Trucking Perspectives 2008

What can be written about the challenges facing the U.S. trucking industry that hasn’t already been chewed up and steamrolled over countless times?

Rising fuel prices, green equipment mandates, shifting truckload (TL) and less-than-truckload (LTL) demands, mode competition, excessive capacity, and end-user demands have carriers checking their side-view mirrors for lost business, assets, and competitors discarded along the way.

For an economy inherently tied to over-the-road commerce, these objects in the mirror are closer than they appear. Numerous failures, including Alvan Motor Freight and Jevic Transportation, have cast a pall over the trucking industry at large.

But with time, distance, and perspective, carriers are managing these challenges and turning their attention to what lies ahead, chasing the tail lights of a sputtering economic engine that is showing signs of turning over.

What hasn’t already terminally stalled truckers is making them leaner, greener, and better prepared for a return to normalcy.

Stateside shippers and consignees navigate a less predictable and potentially ominous road. Institutional fuel costs and the threat of a capacity crunch when the economy picks up raise red flags about their ability to adapt and shift gears.

Many motor freight carriers are restructuring go-to-market strategies, streamlining fleets, and investing in value-added logistics offerings; others are vanishing into a fuel-induced ether.

For shippers, the consequences are clear: capacity is disappearing fast; and working closer with carriers, identifying strategic supply chain process improvements, and building long-term partnerships are critical priorities.

Inbound Logistics’ annual Trucking Perspectives brings these two unique viewpoints under one microscope.

First, we polled motor freight carriers to find out how they are responding to market conditions and shipper expectations, expanding and consolidating service offerings, geographical coverage, and IT capabilities to manage current and future demands.

Second, we canvassed motor freight buyers to identify and comment on the challenges they face in today’s market as well as gauge their perspective on the importance of driving collaborative partnerships in the face of cyclical economic U-turns.

Complementing this bilateral, end-to-end panorama of the U.S. domestic trucking industry, our annual Top 100 Motor Carriers list presents a data-driven drill down of carriers we deem the best at delivering the goods.

From regional, refrigerated LTL players to asset-based global logistics service providers, our annual directory presents a diverse class of trucking companies that can go to the ends of the earth or deliver direct to home, with unique service and speed demands in mind.

Divided Highway Begins

Compared to previous years, shippers have had markedly more leverage vetting and selecting carriers given 2008’s soft market conditions.

Sluggish consumerism and freight demand have left plenty of capacity on the table, forcing many trucking companies to eat fuel and other operational expenses to attract existing and new business.

Building on last year’s data, when recessionary indicators began to manifest themselves in earnest, this trend is borne out in a visible disconnect between carrier sales and revenue growth.

Thirty-nine percent of surveyed trucking companies report growing sales by five percent, compared to 48 percent of respondents last year; 17 percent increased sales 10 percent (26 percent in 2007); and 26 percent indicate break-even or negative growth.

By contrast, 30 percent of surveyed carriers report profit growth at five percent, nine percent cite growth of 10 percent, and 39 percent indicate static or lost profits. Importantly, eight percent of surveyed truckers document losses in excess of 20 percent.

With diesel prices approaching $5 a gallon in certain markets this past summer, dwindling access to credit, and lower freight volumes, cost pressures throughout the supply chain took their toll on motor freight carriers.

Trucking companies overwhelmingly cite rising fuel costs (91 percent) and price pressures from customers and competitors (70 percent) as their two greatest challenges. Last year, price pressures (79 percent) and rising driver-related costs (74 percent) were top concerns for carriers.

At the same time, increasing consumer and regulatory influences have legislated the trucking industry to comply with new green standards.

As evidence of this emerging trend, 41 percent of carriers report environmental mandates—including new equipment, speed restrictions, idling protocol, and bio-fuel usage—as a challenge, and 38 percent cite equipment costs as an obstacle they face.

