It’s no secret that the trucking industry has been experiencing some difficulty over the past few years. With new environmental regulations being passed, necessitating the need for newer, more expensive equipment as well as an aging workforce and one of the worst turnover rates of any industry, most trucking companies have already had to knuckle down to keep rolling. To add insult to injury, amidst the myriad of other problems already plaguing the industry, a drop in demand and a soft economy is forcing a lot of trucking companies to start making cuts to their fleet.
A drop in demand and a soft economy is forcing a lot of trucking companies to start making cuts to their fleet.
“Big trucking companies have spent the second half of the year shrinking their fleets in hopes of changing an imbalance between the supply of rigs on the road and tepid shipping demand that has flattened industry earnings,” say Erica E. Phillips and Paul Page of the Wall Street Journal in an article they recently posted about the subject.
So just how bad is it going to be for the industry going forward?
Data is Still Being Compiled
As the Holiday’s are just around the corner, typically one of the strongest seasons for the trucking industry as consumers begin their shopping frenzy, we’ll get to see just how much of an effect paring down the fleets have had on trucking rates.
“They will learn in the coming weeks, as retailers stock up at stores and distribution centers for the holidays, whether efforts to slim down capacity have produced the rate increases that trucking companies say they need to increase profitability and to expand fleets next year.
Trucking-industry reports in the coming week will take the pulse of a market at a critical point in the fourth quarter, when companies look to build off momentum in the consumer and manufacturing arenas to set business plans for 2017,” the WSJ article reads. “Industry data groups ACT Research and FTR are due to report this week on new heavy-duty truck orders for companies in October, a critical month for setting fleet plans for the coming year after several months in which orders have plummeted to historically low levels,” they added.
Not a New but a Growing Concern
The current state of the economy is something that is always on the mind of the trucking industry. After all, if people aren’t shopping, there isn’t much of a need for trucks. Still, while this isn’t a new concern it’s slowly been creeping up the list. According to the American Transportation Research Institute (ATRI) annual index of industry concerns, the Economy has climbed from the 9th position (2014) to the 5th, hitting an index rating of 39.9. Since the economy had a strong post-recession period it warranted less concern.
The Economy has climbed from the 9th position (2014) to the 5th, hitting an index rating of 39.9
However, as the economy starts to weaken, the over capacity in the trucking industry is driving rates down, forcing the industry to suffer the blow to their profitability, hence the need to scale back the fleet.
“DAT Solutions LLC, which measures freight rates in the industrial-trucking market, will report the next week on whether carrier efforts to rein in capacity amid tepid demand are pushing up prices as hoped. DAT says prices for spot-market freight hauls and shipments moving under long-term contracts have been slipping for most of the year, and that rates in September were down 6.4% from the same month a year earlier,” say Phillips and Page.
Looking for Solutions
While the numbers aren’t in just yet for how bad the industries situation is, there are a few possible solutions suggested by company heads polled by the ATRI’s survey. Aside from cutting down on fleet size as an attempt to recoup some of the loses, another proposed solution is to support policies that will stimulate the economy. Over 14% of the respondents would like to see more such policies go into place. Conversely, nearly a third of the respondents (32.2%) would like to see reform in the regulations that target the trucking industry, specifically a removal of the ineffective policies that do little else but drive up operations expenses.