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INSIGHTS

Trucking Industry Insight | 2017

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This document focuses on a number of topics that affect the trucking industry as a whole, including expectations regarding higher compensation for truck drivers, President Trump’s targeting of truck drivers to sell his tax reform plan, Warren Buffett’s purchase of Flying Pilot J, the forecast for trucking industry revenue, and recent actions taken by the Alliance for Driver Safety & Security to adopt additional truck-safety technologies.  It also includes a brief summary of trends in used equipment values.

Hot Topics

Compensation for Truck Drivers Expected to Increase as Industry Braces for Shortage to Get Worse:  According to a recent report issued by the American Transportation Research Institute, driver wages now top fuel as the biggest operating expense for motor carriers, and industry insiders are predicting wages and benefits will continue to rise as companies compete to retain drivers.  “While the shortage is a persistent issue in our industry, motor carriers are constantly working to address it.  We already see fleets raising pay and offering other incentives to attract drivers,” said American Trucking Association (ATA) economist Bob Costello at the ATA’s Management Conference & Exhibition in October.  At the conference, the ATA also issued a report projecting the driver shortage will reach 50,000 positions by the end of 2017 and could grow to more than 174,000 positions by 2026.

In addition to companies being challenged by ongoing issues such as irregular schedules, long periods away from home and difficulty in obtaining insurance for inexperienced drivers, there is also an anticipated surge in the construction industry following the recent hurricanes in the U.S. and the trucking industry is expecting to see its talent pool shrink even more.  Eric Fuller, chief executive of U.S. Xpress, also warns that the Trump administration’s national infrastructure initiative will take away even more workers and put the industry into an “absolute crisis.”  “We are absolutely scrambling for drivers,” Fuller says.  “Each month it gets a little bit worse.  Large double-digit increases will be needed to bring new drivers into the industry.”  He predicts driver wages could climb 30% to 40% over the next two years and that we may also be seeing a change in how truck drivers are paid.  Until now, most drivers have been paid by the load or the mile, but Fuller believes this pressure on wages will likely result in hourly pay becoming the norm within the next 10 years.  He also believes these changes will continue forcing companies to demand higher shipping charges and to reevaluate how they charge their customers.

Trump Appeals to Truck Drivers to Help Sell New Tax Plan:  President Trump is now targeting truck drivers to sell his tax reform plan to America’s low and middle-income earners.  While the tax plan has been criticized for mostly catering to high-income earners at the expense of lower- and middle-class earners, the White House is saying otherwise.  “Truckers will be the No. 1 beneficiaries of President Trump’s tax plan,” White House Press Secretary Sarah Huckabee Sanders said during an October press conference.  “They keep our economy moving, literally, and they are excited about the president’s tax reform plan, which will create more jobs and empower workers and families to keep more of their hard-earned money.”

Trucking is the number one employer in about 29 states around the country and President Trump believes the GOP tax-reform framework will benefit truckers by lowering their tax rates, boosting manufacturing and making it easier for families to pass their trucking businesses onto their children.  Additionally, the plan will simplify tax filing for truck drivers and provide for a larger standard deduction, as well as cuts to the small business tax rate, which he says would benefit those who file their taxes as pass-throughs.  In addition to appealing to truck drivers, Trump also believes that the typical American family would get a $4,000 pay raise under the tax plan.

Warren Buffet to Buy Majority of Pilot Flying J:  Early in October, Warren Buffett’s Berkshire Hathaway Inc agreed to buy a major stake in Pilot Flying J, the largest U.S. truck stop operator, and will become the majority owner over a six-year period.  The chain, which comprises the 15th largest private company in the U.S., has 750 locations across the U.S. and Canada, employs more than 27,000 people and boasts annual revenues of $20 billion.  It sells gas, diesel fuel, and convenience goods, and offers trucks more than 70,000 parking spaces and 5,000 diesel lanes.  Berkshire Hathaway will initially acquire a 38.6% stake in the company and plans to boost ownership to 80% in 2023.  The controlling Haslam family retained a 50.1% stake, and will own the remaining 20% once Buffett takes over.  As he normally does when buying family-run companies, Buffett will leave Pilot Flying J’s management in place.  Financial terms were not disclosed, so it isn’t yet clear as to how much of Berkshire’s roughly $100 billion in cash will be used.  Adding Pilot Flying J is a significant boost to Buffett’s bet on U.S. economic growth.

“Pilot Flying J is built on a longstanding tradition of excellence and an unrivaled commitment to serving North America’s drivers,” Buffett said in a release.  “Jimmy Haslam and his team have created an industry leader and a key enabler of the nation’s economy.  The company has a smart growth strategy in place and we look forward to a partnership that supports the trucking industry for years to come.”

Forecast for Trucking Shows Revenue Growth Headed Toward $1 Trillion:  According the ATA’s 2017-2028 Freight Transportation Forecast report, trucking industry revenue is projected to top $1 trillion by 2024.  Industry revenue is expected to keep growing annually by a projected 5.4% between 2018 and 2023.  Growth is then expected to slow to 4.7% through 2028, with motor carrier revenue totaling $1.24 trillion by the end of that year.  This growth will be driven by manufacturing, consumer spending and international trade.