Insurance and liability costs (39 percent), driver-related costs (35 percent), and taxes, fees, environmental, regulatory, and compliance cost increases (26 percent) round out top concerns.

While freight demand has waned and temporarily mitigated capacity and labor shortages, fuel surcharges are equal-opportunity discriminators, impacting large and small carriers alike.

Smaller companies, however, have far less critical mass and resources to absorb or pass along rampant price hikes compared to larger operators that can flaunt value-added service offerings as collateral.

Regional and local haulers face the unenviable task of eating fuel costs and profits simply to keep shippers in sight and competitors at bay.

Still, more carriers documented price pressure as an outstanding concern last year amid fears that an impending economic downturn might give shippers more incentives and fewer reservations to shop around for better freight pricing.

This may have simply been a gut reaction that never materialized as shippers became acclimated to market conditions.

Alternatively, it might suggest some carriers have found success convincing customers to consider the efficacy of long-term partnerships rather than short-term, price-driven hookups. Regardless, this remains an ongoing challenge for carriers.

In fact, shippers are more likely to switch carriers than they were last year, according to IL’s poll. Nearly half (49 percent) acknowledge making a change recently, versus 45 percent in 2007, and less than 40 percent in 2006.

One respondent reports that his company dropped a carrier after it changed the freight class on a frequent order, then retroactively re-billed for past invoices.

Those that changed trucking companies cite poor service, high prices, and more innovation by other carriers as a primary reason for making a swap. With transportation prices as they are, reliability and service expectations have risen accordingly, and carriers that can’t deliver have become disposable assets.

Point of Interest

Another interesting trend line diverging from last year’s data is a growing shipper preference for brokers. While freight transportation buyers still overwhelmingly value their relationships with carriers (53 percent), this represents a near double-digit drop from 2007.

In turn, 17 percent report a higher regard for partnerships with brokers/intermediaries (five percent in 2007), and 30 percent (32 percent in 2007) perceive both relationships as equally important.

Brokers generally prove their worth when capacity is tight. But in a flush market shippers are similarly taking advantage of these third-party networks to identify more competitive rates, as well as pick up backhaul capacity in markets with a considerable imbalance between inbound and outbound freight moves.

Such a changing dynamic may also suppose that opportunities to find better pricing (through brokers) have momentarily trumped speed and reliability (working directly with carriers) as primary considerations.

For example, businesses that have greater visibility upstream in the supply chain may be leveraging this control to more cost effectively and efficiently match speed-to-market demands with available capacity.

The fact that brokers say they can generally handle a wider variety of freight and are better attuned to the overseas freight segment may provide shippers better service and incentive than common carrier representatives, according to one shipper respondent.

Despite this anomaly, the majority of surveyed shippers still value direct relationships with carrier partners.

“I don’t like to use brokers because I cannot get the service I need from them. I have a supplier that uses a broker and it continually scrambles to cover our loads,” explains another shipper. “When I deal directly with a carrier I have access to a management team that has ownership in our mutual success.”

While current market conditions favor shippers in terms of vetting carriers per their own price and service requirements, an economic rebound will likely push control back to the trucking industry.

Over the past few years, carriers and shippers have taken turns playing the collaboration card as supply chain bullwhips such as capacity, labor, and pricing oscillated according to economic cycles.

A sharp decline in available assets has shippers wary of what freight capacity will be like when volumes pick up, with 61 acknowledging this as a relevant concern.

By comparison, 70 percent of carriers believe their customers are aware of this emerging capacity pandemic—which reflects their sales pitch to new and existing customers alike.

Convincing customers of how important it is to establish partnerships for the long haul is “the toughest job we have,” notes one carrier. “The current business climate does not allow for long-term collaboration unless the customer can secure long-term, depressed rate assurances.”

Trucking companies are therefore challenged with helping customers see partnerships for what they are not—a commodity that can be bought and sold on the spot.

