradual and anemic nature of the overall recovery, however, meant that crunch never really came, despite periods of tightness such as the spring of 2010.
In mid-2012, truck capacity has reached what analyst Rosalyn Wilson of Declan calls a “tenuous equilibrium,” a rough balance between truck and driver supply and freight demand. The equilibrium likely will hold only as long as freight demand grows slowly or even shrinks. In the long haul, she warns, that’s unlikely.
“Make contingency plans now for the day you can’t get a truck,” Wilson said last month at the launch of the 23rd annual State of Logistics report, sponsored by Penske Logistics and the Council of Supply Chain Management Professionals.
That day isn’t here yet. There are plenty of trucks available to haul freight, though the produce season will tighten capacity — especially refrigerated truck capacity — and push up pricing as it shifts from region to region throughout the summer.
Trucks come at an increasingly higher cost, however, as truckload and less-than-truckload carriers reserve capacity for the most profitable freight. The capacity situation resembles the so-called driver shortage in that there is an increasing shortage of trucks available at the rates shippers would like to pay.
And trucking demand in the U.S. is increasing, even as economic growth slows. FedEx Freight, the largest LTL carrier, increased average daily shipments 4 percent year-over-year in the quarter ending May 31. At the other end of the market, available spot market truckload freight on Internet Truckstop’s load boards increased 21 percent in the week of June 11 from the previous week, while available trucks rose only 10 percent. Significantly, truck searches increased 33 percent, while load searches increased just 12 percent. That’s just a snapshot of one week’s spot market activity, but the load matching service’s ITS Market Demand Index has been rising for several weeks and was up 11 percent in the seven days ending June 11.
Several factors constrain truck capacity and ensure it will grow slowly if at all in the next few years, including the limited availability of qualified, employable drivers and the high cost of new trucks and, increasingly, used trucks.
“We’re right on the razor’s edge right now in terms of supply and demand,” said Derek Leathers, president of $2 billion trucking giant Werner Enterprises. Leathers has been on the stump for trucking lately, speaking with shippers individually and at conferences such as NASSTRAC’s 2012 Logistics Conference and the ALK Transportation Technology Summit. His message: Truckload capacity won’t expand anytime soon.
“All the data seems to indicate that 19 to 20 percent of all truckload capacity that existed in 2007 has exited the market,” Leathers said at NASSTRAC. “That means one in five trucks is gone. I don’t believe that number is going to change.”
Werner is keeping a close rein on its truckload fleet. The carrier’s capacity has ranged between 7,200 and 7,400 tractors since 2008 after dropping about 18 percent from 9,000 units at the end of 2006, according to company reports.
A quarterly survey of tractor counts at a $10 billion group of truckload carriers, including Werner, shows their combined capacity dropped 0.6 percent from a year earlier in the first quarter and only 0.3 percent from the fourth quarter, the smallest annual and sequential decline in their tractor counts in a year and a sign of equilibrium. The carriers in that group, however, reduced capacity 15.6 percent from 2006 through 2011, cutting 8,000 trucks from their tractor pools.
A 17 percent surge in the TransCore DAT North American Freight Index in April could indicate shippers are running up against the limits of capacity at large truckload fleets, said David Schrader, senior vice president at TransCore.
“Freight flows to the spot market when shippers hit tight capacity,” Schrader told The Journal of Commerce. “What we’ve seen so far in 2012 is some of the heaviest freight volumes we’ve ever seen” on DAT’s spot market load boards.
Instead of bracing for a sharp cut in capacity this fall, shippers need to prepare for a slow squeeze and work closely with carriers to prevent supply chain failures.
Shippers at the launch of the CSCMP report in Washington said they see signs the balance in capacity is tilting further away from them. They expressed concerns about their ability to get goods to customers on time. “We’re starting to see on-time delivery failures increase,” said Rick Sather, vice president of customer supply chain for North America at Kimberly-Clark, the $20.8 billion manufacturer of Kleenex tissues, Huggies diapers and other brand-name consumer products.
“I think we’re heading to a point where we might be getting out of equilibrium quicker than we think,” Sather said. “We’re seeing signs in certain areas that capacity is tightening, and signs that service is more challenged than it used to be.”
“Our failure rate (in 2011) was more than double than in 2010,” said Rick Jackson, executive vice president of Mast Global Logistics, a Limited Brands subsidiary, referring to truckload on-time delivery failures. “On the truckload side, 2011 was one of the most challenging years we’ve had.” He stressed Limited Brands doesn’t measure capacity by truck count alone. “We’re always thinking about capacity and capability” to deliver goods when needed, Jackson said.
Having a truck doesn’t count for much if that truck can’t meet a specific delivery window, evidence that for retailers, late isn’t always better than never.
Kimberly-Clark doesn’t have trouble finding trucks, just the right truck, Sather said. In some regions and at some times, it’s becoming harder to find trucks that can make time-sensitive delivery windows for customers. “We’re not seeing dramatic reductions in service levels, but we’re used to seeing high levels of service over a multiyear period, and we’re seeing that start to fall down,” Sather said.
Capacity has been tightest in the congestion-plagued Northeast and in the Southeast, where the produce season is siphoning away trucks. The solution, Sather said, is to work more closely with trucking companies, as well as vendors and customers, sharing information and scheduling to better balance deliveries. “It comes to understanding the dynamics of why capacity is tight in that region,” he said, “and working with our carriers to minimize day-to-day potential misses.”