Five Trucking Predictions for 2014

A new year always brings new cause for optimism, and 2014 is no exception. The economy in late 2013 appears to be gathering at least a little steam, with manufacturing, inventory volumes, employment and consumer sentiment improving. E-commerce sales boosted daily package volume to a record high of more than 22 million at FedEx Dec. 16. A number of motor carriers, including Landstar System, have seen freight volume pick up in December. Load-matching service DAT reports a spot market freight boom in a usually quiet month.

What will 2014 deliver to the docks of trucking companies and shippers moving freight over the highways? Making predictions is easy, but getting them right is hard. Current trends, however, are shaping my expectations for 2014. With the usual caveats, here are five predictions for the brave new year.

 

1. No Trucking Capacity Crunch

We’ve heard for years now a capacity crunch in the truckload sector is just around the next bend in the calendar. It didn’t materialize in 2011, 2012 or 2013, and it probably won’t next year either. Blame the unusually slow economic recovery. Gross domestic product has only grown faster than 3 percent in three quarters since mid-2009. Yes, there are fewer trucks on the road, and yes, there are fewer drivers to hire (at current pay rates). But there’s also not enough freight to chase to tip the capacity scale toward a real shortage — not yet. Analysts and economists, including American Trucking Associations Chief Economist Bob Costello, think it wouldn’t take much additional growth to change the balance, only consistent growth in the high 2 percent to 3 percent range. Others, including FTR Associates President Eric Starks, say more consistent improvement across sectors of the economy — manufacturing, housing, retail — would quickly make a difference. But is that kind of growth likely over the next year? I’m going to bet on modest, not spectacular growth, limiting how tight capacity will get, though increased construction and energy demand could eat up more capacity that would otherwise haul freight elsewhere. I also think shippers and carriers will work to find ways around the constraints placed on productivity and capacity by government regulations such as the new driver hours of service rules. They’ll do in 2014 what they did in 2004, which is cooperate to increase efficiency and keep a lid on costs. And I think we need to take into account the vastly improved ability of third-party logistics companies and brokers to source truck capacity for shippers. All those factors will buffer shippers from a real capacity crunch until GDP rises at a much faster and more consistent rate — say above 3 or even 4 percent per quarter, as we saw in eight straight quarters in 2004 and 2005. Next year could surprise us, but let’s watch for hotter growth heading into 2015.

 

2. More Trucking Acquisitions

With modest economic expansion limiting the amount of additional freight hitting the docks, how’s a motor carrier to grow? By buying competitors and diversifying into new markets. 2013 saw some big deals — most notably Heartland Express’ $300 million acquisition of Gordon Trucking, Swift Transportation’s $225 million purchase of Central Refrigerated, and in the less-than-truckload aisle Central Transport International’s purchase of Vitran Express in the U.S. There were many more smaller deals, with companies including Celadon Trucking, Roadrunner System and TransForce acquiring niche carriers for their business and for drivers. One of the biggest acquisitions that didn’t take place in 2013 was the putative purchase of ABF Freight System by YRC Worldwide. That deal, rejected after the idea was broached by YRC chairman and CEO James Welch, would have added a significant amount of density to YRC Freight’s LTL network. Also, USA Truck rejected a takeover bid by Knight Transportation. The acquisition action is likely to continue in 2014, with more major combinations being considered and consummated as carriers look to expand their reach, add customers, increase density and hire more drivers. Rising operating costs are likely to push many smaller companies to look for bigger buyers.

 

3. YRC Worldwide Survives

The ballots in the latest Teamsters vote on YRC Worldwide’s future won’t be counted until Jan. 8, but it is likely the struggling less-than-truckload operator will win a new concessionary contract. YRC may not win by a wide margin — there’s opposition among the rank-and-file to accepting a non-negotiated company proposal that extended 2009 wage and benefit concessions through 2019. But there aren’t reasonable alternatives that wouldn’t cost a lot of people their jobs. YRC Worldwide faces a series of debt deadlines starting in February that can’t be postponed while the LTL operator and union negotiate an alternative proposal. I believe a majority will grit their teeth, hold their noses, and vote “yes” to extended concessions, painful as that may be, to keep YRC a “going concern.” That would keep nearly 30,000 Teamster jobs in place at YRC Worldwide’s four operating subsidiaries, and also bolster the status quo in the LTL sector. YRC’s survival after several near brushes with bankruptcy has helped maintain pricing discipline in the LTL business that is good for shippers and ultimately good for other carriers, which are also rebuilding their profits. A “no” vote by YRC Teamsters would make it much harder for the trucking giant to get the refinancing it needs from lenders who are playing hardball, frustrated by the company’s slow recovery and recent setbacks. YRC Worldwide — and its customers — should hope they don’t have to deal with that situation.

