2008 TRUCKING PERSPECTIVES What can be written about the challenges facing the U.S. trucking industry that hasn’t already been chewed up and steamrolled over countless times? Rising fuel prices, green equipment mandates, shifting truckload (TL) and less-than-truckload (LTL) demands, mode competition, excessive capacity, and end-user demands have carriers checking their side-view mirrors for lost business, assets, and competitors discarded along the way. For an economy inherently tied to over-the-road commerce, these objects in the mirror are closer than they appear. Numerous failures, including Alvan Motor Freight and Jevic Transportation, have cast a pall over the trucking industry at large. But with time, distance, and perspective, carriers are managing these challenges and turning their attention to what lies ahead, chasing the tail lights of a sputtering economic engine that is showing signs of turning over. What hasn’t already terminally stalled truckers is making them leaner, greener, and better prepared for a return to normalcy. by Joseph O’Reilly September 2008 • Inbound Logistics Stateside shippers and consignees navigate a less FIGURE 1 Reported Increases in predictable and potentially ominous road. Institutional Motor Carrier Sales and Profitability, 2007 fuel costs and the threat of a capacity crunch when the economy picks up raise red flags about their ability to Sales Profits 2008 adapt and shift gears. Many motor freight carriers are 39% 39% restructuring go-to-market strategies, streamlining fleets, and investing in value-added logistics offerings; others 30% 26% are vanishing into a fuel-induced ether. For shippers, the consequences are clear: capacity is disappearing fast; 17% and working closer with carriers, identifying strategic 9% supply chain process improvements, and building long- term partnerships are critical priorities. Inbound Logistics’ annual Trucking Perspectives brings these two unique viewpoints under one microscope. First, we polled motor freight carriers to 5% Increase Break-even 5% Increase Break-even 10% Increase or Decrease 10% Increase or Decrease find out how they are responding to market conditions SOURCE: Inbound Logistics Trucking Perspectives, 2008 PERSPECTIVES and shipper expectations, expanding and consolidating service offerings, geographical coverage, and IT capabilities to manage current and future demands. By contrast, 30 percent of surveyed carriers report Second, we canvassed motor freight buyers to identify profit growth at five percent, nine percent cite growth and comment on the challenges they face in today’s of 10 percent, and 39 percent indicate static or lost market as well as gauge their perspective on the profits. Importantly, eight percent of surveyed truckers importance of driving collaborative partnerships in the document losses in excess of 20 percent. face of cyclical economic U-turns. With diesel prices approaching $5 a gallon in certain Complementing this bilateral, end-to-end panorama of markets this past summer, dwindling access to credit, TRUCKING the U.S. domestic trucking industry, our annual Top 100 and lower freight volumes, cost pressures throughout Motor Carriers list presents a data-driven drill down of the supply chain took their toll on motor freight carriers. carriers we deem the best at delivering the goods. From Trucking companies overwhelmingly cite rising fuel regional, refrigerated LTL players to asset-based global costs (91 percent) and price pressures from customers logistics service providers, our annual directory presents and competitors (70 percent) as their two greatest a diverse class of trucking companies that can go to the challenges. Last year, price pressures (79 percent) ends of the earth or deliver direct to home, with unique and rising driver-related costs (74 percent) were top service and speed demands in mind. concerns for carriers. At the same time, increasing consumer and regulatory Divided HighwAY Begins influences have legislated the trucking industry to Compared to previous years, shippers have had comply with new green standards. As evidence of markedly more leverage vetting and selecting carriers this emerging trend, 41 percent of carriers report given 2008’s soft market conditions. Sluggish environmental mandates – including new equipment, consumerism and freight demand have left plenty of speed restrictions, idling protocol, and bio-fuel capacity on the table, forcing many trucking companies usage – as a challenge, and 38 percent cite equipment to eat fuel and other operational expenses to attract costs as an obstacle they face. Insurance and liability existing and new business. costs (39 percent), driver-related costs (35 percent), and Building on last year’s data, when recessionary