ATA’s Costello provides outlook on freight economy

In a wide ranging, presentation at the recent NASSTRAC (National Shippers Strategic Transportation Council) Shippers Conference and Transportation Expo in Orlando, Fla., Bob Costello, chief economist at… By Jeff Berman, Group News Editor

May 10, 2016

In a wide ranging, presentation at the recent NASSTRAC (National Shippers Strategic Transportation Council) Shippers Conference and Transportation Expo in Orlando, Fla., Bob Costello, chief economist at the American Trucking Associations, provided both a general assessment of the over all economic outlook, as well as an outlook specifically focused on the freight, or, trucking economy. (This piece covered his take on the general economy, with some freight takeaways mixed in, while today’s piece will focus more on things as they relate to trucking.)

Costello said that whether one is a shipper or a carrier, it is plain to see capacity has loosened, adding that it in sync with a slowdown of Class 8 tractor sales. This served as a precursor to a laundry list of key general themes in the trucking sector, including:
-truck freight volumes weakened considerably throughout 2015, with 2016 growth expected to remain uneven by sector and weak through the first half of 2016;
-capacity loosened due to slower demand and more capacity, adding that the industry brought on more over-the-road capacity mostly in the form of small TLs and LTLs in 2015, but tractor counts remain well-below all-time highs. Some sectors are going to add trailers to boost tractor-to-trailer ratios, and some capacity will tighten heading into 2017 as volumes improve and the ELD (electronic logging device) mandate grows closer;
-revenue per mile grew in 2015 for contract freight but weakened throughout the year, and the spot market is very soft;
-a combination of pay hikes and oil field weakness helped a little in the short-term, but it is not a long-term trend; and
-fleets continue to see rising costs excluding fuel, with fleets using fuel savings to pay drivers more and to replace trucks and add trailers

“There are some different ways to look at things,” he said. “In 2014, there was an acceleration of freight, and in 2015 there was a deceleration of freight, including, in some cases, business contraction.

Looking at different types of trucking categories, Costello said dry van freight was flat in 2014 and 2015 and is up slightly year-to-date in 2016, while refrigerated freight is up, and LTL is up around 1 percent this year, too.

On the capacity side, he explained that even through capacity was tight in 2014, total sector capacity dropped by 3 percent.

“What really pushed this was the driver shortage,” he said. “Carriers were asking why they had a 500-truck fleet, with only 425 seated, leading to excess capacity. During the Great Recession, we saw carriers right-size their fleets to the amount of freight that was available, with fleets in 2014 right-sizing their fleets to the number of drivers they could obtain. In 2015, we saw a little bit of an increase in the tractor count, with fleets in 2014 and 2015 starting to boost driver pay, coupled with the energy sector falling off and leading to more available drivers. But when things pick up in energy, the question is will those drivers stay in an over the road environment or will they return to the energy sector?”

Given the decent pay levels for energy sector drivers, he said it stands to reason a fair amount will head back. 

And he explained that current truck counts are down for most publicly traded truckload carriers, while it is a bit different on the LTL side.

“It is easier to find a driver in the LTL space,” he said. “The drivers are making good money and are home more often. And the sector came off a tough 2014, where LTL carriers benefitted from tight truckload capacity, with spillage of traditional truckload freight into the LTL space. And now we are seeing some capacity coming out of the system while not adding to it.”

Costello also addressed truck production in terms of miles-per-truck on a monthly basis, which he noted has a big impact on profitability in the industry,

During the Great Recession, the number of miles per month declined from 10,0000-plus miles per month in 2007 to around 7, 500 in 2015.

“What we have not seen is the recovery of it at all,” he said. “Some of this has to do with the retail supply chain, where the average length of haul fall tremendously over the years. Another part is regulations like ELD. Sometimes we opposed regulations, but I have yet to find a regulation that boosts productivity but in most cases it is neutral. This means at best…you need more trucks to haul the same amount of freight.”

And drivers also impact this as well, he said.

“Drivers, and I don’t blame them, want to get home more often,” he said. “When you get home more often, you are not getting as many miles. There are a whole host of things impacting productivity, but we have not seen any real recovery.”

And when looking at the ATA’s driver turnover numbers, which tend to hit 100 percent or more every quarter, he said that if drivers stayed at one job for a minimum of 90 days, turnover rates would drop in half. 

But when drivers are in high demand, they tend to bounce around from carrier to carrier, as evidenced by ATA data that said truckload driver turnover averaged 93 percent, with turnover at large truckload carriers in the fourth quarter averaging 103 percent. 

“We, as an industry, by 2024, need to bring in nearly 900,000 new drivers that are not in the industry today,” he said. “The number one reason is the retirement of existing drivers. The natural market reaction is to raise wages, but there are many other causes of the driver shortage, with demographics being one of them. The average age of a truck driver today is 47, and the average age of the U.S. worker is 42. 47 percent of all workers are female, and 6 percent of all truck drivers are female. Even though jobs are available, there are regulations that are hindering productivity and requiring more trucks to haul the same amount of freight. There is no one solution.”