Other carriers perceive this challenge as an opportunity to generate new business while building more grounded partnerships. “The ability to cross-sell in both directions—vendor to customer, customer to vendor—brings long-term benefits,” says one survey respondent.

While freight rates still remain a make-or-break deal for many shippers, carriers are expanding their operational range and service capabilities to extend value beyond pure pricing.

In terms of geographical coverage, U.S.-based trucking companies are expanding beyond borders with 39 percent serving all of North America, versus 33 percent last year.

This trend reflects the growing importance of NAFTA trade, Mexico and Canada’s developing roles as manufacturing and distribution conduits, and demand for integrated trucking services throughout the continent.

Also of note, seven percent of carriers identify themselves as “international” in scope. Larger players continue to acquire assets in other global markets (China, for example) to diversify their business interests and provide U.S. shippers and consignees with end-to-end transportation capabilities and reach.

The demands of the current domestic marketplace similarly reflect some nuanced changes in the types of transportation services truckers are building into their networks.

A decline in freight volume and poor economic climate have forced some carriers to streamline their fleets and invest in non-asset-based infrastructure enhancements, including value-added services driven by technology innovations. The average fleet size among carrier respondents fell to 2,725 trucks this year, compared to 2,946 trucks in 2007.

The lion’s share of U.S. motor freight carriers (78 percent) still provide truckload (TL) services. This reflects a slight downward turn from last year (81 percent) and is indicative of current price pressures moving long-haul cargo via road, the increasing efficacy of rail/intermodal solutions, and a shift in DC network designs to capitalize on shorter LTL moves.

In turn, the number of trucking companies providing LTL and intermodal services grew slightly, with 53 percent and 43 percent of respondents, respectively, providing these types of offerings.

As further evidence that some shippers are shifting heavier cargo to rail, the percentage of truckers offering bulk transportation capabilities dropped to 15 percent, compared with 25 percent in 2007.

Beyond commodity-type transportation management services, motor freight carriers are meeting customer demands for more specialized, time-sensitive offerings as well.

Sixty-six percent of carriers provide logistics services, 58 percent expedited shipment capabilities, 20 percent white glove services, and 25 percent final-mile delivery options.

Demand Signals Ahead, Pass with Care

Buttressing this value-added, go-to-market strategy is an arsenal of technology-driven solutions carriers are bringing to their trucks and terminals to help bolster real-time communication and visibility between customers and drivers.

In terms of connecting with fleets and drivers in the field, cell phones remain the option of choice, with 77 percent of carriers using them for voice communication and 49 percent for texting purposes.

Satellite messaging is fast gaining traction among carriers with 67 percent of respondents reporting its use, compared to 61 percent one year ago, while satellite voice communication is less utilized (19 percent).

To capture data and track shipments, 66 percent of carriers employ satellite devices such as GPS units, while 45 percent rely on cellular phones, and 12 percent and four percent, respectively, use bar codes and RFID.

Complementing this in-cab connectivity, trucking companies are similarly “amping up” their front-facing technology dashboards, developing demand-driven services and Web portals to give shippers and consignees greater control and visibility into transportation decision-making.

For example, 87 percent of carriers provide Web track-and-trace and 80 percent offer email alert capabilities, empowering customers to be preemptive and proactive in dealing with exceptions or conveying shipment information to consignees.

Sixty-six percent of survey respondents give users logistics Web tools such as activity management reports and online claims filing, while 40 percent offer online pricing/routing capabilities.

Compared to last year’s data there has been a considerable uptick in the number of carriers offering SKU/pallet-level RFID support, with 20 percent acknowledging such capabilities (11 percent in 2007).

Meanwhile, 39 percent of trucking respondents provide bar-code support at the SKU/pallet level, a notable jump from last year’s 31 percent.

Bar-code applications, however, may be nearing the end of their shelf life as only 21 percent of truckers indicate their potential as a future investment, compared to 34 percent that have RFID on the horizon.