Trucking Executives Hopeful About New Year: Focus Is on Economy, CSA and Driver Supply

This story appears in the Jan. 3 print edition of Transport Topics.

The new year for trucking companies picks up right where 2010 left off, with optimism about an improving economy but also plenty of unknowns about which to worry.

In a survey, trucking executives say they worry about the ramifications of a changed political landscape following Republican victories in the November midterm elections, and they are concerned about rising prices for fuel and truck equipment and the real possibility of capacity constraints because of a slew of new federal safety and environmental regulations.

Topping the list of critical issues facing the trucking industry, however, is the economy and implementation of the Federal Motor Carrier Safety Administration’s Compliance Safety Accountability (CSA) enforcement initiative, according to a survey of carrier executives by the American Transportation Research Institute.

Also on the regulatory agenda are changes in driver hours-of-service rules, an expanded mandate for the use of electronic onboard recorders and new fuel economy standards for commercial trucks.

While the effects of regulatory changes are likely to play out over the next several years, the consensus among fleet executives and industry analysts is that the changes will reduce the ability of carriers to fully deploy drivers and equipment and thus drive up the cost of doing business.

“We normally strive for ‘cheaper, faster and better’ objectives,” said Don Osterberg, senior vice president of safety and security for Schneider National Inc. “Looking forward, left unchecked, freight movement will likely meet none of those objectives.”

A primary concern is the supply of truck drivers.

“CSA will purge bad drivers from the industry,” Osterberg said. “That’s a good thing, but it will tighten capacity.”

The owner of a company that helps individuals set up corporations, however, sees another trend in the number of drivers starting a business.

“We’re seeing a lot of people who are truck drivers incorporating,” said Deborah Sweeney, CEO of Mycorporation.com in San Francisco.

Sweeney said the number is up 20% in the first 10 months of 2010, partly because truck driving is drawing people who have been laid off from jobs in construction and other occupations.

“Freight shipments are increasing,” Sweeney also said. Drivers “are busier.”

Douglas Clark, president of AmeriQuest Transportation Services, Cherry Hill, N.J., said he is concerned that a modest increase in freight-hauling demand, coupled with the Federal Reserve’s efforts to expand money supply and lower interest rates, will trigger an inflationary price spiral.

“Capacity has been taken out, and we won’t see productivity gains,” Clark said. “It won’t take much to see cracks in the supply chain.”

While carriers should be able to raise rates, Clark said, trucking companies already face “hefty” increases in prices for new equipment and such “consumables” as tires, whose prices have risen 12% to 13% over the past year.

Sam Kahan, senior economist with ACT Research in Columbus, Ind., and a former economist with the Federal Reserve Bank of Chicago, said the recovery “will not be as robust as in the past” because the downturn was triggered by a financial crisis that undermined public confidence and made consumers and businesses less willing to take risks.

“Banks are leveraged operations, and if you lose confidence, it’s like a house of cards. People are very cautious,” Kahan said. “The Fed has flooded the system with reserves, so I’m optimistic that this has greased the wheels.”

Kahan said inflation should not be a concern at the moment because the economy is too weak and there is too much unused production capacity to support price increases over a sustained period of time.

Even a sharp rise in fuel prices, which Kahan said is possible, wouldn’t automatically trigger inflation if it causes demand and prices for other goods to decline.

For trucking companies, Kahan mentioned three key ingredients for recovery: demand for freight, profitability and the value of used trucks. All are trending upward, he said.

Overall, trucking companies are expected to boost spending in 2011.

A group of 11 publicly owned truck, rail and intermodal companies plans to boost capital expenditures by 20% to 30% in 2011, according to another survey by Jon Langenfeld, an equity analyst with Robert W. Baird & Co. in Milwaukee.

Carriers with more exposure to industrial markets — rail and less-than-truckload carriers — see more opportunities than carriers serving consumer and retail markets because of modest consumer spending and a diminished need to replenish inventories, Langenfeld said.

Less-than-truckload carrier Southeastern Freight Lines, Lexington, S.C., said it plans to hire more than 900 workers, its largest wave of hiring since 2006, and has budgeted $85 million for new equipment and facilities.

“We are increasing our fleet to add capacity where we have had significant increases in business last year,” said Braxton Vick, senior vice president of corporate planning and development.

Vick said Southeastern typically spends $50 million to $60 million a year on capital goods but spent only $30 million in 2009 as the recession cut shipment volume and forced the company to idle some equipment.

Business picked up in February 2010, however, and shipment volume now is above pre-recession levels, Vick said.

Kenneth Weinberg, vice president of Carrier Logistics Inc., Tarrytown, N.Y., said many carriers are looking to acquire technology to help workers handle an increase in business without hiring additional staff.

And unlike past economic recoveries, Weinberg said, executives are less certain of future business growth.

One area where business prospects have brightened is for air and expedited freight as shippers scramble to restock inventories drawn down during the recession, said Scott Aubuchon, managing director of global air freight for UPS Inc. in Atlanta.

“The United States has a lot of pull, literally, in terms of generating demand for consumer goods and in manufacturing,” Aubuchon said. “Now companies are waiting to see if demand materializes.”

When consumer demand is uncertain, more shippers move goods by air so that they don’t have to forecast demand so far ahead, he said.

Building activity, which generates considerable demand for trucking services, is expected to remain weak in 2011, industry experts said.

“Without any upward trend in key private-sector construction components like homes and offices, it is hard to feel optimistic about the near future,” said Ken Simonson, chief economist for the Associated General Contractors of America, Arlington, Va. “With public construction at risk of cutbacks, it is premature to conclude that construction has awakened from its long nightmare.”