It’s a question no one wants to ask and nobody wants to hear, especially when the rush-order that came in at 5 p.m. is on the dock ready to load — “Where’s my truck?”
Two years ago, a dozen trucks might have sped to answer that last-minute call, with each carrier offering a steep discount to get that shipment and get on the road.
In mid-2011, that call is more likely to draw belly laughs followed by rate quotes that cause angina. The 3,816 cubic feet in a 53-foot trailer is selling at a premium that goes up more rapidly the later a shipper waits to call a carrier to book a truck.
Despite deep cuts in the nation’s interstate tractor-trailer fleet over the past four years, truck capacity is readily available, but that capacity is rapidly flowing further away from low-margin freight toward higher-yield business. And it’s more likely to be moving 65 mph past a dock than waiting for a shipper’s call.
Truckload carriers are widely reported to be “cherry-picking” freight — selectively assigning capacity to shipments that bring them the best per-mile revenue and profit. Less-than-truckload carriers can’t reach that high on the tree yet, but they are clearing the underbrush, cutting away low-priced freight.
Shippers escaped what many expected would be a severe capacity crunch in the first half of 2011 as slower-than-expected economic growth brought freight demand and equipment supply into a rough balance. But that balance still tilts toward truckers.
“It appears to us there is a capacity shortfall,” said Kenny Vieth, president and senior analyst at ACT Research. “There are still fewer trucks than freight to haul.”
Vieth doesn’t expect that to change soon, even after several shocks to the economy. “We’re going to go into 2013 before we see this thing realign,” he said.
That means it will cost more to move goods in 2012, especially by truckload carrier. To avoid higher costs, shippers already are shifting freight from tractor-trailers to intermodal rail and looking for other ways to find and secure capacity, including greater use of dedicated carriage and private fleets and even breaking up freight or moving smaller truckload shipments by LTL carrier.
During the second quarter, shippers surveyed by Wolfe Trahan shifted a net 4.5 percent of their volume from truck to intermodal rail, “the highest net shift to rail in the past eight years of our survey,” the research group said.
Farsighted shippers also are trying to make goods “carrier-friendly” by rethinking how they prepare, schedule and ship loads and working with carriers to find the best fit in trucking networks, lane by lane.
In mid-2011, rate increases and modal shift are being driven as much by rising fuel prices and operating costs than tightening capacity, but that could change quickly. A steep cut in trucks since 2006 has left shippers on the edge of a capacity chasm.
A stronger peak season could tighten capacity like a choke collar for unprepared shippers. Truckload carriers have held a line on adding net capacity until they achieve higher profits they say they need to reinvest in their aging fleets.
In railroad terms, these truckers have decided they’re “revenue inadequate.”
Truckload capacity in mid-2011 is flat year-over-year, or down slightly from the mid-point of 2010. However, “truckload capacity is very much a regional thing,” said David Schrader, senior vice president at TransCore Freight Solutions. “Right now, van capacity is scarce in the Southeast,” but not necessarily other areas.
Sidebar: Ryder Looks to Rails for Capacity.
TransCore handles more than 60 million truckloads a year on its U.S. and Canadian spot market load boards. “Truck postings have declined modestly, 3.2 percent, nationwide since the first week of August,” Schrader said. Demand is up, however. “(Shipment) postings are about 10 percent higher than we saw in mid-July,” he said this month. “That’s not unusual given the seasonal nature of the business. Freight starts to fade a bit and then pick up as we move into the fall.”
“We’re seeing pockets of tight capacity in certain lanes around the country,” said Tim Podvin, general manager of global transportation procurement at Ryder System, which spends more than $1 billion on truckload transportation a year. “Getting trucks out of California is always a challenge at this time of year. But in other markets, we’re not having issues finding capacity at all.”
Whether Ryder’s luck continues depends on the direction of the economy and the strength of the peak shipping season. Absent a stronger-than-expected fall, truck capacity should remain relatively stable. But if freight expands even modestly, it could quickly outstrip available capacity because many of the trucks in service in 2006 have been retired for good.
At the end of the first half of 2011, the tractor fleet at a $10 billion group of truckload carriers tracked by The Journal of Commerce had dropped 4.1 percent from the first half of 2009, 10 percent from the same period in 2008 and 18 percent from the end of 2006. That 18 percent cut in tractor count matches or correlates closely with other measures of trucking capacity that show a dramatic contraction. For example, the number of tractor-trailer drivers employed in the U.S. dropped 18.4 percent from May 2008 through May 2010, placing another limit on capacity.
Avondale Partners analyst Donald Broughton earlier this year estimated bankruptcies culled about 13 percent of total trucking capacity in the recession.
Those trucks aren’t sitting against a fence waiting to be fueled, oiled and returned to service. A large number of them were older models that were scrapped, or sold to local cartage or drayage firms, or exported to developing nations.
But carriers didn’t just scrap or sell older trucks; they also didn’t replace them, skipping an entire purchasing and production cycle. Class 8 tractor production in 2009 dropped to its lowest level since 1991, just when the replacement cycle should have been pushing truck plants into higher gear. Demand for new vehicles was depressed in 2007, after truckers “pre-bought” trucks in 2006 to avoid the added expense of new 2007 clean diesel engines. When the freight economy began to slip, the industry suffered a “capacity bubble” that lasted into mid-2008.
The recession then scotched any chance of a “pre-buy” boost for truck manufacturers in 2009, while the high cost of 2010’s even cleaner diesel engines and economic uncertainty further delayed truck orders.
“In 2008 and 2009, you couldn’t get rid of capacity fast enough,” Vieth said. “We went from being almost back to balanced capacity in 2008 to a massive capacity overhang as the industrial economy shut down. People were getting rid of trucks.”
Hundreds of thousands of trucks must be assembled to fill a gap left by vehicles that weren’t built during the recession. Truck orders boomed this year, but “even with truck orders coming in, it can take months for manufacturers to ramp up production,” Vieth said, “so you’re still working from a capacity shortfall.”