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Wednesday, May 28, 2014

Trucking Outlook Gets Positive Nod Despite Sluggish Economy

The U.S. economy is still considered recovering and somewhat sluggish; however even the slightest nudge toward positive growth can mean significant gains for transportation volumes.

As the economy ramps up and those volumes increase, according to industry analysts, it will be impossible for the trucking industry to keep pace. From the ongoing driver shortages and fleets’ aging vehicles requiring more downtime, only an influx in new vehicles and drivers to operate them can create the capacity necessary to cope.

When volume transport demand exceeds capacity to move it, rates increase and the highest bidder gets their products moved. Fleets that have been locked into rates for customers over long periods of time will find it essential to purchase more modern, fuel-efficient trucks and hire what could be the highest paid entry-level drivers in history.

Analysts have predicted potential rate increases of as much as 10% over the next three years. Paying off new trucks is an easy economic decision as opposed to trying to maintain older, less efficient equipment. The industry will adapt and continue to become more efficient, but it will be a slowly evolving process. 

With an influx of recent and still-to-come federal regulations, higher equipment costs and other factors continuing to squeeze capacity growth, fleet managers will be reluctant to invest in a bright future unless the numbers say it will pay off.

The list of factors that could increase capacity include immigration reform, more drivers in the pool for hire; long combination vehicles like 32-foot twin trailers for less-than-truckload networks, which will instantly increase capacity for existing fleets; and Mexican trucks, which could be allowed to deliver within U.S-sanctioned areas currently off limits. 

The list of factors that could reduce capacity is much longer, but none of it is absolute yet. It includes the Compliance, Safety and Accountability program, electronic logging devices, drug testing, changes to independent contractor status, equipment costs and an increase in insurance standards. All of these require more upfront cash investment, more driver downtime and increased fines for non-compliance.

The mandate of electronic logs, with enforcement likely to begin in 2017, is going to be a big deal for industry capacity by flushing out a lot of smaller operations that have been barely hanging onto economic relevance.

There is little doubt that freight trends will continue to favor the carriers due to supply constraints in a low-growth environment. Many growth equations will rest squarely on whether key federal regulations impact fleets’ bottom lines. Carriers will see profit margins grow up to four percent during the next five years, but the potential could be much higher—especially for less-than-truckload carriers.