taxes, fees, environmental, regulatory, and compliance indicators began to manifest themselves in earnest, cost increases (26 percent) round out top concerns. this trend is borne out in a visible disconnect between While freight demand has waned and temporarily carrier sales and revenue growth. Thirty-nine percent mitigated capacity and labor shortages, fuel surcharges of surveyed trucking companies report growing sales by are equal-opportunity discriminators, impacting large five percent, compared to 48 percent of respondents and small carriers alike. Smaller companies, however, last year; 17 percent increased sales 10 percent (26 have far less critical mass and resources to absorb percent in 2007); and 26 percent indicate break-even or or pass along rampant price hikes compared to larger negative growth (SEE FIGURE 1). operators that can flaunt value-added service offerings Inbound Logistics • September 2008 as collateral. Regional and local FIGURE 2 Did you switch taking advantage of these third- haulers face the unenviable task carriers recently? party networks to identify more of eating fuel costs and profits competitive rates, as well as pick up simply to keep shippers in sight and backhaul capacity in markets with 2008 competitors at bay. a considerable imbalance between Still, more carriers documented inbound and outbound freight moves. price pressure as an outstanding 51% 49% Such a changing dynamic may also concern last year amid fears that an No. Yes. suppose that opportunities to find impending economic downturn might better pricing (through brokers) give shippers more incentives and have momentarily trumped speed fewer reservations to shop around for and reliability (working directly with better freight pricing. This may have carriers) as primary considerations. simply been a gut reaction that never For example, businesses that have materialized as shippers became FIGURE 3 Which is more important greater visibility upstream in the acclimated to market conditions. to you, your relationship supply chain may be leveraging this Alternatively, it might suggest with your carrier or with control to more cost effectively and PERSPECTIVES some carriers have found success your broker/intermediary? efficiently match speed-to-market convincing customers to consider the demands with available capacity. efficacy of long-term partnerships The fact that brokers say they can rather than short-term, price-driven 30% generally handle a wider variety of hookups. Regardless, this remains an Equally freight and are better attuned to ongoing challenge for carriers. important 53% the overseas freight segment may In fact, shippers are more likely to Carrier provide shippers better service switch carriers than they were last 17% and incentive than common carrier year, according to IL’s poll. Nearly Broker/ representatives, according to one TRUCKING half (49 percent) acknowledge intermediary shipper respondent. making a change recently, versus Despite this anomaly, the majority 45 percent in 2007, and less than SOURCE: Inbound Logistics of surveyed shippers still value direct Trucking Perspectives, 2008 40 percent in 2006 (SEE FIGURE 2). One relationships with carrier partners. “I respondent reports that his company don’t like to use brokers because I dropped a carrier after it changed the freight class on cannot get the service I need from them. I have a supplier a frequent order, then retroactively re-billed for past that uses a broker and it continually scrambles to cover invoices. Those that changed trucking companies cite our loads,” explains another shipper. “When I deal poor service, high prices, and more innovation by other directly with a carrier I have access to a management carriers as a primary reason for making a swap. With team that has ownership in our mutual success.” transportation prices as they are, reliability and service While current market conditions favor shippers in expectations have risen accordingly, and carriers that terms of vetting carriers per their own price and service can’t deliver have become disposable assets. requirements, an economic rebound will likely push control back to the trucking industry. Over the past few POint OF Interest years, carriers and shippers have taken turns playing Another interesting trend line diverging from last the collaboration card as supply chain bullwhips such year’s data is a growing shipper preference for brokers. as capacity, labor, and pricing oscillated according to While freight transportation buyers still overwhelmingly economic cycles. A sharp decline in available assets value their relationships with carriers (53 percent), has shippers wary of what freight capacity will be like this represents a near double-digit drop from 2007 when volumes pick up, with 61 acknowledging