ATA’s annual report provides an outlook as to what the industry can expect to see in terms of tonnage and revenue over the next 12 years.  ATA constructs its freight and revenue forecast by using data from several sources, including proprietary data and data from the U.S. Army Corps of Engineers, Energy Information Administration, Bureau of Transportation Statistics Commodity Flow Survey, ENO Transportation, and IHS Energy, among others.  “As the U.S. population grows and the economy increases with it, we will see continued gains in demand for freight transportation,” said Bob Costello, chief economist for ATA.  Although trucking will remain the dominant freight mode – moving 10.73 billion tons of freight in 2017 – all forms of freight movement are on the rise.

Truck tonnage for truckload, less-than-truckload and private carriers reached 10.419 billion tons in 2016.  ATA forecasts total truck tonnage to be 12.579 billion tons in 2023 and 13.916 billion tons in 2028, representing an annual growth rate of 2.7% in 2018-2023 and 2.0% in 2024-2028.  Although for-hire carrier revenue fell 3.8% to $368 billion in 2016, it is expected to rise 5.4% annually between 2018-2023, to $538 billion, and should hit $679 billion by 2028.  Truckload carrier revenue is forecasted to reach $454 billion by 2023 and $568 billion by 2028.  This revenue will experience an average annual increase of 5.4% in 2018-2023 and 4.7% in 2024-2028.

Trucking Alliance Adopts AAA Advanced Safety Tech Recommendations:  On November 1, the Alliance for Driver Safety & Security (Trucking Alliance) announced that in order to qualify for membership, carriers must adopt the following four truck-safety technologies that the AAA Foundation for Traffic Safety has concluded are critical to reducing large truck crashes and saving lives.

  1. Lane Departure Warning Systems, which detect when the vehicle drifts out of its lane and warn the driver
  2. Video-based Onboard Safety Monitoring, which utilizes in-vehicle video cameras and sensors
  3. Automatic Emergency Braking Systems, which detect when the truck is in danger of striking the vehicle in front of it and brake automatically if needed
  4. Air Disc Brakes [on tractors], which are superior to traditional drum brakes

The Trucking Alliance said it is the first U.S. carrier-based organization to adopt these technologies as conditions for membership.  “These technologies can make the highways safer for our drivers and the public and that’s why the Trucking Alliance carriers are installing them on new trucks,” said Steve Williams, president of the Trucking Alliance and Chairman/CEO of Little Rock-based Maverick USA.

The AAA Foundation found that by installing automatic braking systems and air disc brakes on all new trucks, 7,705 accidents, 92 deaths and 4,200 injuries could be avoided.  It also projected that if onboard cameras and lane departure warning systems were installed on all new and existing commercial trucks, another 69,372 large truck accidents could be avoided, saving 408 lives and avoiding 24,105 injuries.

Trucking Alliance carriers have also adopted the following additional standards for membership, which exceed federal requirements to operate as a motor carrier.

  1. Installation of Electronic Logging Devices or the existence of Automatic On-Board Recording Devices in all interstate trucks, to verify hour-of-service compliance
  2. Utilization of Truck Speed Limiters, which set a maximum speed of no greater than 65 mph
  3. Transition to hair testing to identify lifestyle drug users and opioid addicts
  4. Maintaining liability insurance coverage that is significantly higher than the minimum federal requirement
  5. Installation of collision mitigation systems in all newly purchased Class 8 trucks, including the four safely technologies mentioned above
  6. Utilization of extensive pre-employment screening processes and ongoing driver training

“The trucking industry can’t be satisfied, until we dramatically reduce the number of injuries and loss of life from large truck crashes,” added Williams.  “We must ensure that truck drivers are well trained, well rested, drug- and alcohol-free, and operating trucks with the latest technologies.”

Trends in Used Equipment Values

In October, America’s Commercial Transportation (ACT) Research Co. issued a report on the used commercial vehicle market revealing that used Class 8 truck same-dealer sales volumes rose by two dozen units in September.  ACT is recognized as the leading publisher of commercial vehicle industry data, market analysis and forecasting services for the North American market.  The research company’s latest release on the state of the industry shows that retail used truck sales were up in both monthly and yearly comparisons in the Class 8 market.  “Long-term, the outlook is positive, with volumes up 19% year to date compared to same period last year,” said Steve Tam, vice president at ACT Research.  “Looking at the individual market segments, the retail segment was up 9% month over month and 28% year over year, but the auction and wholesale segments reported mixed results.”  The average price of used Class 8 trucks marked its largest sequential increase since December 2016, rising 5%.  However, prices were still 3% lower compared to last September.  “The year-to-date deficit narrowed slightly, to 7%,” added Tam.  All three market segments reported month-over-month increases, but long-term price deficits.  It is our opinion that the values of used commercial vehicles will remain mostly flat through 2018.

On another note, it is likely that hundreds if not thousands of Class 8 trucks, and many more medium and light duty commercial vehicles, were totaled during the two-week period that hurricanes Harvey and Irma wreaked catastrophic damage to large parts of Texas and Florida.  This loss of property, combined with the need for construction trucks to participate in the rebuilding process, should result in a moderate increase in the demand for commercial vehicles of all types in upcoming months.