Out of the Woods?

By Jami Jones
senior editor


Freight was bouncing back. Rates were on the rise. Things were looking good for trucking in the early stages of the second quarter. And just about the time some were ready to breathe a sigh of relief, an oil rig exploded in the Gulf.

On April 20, news spread of the explosion. The news wasn’t good and the fear of the impact on fuel prices crossed the minds of all truckers. In the days and weeks that followed, the well continued to spew more than 200,000 gallons of oil a day into the Gulf of Mexico.

The spreading oil slick caused many to fear that trucking’s spurt of economic growth would be sidelined by a disaster expected to eclipse the Exxon Valdez spill in Alaska years ago.

That’s not likely.

While the spill is expected to be catastrophic on the environment and damage regional economies, it’s not likely to hobble economic growth nationally – especially in trucking.

In the clear?
Disasters, natural or otherwise, can derail economic recovery. It’s a fact that must be recognized. However, that’s not the case with the oil spill.

The rig that exploded was drilling for oil. It was not harvesting oil for the U.S. fuel market; we didn’t lose any oil supply we were already counting on. If the spill spreads, it could hamper refinery or offshore operations. But those will be isolated cases, not like the impact on operations that hurricanes Katrina and Rita had.

Cargo that would normally move through the Gulf can be rerouted to other ports – another lesson learned during the Katrina-Rita aftermath.

And, as with any recovery effort, as the toll of the oil spill is assessed and realized, trucking will play a role in the recovery.

Despite oil spill concerns – and barring any other sort of disaster – things are looking up for trucking.

Economics 101
Long story short – a lot of companies went out of business during the recession and those still in business are going to benefit.

It all comes down to supply and demand. For truckers and trucking companies, this economic principle is going to play out in their favor for the next several months.

During the recession, a record number of trucks were pulled off the road, according to Donald Broughton, managing director for Avondale Partners LLC.

The longtime industry analyst has tracked trucking “failures” for years. His research shows that during the recession approximately 12 percent of the industry’s trucks were pulled from the road because of companies shutting down.

Unlike in other recessions, trucking companies that remained in business did not add any trucks to their fleet; in fact, they pulled trucks off the road.

The result, according to Broughton, is that approximately 15 percent of all the trucks operating before the recession hit are off the road.

So, that means that the “supply” of trucks is “tight.”

On the demand side of the equation, consumer purchasing is rebounding. While stores have not increased their inventories, they are no longer downsizing inventories. More and more freight is being ordered to keep consumer supplies on the shelves.

Production levels are ticking upward, increasing the need for raw and production level materials – helping the flatbed segment along.

Freight has actually exploded according to some reports. According to Transcore, freight jumped a phenomenal 259 percent in March. Now, that’s compared with March 2009, when things were dismal. But, add that to abnormally high freight volumes in January and February, and it was a good first quarter.

The jump in freight and the lack of trucks available to haul it have driven rates upward at a steady clip.

“The rate you’re going to be able to charge next week will be more than the rate you’re charging this week,” Broughton said.

He went on to say companies that sign contracts locking in rates right now are “crazy.” The potential for continued rate growth has all the indicators of lasting past the summer.

Jumping on the bandwagon
Usually, one would assume that as freight comes roaring back and there’s money to be made, companies will buy more trucks and hire more drivers.

Eventually that will happen. But two big concerns are keeping that on hold for now.

Uncertainty over 2010 engine technology and over the impact on the driver pool by CSA 2010 has companies very skittish.

Time will eventually calm nerves. It will take real-world testing on 2010 engines and CSA 2010 going live before the real impact on company safety ratings by driver performance can be analyzed.

Between shutdowns and companies fretting over CSA 2010, there’s a real driver shortage in the making. FTR Associates, based in Nashville, estimates the industry will be short 100,000 drivers this year and up to 400,000 by 2015.

So in terms of new trucks and new drivers, the trucking industry as a whole is sitting tight.

In the end, things are and will continue to get better – for everyone.

Companies and owner-operators who weathered the recession storm are going to see more, better paying freight. Qualified drivers in the industry won’t be threatened by steering wheel holders as they have in the past, and should see pay rates go up as companies cannot afford to lose safe, seasoned veterans.

Profit and real paychecks are no longer wishful dreams. They’re quickly going to become the new reality in trucking. LL