Trucking operators of all types are coming off a record year, benefiting from soaring demand and tight capacity brought on by the e-commerce boom. Will the party continue through 2022?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
Truckers reaped record profits in 2021, benefiting from surging freight volumes driven by an industrial economy on the mend from the pandemic, consumers’ continuing thirst for e-commerce purchases, and supply chains waiting for freight to come off ships and clear congested ports.
Shippers are scrambling for trucking capacity at nearly any price. As 2022’s first quarter comes to a close, demand for trucking services of all types—full truckload, less than truckload (LTL), and last mile—continues to race ahead, with capacity struggling to catch up, if at all. Rates are on the rise, a function of too much freight competing for too few trucks. And then there are increasing costs for fuel, driver pay, regulatory mandates, increasingly expensive equipment, and other rising operating expenses.
To a person, trucking executives and industry analysts interviewed for this story don’t see any letup in the tight market—and its challenges—with some expecting current market conditions to extend into 2023. The primary issues: a worsening driver shortage, continued port congestion and supply chain hiccups, and the inability of tractor and trailer manufacturers to meet demand for new units.
In a somewhat counterintuitive trend, all this has occurred against a backdrop of declining shipment volumes being handled by truck lines. U.S. Bank, in its fourth-quarter 2021 National Shipments Index, reported a declinein freight shipments of 2.4% from the third quarter of 2021 and a year-over-year drop of 5.1% from the fourth quarter of 2020. Yet for the same period, the bank’s National Spend Index, which measures freight expenditures, increased 8.4% from the third quarter and surged 20.2% from the fourth quarter a year ago.
LESS FREIGHT, MORE MONEY
Why are truck lines making more money hauling less freight? It all comes down to their inability to bring on enough new drivers and new equipment to meaningfully increase capacity. They simply can’t put more trucks on the road to meet demand. That’s tightened capacity even more, exacerbating pressure on already skyrocketing rates. The result: fleets running the same or fewer trucks and getting significantly more revenue for every hundred pounds of freight they carry. They are maxing out utilization of whatever capacity they have.
Truckload carrier Schneider’s recent fourth-quarter 2021 results clearly illustrate this dynamic: The company’s average weekly revenue per truck was $4,521, up 18% from last year, while the average number of trucks operating declined 5.3%.
“[Truck lines] have certainly started off the year hot,” observes Jason Seidl, managing director at investment firm Cowen and Co. “Demand will hold, barring any macroeconomic shocks. Shippers have been and continue to be burned by [inventory] stockouts,” and as a result, Seidl says, retailers are intent on building up inventories to levels surpassing last year’s. “That will continue the demand cycle for transportation,” he notes.
WANT A DRIVER? EXPECT TO PAY
What’s the number one thing industry players are asking for? For shippers and 3PLs (third-party logistics service providers), it’s reliable capacity and warehouse space; for carriers, it’s trucks, trailers, and drivers. Seidl says industry contacts are telling him that trailers ordered now won’t be delivered until 2023. “And for certain Class 8 trucks, I had one client tell me the OEM told them its Class 8s are going to [cost] $35,000 more—but I can’t tell you when you’ll get them.” He adds, “I haven’t seen an equipment market like this in my entire career, and I started [in the industry] in 1993.”
In Seidl’s view, the biggest issue remains the driver market. “Pay will continue to go higher,” he predicts. “Some carriers last year raised pay multiple times. It’s like the old U2 song: You are running to stand still,” he remarks.
Kevin Sterling, senior market strategist at LTL carrier XPO Logistics, believes the industry is in a unique market cycle, driven by a number of factors that are underpinning solid demand that won’t weaken anytime soon. “I’ve been around the freight industry for over 20 years. I’ve never seen an environment like this in the LTL industry,” he says. “E-commerce is a tailwind, and shippers are building inventories. [They’re] focused on service and reliability, and as a result, are willing to pay a premium. So, we continue to see a firm pricing environment for LTL,” he notes.
In response, Sterling says, XPO Logistics, the nation’s third-largest LTL carrier, is investing—in expansion of dock-door capacity, its trailer fleet, and drivers. The company is “adding doors to our terminal footprint in the markets where we see higher customer demand,” with plans to add 450 doors this year and 450 more in 2023 at strategic locations across its network. Unique to its competitors, XPO also operates a company-owned trailer manufacturing facility and is “investing significantly to increase our production capacity. We expect to nearly double the number of trailers we will produce in 2022,” Sterling adds.
Lastly there is XPO’s in-house driver training school network, operating from 130 locations. Sterling says the training program takes dock workers and others who want to become drivers, “and within seven weeks, students can go from the classroom to the cab with a CDL [commercial driver’s license].” He says XPO graduated about 900 drivers from the program last year and is looking to double that in 2022.
FULL VERSUS FINAL MILE
John Hill, president of Pilot Freight Services, which is a major player in the last-mile market and is currently in the process of being acquired by containership giant A.P. Møller-Maersk, also sees little if any letup in demand for all types of trucking services. Consumers, still spending at strong levels, are driving “e-commerce that just does not stop,” he notes, adding that the marketplace continues to see more and more companies diving into online sales—and leveraging last-mile delivery to seal the deal.
While Hill thinks big e-commerce players might not match the accelerated growth rates of last year, enough new companies are coming in to pick up the slack. It seems like startup businesses today are taking a reverse approach—beginning with online sales at the outset, building a beachhead there, and then expanding into physical store sales.
