A “New Normal” in the Truckload Industry

There are so many trends impacting the trucking industry today — everything from regulations and technologies to fuel, labor, and economic conditions — that the industry is noticeably different than it was in the past. Is that creating a “new normal” in the trucking industry? What does that mean exactly, and more importantly, what steps or actions should shippers take to successfully navigate through this new normal? That was the focus of my conversation with Steve Raetz, Director of Research and Market Intelligence at C.H. Robinson, in a recent episode of Talking Logistics.

What is the “New Normal” in Truckload?

Let’s start by defining what constitutes a “new normal” in the trucking industry. Steve explains that a key factor is capacity utilization rate and the narrowing gap between the cyclical highs and lows of utilization. Steve says that according to research firm FTR Associates, effective truckload utilization since 2011 has been running in the high 90s to 100 percent, with the low points still up in the 90s. Compare that to previous boom cycles where low points were typically down in the 80 plus percentages.

There are several factors beyond utilization contributing to this “new normal” trend. The first is labor. “While the issue of driver shortages has been discussed for decades, there seems to be a more acute shortage today,” says Steve. “It has been getting harder to draw new entrants into the market. And it’s not just truckload, it’s also less-than-truckload. That says something new is happening.”

Another factor has been the adoption of yield management software, even among smaller fleets, which is enabling carriers to capture more revenue-generating (and profitable) miles and eliminate waste from their fleets. But with an environment constrained by tight labor and high utilization, we’ve taken elasticity out of the market. “We’ve sustained this trend for seven years now,” says Steve. “Is this a new normal? I don’t know.”

The ELD Impact

Our discussion then turned to the impact of the electronic logging devices (ELD) mandate, which will get fully enforced starting April 1st. With surveys indicating that 90+ percent of trucking firms already have ELDs in place, Steve believes this has taken some hours out of the market. He cautions, however, that this is hard to measure because there are so many other factors impacting the industry right now. He mentioned, for example, how strong growth in certain industries such as durable goods and retail are driving demand for constrained capacity.

Is Capacity Expanding?

Steve notes that, “Since the first of the year new trucks are coming into the market at a rate of 30,000 to 40,000 per month, which is much higher than normal replacement volumes. Carriers are trying to make their fleets younger because the new trucks are more efficient and have fewer breakdowns…it also helps with driver retention.”

However, the question is whether carriers will be able to attract more drivers into the industry since they are competing with other industries such as construction, manufacturing, and oil that are also doing well and pushing up wages. Steve feels the availability of more used trucks in the market could help smaller carriers to add capacity and hire drivers. It’s that balance between capacity and labor that will determine growth in the industry.

And then there is the elephant in the room: e-commerce. The rapid growth of e-commerce is disrupting supply chains, changing shipping patterns, and significantly increasing returns. How does that impact truckload and LTL carriers, especially during this transition period? And how does the uncertainties of fuel prices factor into budgets? Also, what effect are new technologies having on the industry? Steve and I discussed these and other important topics, so watch the full episode for additional insights and advice. Then post a question or comment and keep the conversation going!