 

4. Brokerage Industry Consolidates, Matures

In the last days of 2013, federal regulators revoked the operating licenses of more than 8,000 property brokers that failed to comply with new legal requirements, namely that they obtain a surety bond worth $75,000 by Dec. 1. That number represented nearly 40 percent of the brokers registered with the Federal Motor Carrier Safety Administration. Legally, those brokers can’t continue in business until they get that $75,000 bond and have their licenses reinstated. The question is, could 8,000 or 10,000 broker licenses be revoked without any major impact on how freight moves in the U.S.? Maybe. The Association of Independent Property Brokers & Agents warned of a catastrophe — higher unemployment, higher freight rates for shippers, lower income for truckers — as it battled to block implementation of the new bond requirement. But by late December, the crisis had yet to appear. That’s probably because those brokers, despite their numbers, didn’t handle a large share of the nation’s freight.  Many of them were likely small businesses with a limited base of customers — just as most of the 700,000 trucking companies registered with the FMCSA have fewer than 10 trucks. What’s probably doomed by the bond change is the “brokerage-in-the-basement” business model, which promises big money to the work-at-home self-employed. With $75,000 surety bonds available for premiums costing less than $10,000 a year, companies that can’t afford them are likely to be woefully undercapitalized and considered a risk by carriers and shippers. Without doubt, big brokers will get bigger, as the AIPB&A warns. They would anyway, as they have the technology and revenue base needed to grow rapidly. Scale in freight brokerage, like trucking, means a lot. Many successful smaller brokers will likely become acquisition targets for companies like XPO Logistics, which are working to consolidate a still largely fragmented and competitive field with tens of thousands of companies, even after December.

 

5. The Hours of Service Rules Stay

As much as truckers and shippers would like to see the new HOS rules revoked, that’s unlikely to happen. Ask Mike Regan, chief relationship development officer at TranzAct Technologies and NASSTRAC’s advocacy committee chairman. He gives efforts in the House of Representatives to pass legislation reversing the new rules “zilch, nada, zero” chance of making it into law. “The environment is so poisoned right now, you’re looking at gridlock as being the reality we’re confronted with,” he said. Even if a bill sponsored by Rep. Richard Hanna, R-N.Y., Tom Rice, R-S.C., and Mike Michaud, D-Maine, makes it through committee, is it likely to be attached to legislation that would pass the full House, or survive a Senate-House conference committee, or be signed by a Democratic president? “Spending time and money on a productivity thing like HOS, although it’s a big issue, it’s not going to change anything,” Regan said. He encourages truckers and shippers to “go for the slow fat rabbits” and try to influence policy making in areas such as driver health. In the meantime, shippers and carriers will have to deal with the fallout from the new HOS rules, including a 2 to 4 percent productivity loss among truck fleets and potentially higher rates for shippers. As in 2004, shippers and carriers in the long term are likely to work out ways to restore some efficiency and avoid higher rates — unless the economy gets much hotter in 2014 and 2015 than expected.

And as a bonus ...

 

Still Wanted: Truck Drivers

What follows isn’t a prediction, it’s a certainty: hiring truck drivers is not going to get any easier in 2014. The driver shortage enters its 100th year in 2014 (I’m not kidding. The earliest reference to the “motor truck driver problem” I’ve found dates to 1914.) Although the shortage becomes a glut as soon as the economy begins to fail, it’s never really gone away, it’s simply been masked by recessions and depressions. Despite the fact the current experienced pool of drivers is aging and nearing retirement, the shortage really remains market-based. There are not enough people willing to drive trucks for a living under current market conditions, which embrace driver pay, working hours and conditions and time away from home. If those conditions change, more young people will take an interest in truck driving as opposed to construction, oil field work and other jobs that may pay more and get them home every night for dinner, or at least on weekends. The impetus needed, once again, is stronger economic growth that would give carriers the money needed to raise pay and make their operations more driver-centric. Meanwhile, the “driver clock” is ticking.

Contact William B. Cassidy at wcassidy@joc.com and follow him at twitter.com/wbcassidy_joc.

 

 

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