Trucking Industry Review, Fall 2015

Trucking Industry Statistics

Industry Revenue: According to the American Trucking Association (ATA), in 2014 trucking revenue rose 2.6% to a record $700.4 billion.

Trucking Tonnage: In July 2015, trucking tonnage rose to its second highest reading on record.

Employment: The trucking industry gained another 2,800 jobs in July 2015, nearing a nine-year employment high.

10 Largest Logistics Companies in North America Based on Net Revenue: UPS Supply Chain Solutions, J.B. Hunt Transport Services, Ryder Supply Chain Solutions, C.H. Robinson Worldwide, Expeditors International of Washington, Exel, Ceva Logistics, AmeriCold Logistics, Uti Worldwide and FedEx Corp.

Hot Topics

Continued Growth Predicted in Freight, Trucking: In July 2015, the ATA released a report projecting a nearly 29% increase in freight volumes over the next 11 years. The association’s Chief Economist attributed this to continued population growth, expansion of the energy sector and foreign trade. Forecast, collaboration between the ATA and IHS Global Insight, projects a 28.6% increase in freight tonnage and an increase in freight revenue of 74.5% to $1.52 trillion in 2026. This year’s Forecast includes the following near-term projections for 2015 and 2016, as well as estimates for changes in the size of the Class 8 truck fleet.

  • Trucking will continue to be the dominant mode of freight transportation, although the share of tonnage it hauls will dip slightly. Even though truck tonnage is expected to grow over the forecast period, trucking’s share will dip from 68.8% in 2014 to 64.6% in 2026.
  • Due to tremendous growth in energy production in the U.S., pipelines will benefit more than other modes. Between 2015 and 2026, pipeline volumes will increase an average of 10.6% per year and their share of freight will increase from 10.8% in 2015 to 18.1% in 2026.
  • While the share of freight tonnage held by railroads will drift down from 14.2% in 2015 to 12.3% in 2026, intermodal freight will be the second fastest growing mode at 4.5% annually through 2021 and increase 5.3% per year thereafter.
  • The number of Class 8 trucks in use will grow from 3.56 million in 2015 to 3.98 million by 2026.

Operating Costs Benefitting from Lower Oil Prices: Trucking companies are experiencing significant declines in operating costs as decreasing crude oil prices result in lower prices for diesel fuel. In the U.S., retail diesel fuel prices, which averaged $3.82 during 2014, hit a four-year low at the end of the year. Diesel fuel prices are projected to average only $3.07 per gallon in 2015. According to Bloomberg, this reduction could result in diesel surcharge savings of up to $24 billion. As fuel surcharges decline, truck shipments will become more cost-effective for shippers. The decrease in fuel surcharges was a significant contributor to the record level of trucking industry revenue experienced in 2014.

YTD Truck Tonnage Index Posts 3.4% Year-Over-Year Gain: In July 2015, the ATA reported that its advanced seasonally adjusted For-Hire Truck Tonnage Index decreased 0.5% in June to 131.1, following a revised gain of 0.8% during May. An all-time high of 135.8 was reached in January 2015. Year-to-date through June, compared with the same period last year, tonnage was up 3.4% indicating continued growth in the retail, manufacturing and retail sectors. Trucking serves as a barometer of the U.S. economy, representing 68.8% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled almost 10 billion tons of freight in 2014.

Tighter Truck Emission Guidelines Proposed by Obama Administration: The U.S. Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration recently proposed rules to significantly curb medium and heavy-duty truck emissions. The proposed rules would establish the first federal standards for trailers and would strengthen existing regulations of tractors, heavy-duty pickup trucks and work vehicles. If adopted, the rules would impact model year 2018 through 2027 trailers and model year 2021 through 2027 tractors. Older trucks and trailers would likely not be affected, thereby increasing the desirability of this equipment and its value if the regulations are adopted. On the other hand, the price tags of vehicles equipped with technology to meet the new rules would increase by an estimated $10,000 to $12,000. The proposed changes, which are open to public comment, are expected to be finalized in 2016.

