The Truckload Freight Industry in North America in 2018 – “Maybe the Best Freight Market we have ever seen”

The truckload sector of the freight industry is different from the LTL and small parcel segments in two significant ways. Unlike the other two segments, anyone who can buy or finance the purchase of a tractor-trailer unit and can drive the rig, can enter the industry. Freed from the requirement to build cross-dock facilities and/or buy sorting machines, the barriers to entry are low.

There are approximately 540,000 truckload carriers registered with the Federal Motor carrier Safety Administration in the United States. These range from 1 truck to 20,000 truck fleets. The majority have less than 20 pieces of equipment in their fleets. These companies are projected to generate $358.6 billion in revenue in 2018. The comparable Canadian number would probably be in the range of ten percent of these numbers. The truckload sector is about ten times the size of the LTL sector.

Revenue/Tonnage Growth in 2018

Here is a link (http://www.ttnews.com/top100/for-hire/2017 ) to the top 50 truckload carriers in the United States and Canada that are listed in the June 22, 2018 issue of Transport Topics. Swift Transportation, Schneider National, J.B. Hunt Transportation Services, Landstar System and Werner Enterprises are the five largest US based truckload carriers; TFI (formerly TransForce International), Trimac Group, Mullen Group, Bison Transport and Challenger Motor Freight are Canada’s largest truckload carriers. It should be noted that TFI now derives roughly 50% of its revenues from the United States.

In May, year/year truck tonnage in the U.S. was up 7.8 percent over last year according to the American Trucking Association (ATA). Trucks carry approximately 70% of all domestic freight in the US economy, moving manufacturing, wholesale, and retail goods to their next destination. Historically, truck tonnage has been closely linked to broad economic indicators such as total industrial production, retail sales, and GDP; improvements in tonnage are consistent with the general theme of an improving economy in the 2nd quarter.

Truckload Carrier Revenue has been surging this year due to a confluence of factors. They include a strong economy in both Canada and the United States, the ongoing driver shortage, the Electronic Logging Device mandate that came into effect in December 2017, rate increases driven by cost increases in labor, fuel, and equipment and by some other powerful forces.

The ATA’s Chief Economist Bob Costello noted: “This continues to be one of the best, if not the best, truck freight markets we have ever seen. May’s increases…not only exhibit a robust freight market, but what is likely to be a very strong GDP reading for the second quarter.”

The Year  of the Driver

This is clearly the Year of the Driver in Truckload Transportation. Within a year after being hired, a truckload driver can expect a $10,000 bump in pay to at least $60,000 a year, according to Craig Callahan, executive vice president and chief commercial officer of Werner Enterprises Inc. Those pay rates are just the price of admission, Callahan said.

Driver pay is likely to escalate in the months and years ahead, with experienced drivers pulling down $80,000 a year or more, and salaries for qualified team drivers, who are in very short supply, topping $100,000 a year, Callahan said. Werner is hiring about 10,000 drivers a year just to keep pace with annual turnover and shipper demand, he added, but warned that even that pace of hiring will not, in and of itself, remedy all of its customer service challenges.

Carriers have increasingly reported offering higher wages, larger signing bonuses, and improved benefits to attract potential workers. In response, trucking hires have made noticeable improvements throughout the course of the year, increasing in eight of the last nine months.

The ELD Mandate

The U.S. federal government's mandate that virtually all trucks built after the year 2000 be equipped with electronic logging devices (ELDs) has cut fleet productivity by between 3 to 10 percent since the mandate took effect Dec. 18, 2017, according to unscientific estimates highlighted at a recent NASSTRAC conference. The mandate is designed to ensure that drivers can no longer alter their paper logbooks to operate beyond the federal requirements of their hours of service, which limit drivers to 11 consecutive hours behind the wheel in a 14-hour workday, with a 30-minute rest break within the first 8 driving hours.

The ELD mandate disrupted shipper networks where they least expected it: in the short haul. The biggest problem has been in 650 to 700-mile hauls, which are difficult for drivers to complete in one driving day, especially if they need to return to a home base after delivering their shipment. With driver reticence to haul those loads keeping supply tight, that segment is seeing a significant amount of price inflation.