E-commerce relies to a large degree on one- and two-day last-mile delivery, which to Pilot are two distinct services: full mile and final mile. Full mile is when “someone buys a canoe at an e-commerce giant. It goes from a DC in Ontario, California, to a home in Albuquerque. We pick it up at the DC, linehaul it into New Mexico, then cross-dock it for final-mile delivery to the home.”
A true final-mile shipment, in his view, is when “you buy a refrigerator at a big-box consumer appliance retailer in Oakland, then we pick it up there and deliver [and install] it in your home in San Francisco.”
Pilot also is investing to beef up its network capacity and resources, he says. The company last year bought American Linehaul, a truck line that participates in what Hill calls “the middle mile” segment. Pilot had previously outsourced that piece to another provider. “We folded that capacity into our network, so we’d have 100% control over the service,” he notes. “We’re controlling our own destiny: pricing, capacity, and visibility.”
IS THAT A BOT AT MY DOOR?
Another interesting piece of the final-mile puzzle is the emergence of autonomous delivery vehicles (ADVs), those ubiquitous little self-driving delivery carts that motor around town on their own and show up at your doorstep with a takeout order, groceries, or a prescription drug refill.
Companies like ADV manufacturer Nuro are moving into the third generation of their vehicles, testing in many U.S. cities and on college campuses, and teaming up with the likes of FedEx, Chipotle, Domino’s Pizza, and 7-Eleven. Last April, Nuro started autonomous delivery of Domino’s pizzas in Houston and with 7-Eleven in Mountain View, the heart of California’s Silicon Valley.
“We are seeing demand for on-road autonomous delivery across all types of industries,” says a Nuro spokesperson, including “food, grocery, parcels, convenience, and prescriptions.”
According to the company, its third-generation vehicle is about 20% smaller in width than the average passenger car. That smaller footprint “gives bicyclists and pedestrians more room to maneuver alongside the bot,” said the spokesperson. The vehicle can fit about 24 bags of groceries and handle almost 500 pounds. It also has modular inserts that allow for cooling down to 22 degrees F and heating up to 116 degrees F, “which means sodas stay cool and pizza stays warm,” the company noted.
Nuro started construction on a $40 million “end of the line” manufacturing plant in Nevada last November, including a “world-class closed-course test track.” The facility is expected to be fully operational later this year.
HANDICAPPING THE FED
How are the trucking markets reacting to higher inflation and the prospect of tighter credit as the Federal Reserve looks to raise interest rates? Does that foreshadow weaker volumes and softening demand?
Not likely, say most industry watchers. No matter what happens with inflation or interest rates, “we still have disruption in the supply chain all along the way, and [as an industry,] we are still short about 90,000 drivers,” notes Jim Fields, chief operating officer at LTL carrier Pitt Ohio. “We are all competing for the same people, whether drivers, dock workers, or warehouse workers, and today there just are not enough to fill the jobs we have. It’s extremely competitive.”
With inventories at all-time lows and the economy continuing to display sustained growth, Fields expects trucking demand to remain firm throughout the year. As an LTL carrier, Pitt Ohio’s drivers are home most every night, not spending weeks on the road. Fields says his focus is more on retention than recruiting new drivers.
“We are doing a lot of different things to achieve that, to be a preferred carrier. Competitive pay and benefits are important, but if you don’t back it up with a good workplace culture and communication, driver support, engagement, and respect, you’ll lose the battle. We have to take care of our employees,” he says. Shippers want responsiveness and consistency, and that comes from reliable employees who are recognized and celebrated for taking care of customers, he adds.
“It’s an extremely unique time in the trucking industry,” Fields remarks. “I’m not sure I see an end game to the current market of high demand and tight capacity [this year].”
NO SILVER BULLETS
There is no silver bullet that’s going to solve the capacity crunch, and no truck line is immune from the challenges of the driver market. The number of experienced drivers retiring continues to increase, and not enough younger drivers are entering the profession to fill the gap. By one industry estimate, some 25% of external driving schools that closed during the pandemic have not reopened.
“We’ve seen a higher-than-normal number of drivers choose early retirement during the pandemic, creating more driver openings than in recent years,” says Steve Sensing, president of global supply chain solutions for Ryder. “Wages have increased significantly, and the demand for e-commerce has created more opportunities for drivers.”
Sensing says Ryder is making additional investments in recruiting as well as taking some innovative approaches to engaging drivers. “We formed a council of our professional drivers to advise us on what is most important for recruiting and retention. We’re working with various organizations to recruit women and veterans,” he notes.
Like most carriers, Ryder also is evaluating its compensation and benefit packages to ensure they are competitive and attractive. Other initiatives include looking at flexible work schedules, routes that keep drivers closer to home, more time off, and “even things like equipment and technology designed to make the driver’s job easier and safer,” Sensing adds.
He notes as well that shippers evaluate 3PLs in terms of technology investments and “what’s going to keep them ahead of the game.” To address that need, the company launched RyderVentures, a venture capital fund that will invest $50 million over the next five years in “companies pushing the boundaries and creating solutions to the [supply chain] disruptions of today and the future,” Sensing says. The fund is focusing on technologies for e-commerce fulfillment, asset sharing, next-generation vehicles, supply chain automation, and data analytics.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”