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Friday, August 22, 2014

Trucking Industry Outlook Is Bright, But Experts Warn Of Potential Risks

There are few economists or anyone associated with the trucking industry that would realistically claim the economy in the U.S. was anything other than rife with opportunities for growth in the trucking and transportation industries.

During the August industry forecaster’s State of Freight Webinar, FTR President Eric Starks explained that there are still key variables he recommends fleet managers monitor to ensure success in a marketplace offering plenty of opportunity. Those variables have differing degrees of volatility, but they are all related to the ebb and flow of a trucking industry seemingly on a huge growth cycle.

According to Starks, the three most important things fleet executives should be monitoring are the economy, freight growth and the re-regulation of the trucking industry.

Federal regulations enacted in 2002 and 2007 have been driving additional costs for fleets. The unpredictable expense associated with fuel has always been an issue, but coupled with emissions compliance levels it has been an increasing cost for fleets in several operating and maintenance segments.

The OEM business is booming, though the biggest challenge facing the diesel engine business today is “re-orienting” design efforts away from a prior focus on exhaust emissions to fuel economy, performance, and component integration – not only to meet U.S. mandates regarding greenhouse gas (GHG) emissions but to meet motor carrier demands for more powerful and more efficient engine models.

Where the OEMs make headway utilizing technology to potentially increase fleet profits, the challenge is mitigating the potential losses incurred in other areas of the business, including capacity, driver availability and hours of operation limitations.

“In the near-time, the risks continue to be on the upside. In general, things continue to be looking relatively healthy for the freight markets,” Starks said. “I think we’re at that point right now. The spot market is settling down and contract rates are starting to move higher,” he said.

However, FTR continues to sound alarms about the re-regulation of the trucking industry and the regulatory drag caused by an influx of new rules that are currently in the works. The impending legislation could make it more difficult for carriers to hire drivers while at the same time necessitating the hiring of more, because of productivity losses such regulations will incur.

“There are a large number of regulations coming into play that we anticipate to happen between 2016 and 2018,” Starks said. Environmental concerns suggest it will be very difficult to hire drivers, though losses in productivity will necessitate new drivers to maintain capacity. It’s going to be a problem for some time.

Starks said fleet executives should be keeping a watchful eye on several key issues going forward. One is global markets, such as China, which has seen its GDP growth go from double digits to closer to 7%. GDP growth in China of 5% or less would reflect a worrying recession, he added. 

Extreme weather, while it can’t be controlled, is another area fleets need to do better at planning for, Starks said. Anything that creates downtime for a truck will impact the bottom line as the stretching of resources to maintain capacity reaches a critical point. Anything that creates downtime for a truck will impact the bottom line as the stretching of resources to maintain capacity reaches that critical point.

Starks offered three tips on how fleets can improve their prospects for success:

Measure: “Measure everything you can. Track and understand your internal data and external market data so you can identify trends and issues within your system you can correct and change quickly,” he said.

Communicate: Fleets struggle to communicate within their organizations and with their customers, Starks said. “We have to figure out a way to communicate changes within the market.”

Be flexible: “Have a plan in place, so if market conditions start to change, you have a clear direction of what you want to do to be able to move in that direction,” Starks advised.