Shippers have reported that loads that used to be readily accepted were being refused with regularity. Often, these were loads that would take five to seven hours to deliver. Suddenly, truckers didn’t have the additional hours to find parking, or get to the next load. The loss of those extra hours for truck drivers translates to longer transit times for shippers. A Zipline Logistics study found a 16 percent increase in transit times on 450- to 550-mile hauls, traditionally one that drivers would complete in single day. Canada is scheduled to adopt the ELD requirement in 2019.

Big Increases in Freight Rates

The laws of supply and demand have taken hold of the truckload segment of the freight industry. Tight capacity, the impact of the ELD mandate and higher wages are producing higher than usual increases in freight rates. Year/year, truckload rates are up about 8 percent. Many shippers are experiencing double digit rate increases.

With trucking companies rejecting one of every three to four loads, shippers are deciding to pay more for dedicated contract carriage, locking in a specific number of trucks each week rather than taking a chance on the spot markets. There is evidence that contract rates are rising more rapidly than expected. As of mid-April, the average contract linehaul van rate was 11.3 percent, or 19 cents, higher than at the same time last year, according to DAT Solutions. At Schneider National, the second-largest US truckload operator, rate hikes in customer contract renewals averaged low double-digit percentages in the first quarter. Shippers are reporting that their rollover freight — loads not picked up on the scheduled day to ship — is rising.

Ecommerce is creating New Services and Partnerships for Truckload Carriers

Ecommerce sales are expected to grow at an annual rate of 14.9 percent between 2012 and 2019. By 2019, e-commerce is expected to consume 20 percent of all retail sales.

As reported in my recent report on the LTL freight industry (https://dantranscon.com/index.php/blog?view=entry&id=317 ), e-commerce and Last Mile Delivery are growth segments for many LTL carriers. Truckload carriers have historically been heavily involved in the “first mile” (manufacturer to DC) and “middle mile” (DC to fulfillment center) segments, and in performing line haul for LTL and small parcel carriers.

Truckload and less-than-truckload (LTL) carriers are now both eyeing the e-commerce segment because of the growth of online orders of heavy goods not designed for a carrier's conveyor system. More large and heavy orders are being processed online as manufacturers and retailers broaden their product offerings that are available for web-based purchases.

Werner recently launched a final mile delivery service designed to carry outsized or heavy goods the last leg of their journey to a residence or a business. The company is employing a mix of its own fleet, LTL carrier partners, and a network of delivery contractors that specialize in "white glove" delivery services, which typically call for delivery and installation of the new item, and takeaway of the old item if there is one.

The service, called "Werner Final Mile," utilizes a fleet of "straight" trucks, vehicles with trailers 22 to 26 feet long, 8 to 8.5 feet wide, and 12.5 to 13.5 feet high. Each vehicle has lift-gate capabilities to raise and lower items between ground level and the level of a tractor trailer, with each manned by two uniformed employees who provide deliveries and installations.

Of course, adapting to e-commerce supply chains requires a new set of skills in terms of speed, time-specific deliveries, quality analytics and flexibility. This adaptation will bring its own set of challenges to truckload carriers.

The Road Ahead

In the United States, low unemployment coupled with high consumer confidence, bode well for the balance of the year. Consumer purchases are a key ingredient of the economy. Sustained consumer confidence would support a range of purchases and would be very positive for the truckload industry. US truckload capacity may get even tighter and prices rise to record highs during this fall’s peak season.

Some big dark clouds hang over the balance of the year and next year. The trade tariffs being imposed by President Trump and the reciprocal tariffs being applied by many of America’s key trading partners are now going into effect. These tariffs, if maintained, will likely diminish trade and shipping volumes. If they last long enough, they may cause job losses and adversely affect the economies of the countries involved.

Similarly, Canada, USA and Mexico are having difficulties concluding a new NAFTA agreement. Applying tariffs on car parts imported from Canada and the United States will drive up car prices for American consumers and could diminish sales (and freight volumes) in this important sector.

To sum up, this has been a booming year for the truckload sector. The general state of North American economies is strong, but tariff and trade issues could adversely affect the economies and truckload business in the three NAFTA countries.

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