As the economy improves, tightening capacity has become a major concern.
Trailer orders in the U.S. hit their second-highest point ever last month, after hitting an all-time high the month before. The industry is showing sustained momentum and that’s expected to continue in 2015.
With the industry now closing in on 100 percent active truck utilization, will we see any loosening next year and what brought us here in the first place?
The Capacity Crisis
With the latest news out of Washington showing 5 percent GDP growth and the highest jump in jobs since 1999, the perfect storm is here: rising freight volume and falling capacity.
As the final link in this increasingly complex global supply chain, the trucking industry is now square in the middle of the high volume / low capacity convergence. Economic growth is gathering steam, so the increase in volume is no surprise.
According to the American Trucking Associations monthly tonnage report, November saw a 3.5 percent increase in tonnage. This represents a 4.4 percent jump from the same time last year and 3.3 percent on the year. While the jump was expected, the size of it was a surprise.
While the growing economy can help explain the higher volume, what explains the drop in capacity?
Where’s All the Capacity Gone?
The first capacity problem is driver shortage among an aging workforce. New research shows that 51 percent of truck drivers are 45 years or older, with 17 percent being over the age of 55. As the industry loses drivers to retirement, there simply aren’t enough younger drivers replacing them.
Close behind driver shortage are increased regulations. The hours of service rule certainly had an impact on capacity and truck utilization in 2014.
The driver shortage and regulation picture is further clouded by industry cost pressures. Increased bankruptcies over the past few years have meant fewer operators. In the second quarter of this year alone the industry saw 400 carriers file for bankruptcy.
Solving the Capacity Crisis
The first step in solving the capacity problem is addressing the recruitment, retention and industry training needs. Being able to replace an aging workforce with new younger drivers is the first step in loosening up the supply chain.
Carriers, industry groups, and drivers themselves need to promote trucking as the viable and fun career choice that it is. Careerbliss recently released its happiest and unhappiest jobs in America for 2014 and the data shows that trucking is considered a ‘happy job.’
The next step will be in utilizing technology and optimizing loads. This way more can be delivered in the space available. The result is a fuller trailer and fewer trucks needed.
Modal shift opportunities can also help to alleviate constraints. Moving shipments from truckload to intermodal, or from multi-stop to less-than-truckload, can help optimize performance by effectively utilizing available resources. Whether working with a logistics partner or coordinating independently, optimization and modal shift can be effective agents in loosening capacity.
Carriers should also be using dedicated networks that insulate from capacity constraints and driver concerns. Using new electronic logging devices will help drivers further optimize driver time, fuel usage and other load factors.
The final mitigating factor may be the one that was most out of industry control, that of regulations. With 90 percent of truckers reporting that hours of service had some impact, from minor to marked, the rolling back of that rule is sure to ease the pressure, but not by a huge margin.
As demand increases shippers will also need to be more discerning. Carriers will be more selective in the type of freight they carry.
There are solutions to easing the capacity crisis and recent numbers have been showing movement in the right direction. It is yet to be seen whether or not that movement will be sustained as we move in to the New Year.