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Trucking Industry Insight | Summer 2019

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This document focuses on a number of topics that affect the trucking industry as a whole, including the historically high shortage of truck drivers, the dynamic growth in 2018 revenues, the benefits of working for a smaller company, the extent to which trucking fleets are still not ELD compliant, and efforts to repeal the 12% federal excise tax on trucks and trailers. It also includes a brief summary of trends in used equipment values.

Truck Driver Shortage Reaches Historic High: A report recently issued by the American Trucking Associations (ATA) found that as of the end of 2018 the trucking industry needed 60,800 more drivers to meet the country’s demands for freight services. The ATA also noted that this is a significant problem for the entire supply chain since 71.4% of all freight tonnage is moved on U.S. highways. “Over the past 15 years, we’ve watched the shortage rise and fall with economic trends, but it ballooned last year to the highest level we’ve seen to date,” ATA chief economist Bob Costello said. “The combination of a surging freight economy and carriers’ need for qualified drivers could severely disrupt the supply chain. The increase in the driver shortage should be a warning to carriers, shippers and policy-makers, because if conditions don’t change substantively, our industry could be short just over 100,000 drivers in five years and 160,000 drivers in 2028.”

ATA’s report on the truck driver shortage cited a number of contributing factors, including an aging driver population, increases in freight volumes, and competition from other blue-collar careers. It also outlined potential market and policy solutions. The bulk of the shortage is in the over-the-road for-hire truckload market. “The trucking industry needs to find ways to attract more and younger drivers,” Costello said. “Right now, the average age of an over-the-road driver is 46 years old, and almost as alarming is that the average age of a new driver being trained is 35 years old. Whether by removing barriers for younger drivers to begin careers as drivers, attracting more demographic diversity into the industry or easing the transition for veterans, we need to do more to recruit and retain drivers. That includes increasing pay — which happened at a brisk pace last year — to keep pace with demand, addressing lifestyle factors like getting drivers more time at home and improving conditions on the job like reducing wait times at shipper facilities.” Many fleets instituted guaranteed minimum weekly pay in 2018 so drivers would have a more consistent paycheck. Sign-on bonuses and good benefits packages have also been used throughout the industry as competition for drivers heats up. The ATA expects that driver pay will continue rising as long as the driver shortage continues. To meet the nation’s freight demand, the report said the trucking industry will need to hire 1.1 million new drivers over the next decade – an average of 110,000 per year to replace retiring drivers and keep up with growth in the economy.

Trucking Industry Revenues Up Nearly $100 Billion in 2018: 2018 was a year of dynamic growth for the trucking industry as revenues rose to $796.7 billion, up from $700.1 billion in the previous year. During 2018, trucks moved 11.49 billion tons of freight representing 71.4% of the nation’s tonnage freight, and trucking revenues accounted for 80.3% of the nation’s freight bill. Cross-border trade with Mexico and Canada played a huge role in trucking’s success for the year. Trucks moved 67.4% of surface freight between the U.S. and Canada and 83.5% of cross-border trade with Mexico. Compared to 2017, this represented increases of 3.6% and 10.2% in each respective sector.

Trucking was also a major source of U.S. employment, with 7.8 million people working in trucking-related jobs. Of that total, 3.5 million were truck drivers. Women made up 6.6% of all drivers and minorities accounted for 40.4% of the truck driving workforce. By and large, most carriers are still small companies. Fleets with six or fewer trucks make up 91.3% of all fleets, while those with 20 trucks or less make up 97.4%.

Benefits of Working for a Small Trucking Company: Although small trucking companies often get a bad rap, as indicated below there are many reasons that one may benefit more from working for a local trucking company.

  • Smaller Companies May Have More Competitive Compensation Packages
    In general, small trucking companies have much more competitive compensation packages than national companies. National companies tend to rely on company drivers, while small companies may split their loads between company drivers and owner-operators. Since small companies allocate part of their work to owner-operators, they tend to have less overhead, fewer equipment expenses, and fewer benefits costs. This allows them to pay both company drivers and owner-operators more. In addition, local companies generally employ far fewer people in a smaller variety of positions, which further reduces overhead expenses and puts more money in drivers’ pockets.
  • Know Who You’re Working For and Why
    Working for a large company often means working for a nameless, faceless entity. Even if one knows who owns the company and its history, they may not really feel like they’re part of it. With a local company, one often develops a strong working relationship with the company owner and other professionals. They know the history of the company, what its long-term plans are, and how they are benefiting both themselves and other drivers.
  • Contributing to the Local Economy
    Even if one works for a small truck company that ships nationally, they know that the miles and hours they put in directly improve their community and their local economy. In a time when globalization seems to be minimizing the role of small businesses, this is a huge benefit for lots of drivers.
  • Greater Flexibility with Special Circumstances
    When a family emergency arises and one needs to suddenly change their schedule, take on different hauls, or take time off to meet family obligations, they may be out of luck with a large trucking company. Even if one puts in years of service with a large company, they tend to be one of many reliable drivers. On the other hand, If one gets a prime trucking position at a local company, their manager is likely to be more aware of the effort they put in and more receptive to granting a favor. In addition, the connections one builds with other drivers at a small company may result in more options if they need to adapt their schedule. Large companies tend to have strict protocols and restrictions in such situations, while a small trucking company is more likely to look at the entire situation before making a decision.

