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How Trucking Trends Will Change The Industry

With so much happening in the transportation sector, it can sometimes be hard to follow all the trends. That’s why we wanted to take a moment to provide an update on the trends in freight transportation that are evolving because of a changing retail supply chain.

Thirty years ago, a manufacturer would send products directly to the retail store. Trucking moved that freight. Then, with Walmart and other big box stores, there was a shift to a huge distribution center located far out in the middle of nowhere. These were typically non-union locales where truckloads or intermodal containers would enter the facility and dedicated or private fleets would then take the product to the distribution center. Truckload would then finish out the chain by picking up the product and delivering a mix of merchandise to the retail store.

Finally, came Amazon. This is when manufacturers would load truckload or intermodal containers and move it to a regional distribution center. From there it would be taken to a fulfillment center, usually in an urban area, and then last mile delivery would be provided to a home or business. What is interesting is that you can now see many traditional big box retailers moving into this omnichannel space to compete with Amazon.

Amazon is even now moving into the space traditionally operated by the big box retailer with their purchase of Whole Foods. A store is no longer just a retail store, but also serves as a showroom and distribution point for web sales. People can buy the product online and then pick it up from the store. This has radically changed the way retailers operate, and as such has also caused a shift in the transportation economy.

With this shift in the way goods move, customer expectations have also changed. Consumers now expect to be able to view the item on their mobile device and have a variety of delivery options at their disposal. These delivery options could include having the item delivered to the truck of your car, an Amazon locker, or otherwise. Consumers expect a high-velocity buying experience, and the transportation sector must be able to accommodate it.

The industry is now seeing a shift towards direct shipments. A product could conceivable be made anywhere in the world, perhaps through a 3D printing technology, then delivered directly to the home. Or, perhaps the 3D printing facility is located close to the home, where last-mile delivery becomes even easier. Either way, this changes the paradigm for the transportation industry and, if anything, makes it a good time to be a truck driver.

Truckloads Positive Outlook

The fact is the truckload sector is – by a large margin – still the largest sector of the transportation and logistics industry. Still, it is a fragmented market, with the largest carrier only commanding 1 – 2% of the entire sector. Trucking companies are everywhere and come in just about every size and type.

Still, this is a fantastic time to be operating in the truckload sector. Demand continues to outstrip supply and capacity remains tight, although that has been lessening a bit in the latter half of 2018 as the industry makes strides to keep up with growing demand.

As small fleets come online, mid- to larger-sized fleets are continuing to expand to keep up with rapid increases in demand. Until recently the used truck market was a depressed one, yet that has all changed. With the spot market having been on a tear since September of 2017, some of that growth has even expanded into the contract market. Numbers continue to show a positive gain for all aspects of the trucking industry.

In fact, contract pricing began to move up around 12 months ago. Fleets took price increases at the end of last year and in the first half of this year. Two-thirds of the price increases are being passed on to truck drivers, which is great news for those looking to transition into the industry. Even with the money being passed on to the front line, there still is plenty left to increase margins and fatten the bottom line.

Less-Than-Truckload Sees Big Gains

Perhaps even more than the rosy outlook for truckload, less-than-truckload carriers are seeing big gains in this new economy. A few decades ago, LTL transportation was considered a has-been. With everyone moving to the big distribution center model, what was to come of LTL transportation companies? With advent of E-commerce, LTL transportation is experiencing a resurgence.

Even more, with automation in manufacturing and a huge overflow capacity in the truckload market, many are turning to LTL for less-than-traditional deliveries. Shippers may now offer a partial truckload to an LTL carrier if they cannot find someone to handle it in the truckload market. This hybridization model is not unheard of in today’s retail market.

Urban fulfillment centers now require small shipments. With such broad range of products being offered by so many retailers, LTL partners most often provide the ideal size to handle such orders. Most LTL fleets find themselves doing quite well in the current environment. Automated manufacturing has further enhanced the picture for these motor carriers.

As subcomponents and parts must be transported between facilities, LTL carriers must handle the bulk of this transportation. Even more, labor availability is far better for LTL motor carriers. The training curve for new truck drivers in LTL transport is far lower than it is in truckload or other trucking segments.

LTL carriers also have an advantage over truckload providers in that they can hire younger workers. Typically, they have the workers start out on the dock, move on to trailer placement, and then are offered positions in the vehicle handling pickup and delivery needs for clients. Still, with a tight labor market, even LTL fleets are experiencing some problems recruiting truck drivers.

In terms of competition, many industry insiders expect there to be further consolidation in the LTL market. Without many new companies coming to market within the segment, the big players are poised to capitalize. Technology should also play a big role in how the LTL sector evolves. With predictive analytics and dynamic pricing taking over from traditional back-office tasks, short-term price discounts and quick capacity fulfillment will become the norm.

Trucking Impacts Intermodal Transport

In the face of an explosive trucking industry, railroads are retreating. Now, railroad operators are focusing on high-density/long-haul lines only. When it comes to short-haul or less dense lanes of operation, rail transport simply no longer fits the bill.

Over-the-road trucking simply provides a far better level of service quality than does railroad transportation. Even more, railway companies do not seem to be making big strides in improving that service level. Any projects that were on the table to steal some of the short-haul market share have either been scrapped or have largely gone nowhere in implementation.

The only product or commodity that still sees widespread use in railroad remains the coal sector, yet the coal sector still appears to be in trouble. Even with the Trump administration making efforts to prop up the sector, natural gas is still far cheaper and easier to transport, which has put increasing pressure on the coal sector.

An Increase in Warehousing

With E-commerce exploding, massive changes are occurring in the warehousing sector. Depending on the location, some municipalities are more expensive than others where warehousing is concerned. To provide the near-immediate to-the-door delivery that consumers increasingly expect, companies are now required to have all the necessary SKUs in the same urban area.

The problem here is that urban real estate is more expensive than rural real estate. Even more, the approval process to build new warehouses is increasingly complex. With the labor shortage continuing to be a problem across industries, more operators are turning to automation. In fact, it is quite likely we will see full-blown warehouse automation long before we see it in the trucking sector.

With so much change happening in warehousing, whether urban or rural, many are wondering who the clear winners and losers will be when it comes to LTL. Europe is already testing robots, while UPS is looking into the possibility of using drones to handle such deliveries. Even Uber and Lyft are getting in on the game, with people driving their own cars to pick up and drop off packages. Amazon is even looking into hiring independent contractors to handle its last-mile delivery needs.

Technology is changing the name of the game. Information will help optimize routing, pickup, and delivery times. Shipping configurations will be optimized like never before. Data analytics and AI will help predict what will happen in the medium and long term. We are seeing huge innovations in the trucking industry. With so much growth and advancement, certainly now is a great time to be a part of this great industry. The future looks bright for trucking and everybody stands to benefit as a result.

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