Continuing Driver Shortages Resulting in Higher Wages: According to a report issued by First Research, a leading provider of industry intelligence tools, the expansion in the U.S. trucking industry is attributable to a number of factors led by increased consumer spending and a rebounding construction sector. In 2009, U.S. truck transportation employment decreased 8.7% as economic contraction which occurred during the recession caused trucking companies to reduce staff. However, with improvement in the economy, truck transportation employment has increased each year since 2011. As a result, the shortage of drivers has escalated, leading to significant wage increases. The employment turnover rate at both large truckload fleets and smaller carriers was 95% to 96% in the fourth quarter of 2014. The current shortage of drivers is estimated to be between 35,000 and 40,000. Wage and benefit increases will likely continue to rise, thereby offsetting the benefits derived from lower diesel fuel prices.

Driver Hair Testing Options Moving Forward: In an August 24 letter, ATA President and CEO Bill Graves asked Congress to move forward with legislation that would allow fleets to use hair samples as part of a federally required program of drug screening for commercial drivers. He noted that hair testing is an effective tool for identifying drug users due to its long detection window and because it is difficult for donors to beat the test. Graves cited Fortune 500 companies like General Motors and Shell Oil, as well as leading trucking companies including Knight Transportation and Maverick Transportation, who already use hair testing, but said the cost of redundant mandatory urine tests prevents more fleets from using this widely accepted drug testing method. “ATA is aware of thousands of truck drivers who have tested positive for illegal drug use on hair tests and have obtained driving positions with other carriers because they were subsequently able to pass DOT-required urine tests,” Graves said. “Several of these drivers have had crashes and, of course, future ones are likely as a result.” A survey of just four large carriers revealed that, this year alone, 706 drivers failed pre-employment hair tests but passed urine tests.

Trends in Used Equipment Values

During the past two years, the trend toward the purchase of used equipment by those in the trucking industry (especially smaller companies) has been particularly strong. The prices that buyers have been willing to pay for trucks manufactured prior to 2012 peaked around the end of the second quarter of 2015 following exceptionally high levels during the preceding six-to-twelve-month period. The desirability and value of this used equipment stems from emission problems encountered in more recent models in which the engines were modified to comply with new government regulations. The EPA finalized emission standards for light-duty vehicles (2012-2016 model years) in May of 2010 andheavy-duty vehicles (2014-2018 model years) in August of 2011. Also contributing to the popularity of used vehicles is the considerable increase in the price of new trucks, largely due to the additional manufacturing costs incurred to comply with the new standards.

 

A prime example of the emission problems referred to above are those that have been experienced by the purchasers of Navistar’s 2008-2013 model trucks equipped with the MaxxForce Advanced exhaust gas recirculation (EGR) diesel engines. According to Bloomberg, Navistar sought to comply with federal engine emission rules that took effect in 2010 by using an EGR technology that funnels emissions back into the engine’s cylinders as a way of lowering the nitrogen oxide that is released. The technique did not reduce emissions sufficiently to meet the U.S. rules, which led to the company paying a penalty of nearly $2,000 per engine. The emission problems have also led to multiple lawsuits filed against Navistar as a result of significant downtime and repair costs. Complaints allege, among other things that Navistar actively concealed that its 2008-2013 model trucks equipped with the MaxxForce engine referred to above contain a defective emission system that causes the trucks to suddenly and repeatedly break down.

Although the values of used equipment have fallen slightly since the end of the second quarter of 2015, this is not completely unexpected considering the uncertainties and conservative spending that generally accompany the start of an election campaign period. It is likely; however, that the strong desire for used equipment will continue in the foreseeable future in light of the tighter truck emission guidelines recently proposed by the Obama administration, which are expected to be finalized in 2016. (See related discussion under the Hot Topics section)

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