Whether one is a new or experienced driver, they may enjoy working for a small trucking company, particularly if they like where they live and plan on making a long-term career in the area. In any event, one should compare local and national truck driving jobs to learn more about their pay rates, compensation packages, and other benefits before making a decision as to where to work.

1 in 8 Trucking Fleets Still Not ELD Compliant: In April 2019, MiX Telematics announced the results of a comprehensive study conducted with Bobit Research Services on mandatory electronic logging device (ELD) compliance and use by U.S. trucking fleets. Key observations related to the 194 responses received are as follows:

  • 75% of the companies surveyed have already implemented an ELD solution in compliance with the ELD mandate. Among those, 80% consider their ELD solution to be full-featured, offering compliance alongside many other features. The balance considers their ELDs to be entry-level, compliance-only tools.
  • 25% of the companies surveyed have not yet implemented an ELD solution. About half of those (13%) are not subject to the ELD mandate.
  • Among the 12% (1 in 8) that are subject to the mandate but have not yet implemented ELDs, 75% plan to do so by the December 2019 deadline.

Nearly all fleet professionals who were collecting data were using their ELD solution to collect hours-of-service data. Fewer focused on data relating to vehicle location, mileage and speed statistics that could be valuable to fleets focused on safety and efficiency gains. When asked if they expected to achieve a positive return on investment (ROI) on their ELD purchases this year, 59% of those using full-featured ELDs said yes, while that was true of only 37% of those using entry-level tools. Previous research conducted by MiX Telematics has found that the ROI for a typical 100-vehicle fleet can be $134 per vehicle, per month. The gains come from compliance, safety, and efficiency (e.g., savings on fuel, maintenance, insurance, crash avoidance and fine avoidance).

Trucking Stakeholders Ask Congress to Repeal the 12% Federal Excise Tax on Trucks, Trailers: In a July 24 letter to top leaders in the U.S. Senate and House of Representatives, 21 wide-ranging trade organizations, including the ATA, asked Congress to repeal the 12% federal excise tax on the purchase of heavy-duty trucks, tractors and trailers. The group claims the tax is “outdated” and the “most inconsistent revenue source for the Highway Trust Fund over the past 20 years.” It further states “repealing the tax would deploy new, cleaner and safer heavy-duty trucks and trailers by making them more affordable — particularly for small businesses.” “Most heavy-duty truck owners can’t afford a $20,000 tax bill per new truck, so they don’t buy them,” said Rep. Doug LaMalfa (R-Calif.), one of the sponsors of the bill. “They’re far more likely to purchase used or older trucks with older technology that are not as fuel efficient or don’t achieve the air quality goals the government demands.”

According to the letter, the tax was first imposed in 1917 to help fund World War I, but has since become the highest excise tax on a percentage basis levied by the federal government. The letter said, “the federal excise tax has risen 300% since then and now increases the cost of new heavy-duty trucks and trailers by $22,000 on average. This tax, coupled with an estimated $40,000 in new federal environmental and safety mandates per vehicle, discourages the purchase of new, cleaner and safer heavy-duty trucks and trailers.”

Trucking over the past decade has developed sophisticated new technologies to keep drivers and other road-users safe. While new commercial trucks are the safest they have ever been, these new safety systems are expensive. And the 12% federal excise tax, levied on certain trucks and trailers at the point of sale, is a major disincentive for new truck buyers looking to adopt these advanced safety technologies.

Trends in Used Equipment Values
According to a June 2019 report issued by J.D. Power, the May Class 8 market for used trucks was basically the opposite of April’s, with pricing down and volume up in the auction channel. “As predicted, used truck pricing remained strong in the first half of the year,” said Chris Visser, commercial truck senior analyst at J.D. Power Valuation Services. “This month’s lower pricing should be indicative of what to expect in upcoming months, but in an economy heavily impacted by policy uncertainty, forecasting is more difficult than in more stable times. The freight, financial, and manufacturing sectors are pointing to slowing growth, while the consumer sector remains strong.” In addition to downward pricing and higher volume, the report noted a steady to mildly downward retail channel and a mixed medium duty market.

In the market for new vehicles, orders for Class 8 trucks plummeted in July as fleets continue to take a wait and see approach to 2020 equipment. Frontier Communications Corporation (FTR), a company that tracks and analyzes data for the trucking industry, recently reported that preliminary North American Class 8 orders for July totaled 9,800 units, falling below a 10,000-unit threshold that has not been seen since 2010. The FTR report also stated that July orders were 24% below an already soft June, and 82% below the same period last year. “Potentially higher equipment costs, uncertain demand, and enough available capacity in the market are keeping order activity at bay,” said Jonathan Starks, an analyst with FTR.

At Irontrax we are also seeing more bankruptcies in the trucking industry as weaker motor carriers continue to fail. As a result, more inventory is flushing into the secondary market, thereby contributing to the downward movement in pricing.