Despite a sluggish economic recovery, a truck driver shortage, strict regulations and the high cost of equipment, trucking is standing on solid ground in 2015. The fundamental picture of solid growth and profitability in trucking looks rosier by the day.
Is Slow, Sustained Growth Good?
The slow economic recovery allows the industry to adjust to the pressures of the current employment squeeze. This also sets up the economy for more sustainable growth over the long term, furthering trucking prospects as we move into 2016 and beyond.
This assertion is backed up by a variety of key indicators, from retail sales to industrial production and the skyrocketing stock market. While some geographic areas will see more activity than others, all the signs point to sustained growth in almost every corner of the country.
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Economic activity accelerated in the second half of last year. Improvements in the price-to-performance ratios in vehicle production and fleets’ handling of productivity challenges and rule changes have caused a shift in the balance of power between truckers and shippers. These are just some of the factors that have contributed to the rising rates we’ve been seeing in the first quarter of this year.
The good news is that carrier profits continue to show consistent strength. Provided there aren’t any severe market disruptions, these profits should be sustainable through 2015 and beyond.
What Are The Risks?
Without a doubt the truck driver shortage has been the number one operational challenge facing motor carriers today. On the flipside, this represents a huge spike in demand. The operational challenge signals a financial opportunity for fleets. Figuring out how to straddle the line will be an important task as carriers plan for 2015.
The good news is that the truck driver shortage is an “actionable” task from the perspective of carrier management. Trucking’s advantage is that there’s no real practical alternative to it for moving most of today’s freight. So we know the industry as a whole won’t suffer competitive drawbacks as a result of it.
Though it’s now an opportunity, the substantial increase in current and projected freight volume also poses risks. This rapid buildup, particularly in the anticipated boom in trucking production, could end up overheating the market and leading to a steep downward slope on the other side of the next downturn.
Some challenges cannot be directly addressed by the industry. Fluctuating energy and equipment costs, driver issues and the unknown impacts of government regulations and rule-making are all concerns that rest outside of industry reach.
With truck driver recruitment and retention, regulatory burdens, equipment costs, and liability concerns on the horizon, the potential market headwinds haven’t disappeared. Fleets will need substantial expertise and capital to meet these challenges. Furthermore, any major or minor changes in these indicators could spell a sharp reversal of fortune for trucking.
Does Higher Pay Impact Profitability?
Since the job of a long-haul truck driver can’t be substantially changed to make it more attractive, many fleets are turning to higher pay for the answer. As fleets try to address truck driver recruiting and retention needs, the almighty dollar is looking more and more like a precision instrument.
Carriers are turning to a private-fleet pay model and putting extra emphasis on performance-based pay. Fortunately, this is projected to have only marginal impacts on the bottom line. Industry studies show that the increases in productivity and end efficiency delivers a greater return on investment when higher pay is factored into the equation.
All of these signs point to an increasingly shrinking base of companies handling a larger percentage of freight. It’s becoming tougher for a new carrier to elbow his or her way into the market. While this is forcing some of the weaker players out the door, for those with successful operations, the prospect for profitability is better than ever.