A heavyweight panel of trucking industry executives opined on a variety of issues earlier this month at the Wolfe Research Global Transportation Conference in New York, and tight capacity was the theme of the day. Some of the highlights of their hour-long discussion are summarized below: (Freightwaves was not present at the session, but listened to the audio of it, which can be accessed online.)
ELDs
Derek Leathers, the CEO of Werner Enterprises, revealed some healthy skepticism about a recent statement by FMCSA administrator Raymond Martinez that a check of millions of trucks revealed ELD non-compliance in just 1 percent of the trucks surveyed. While praising Martinez personally, he questioned whether the data the administrator received was truly accurate. “The apple gets polished as it passes upstream” is how Leathers put it. He said that “anecdotally,” his staff’s discussion with enforcement officials in Colorado suggested a non-compliance level in that state of 9% and Arizona had 7%. “So I think it’s bigger than one percent,” Leathers said.
Leathers said Werner has brought in local officials to their terminals to discuss their approach to enforcement. The hard April 1 data for enforcement was not going to be all that hard, Leathers said, instead being primarily the date at which the presence of ELDs in the truck was going to be enforced. “That was not the date they were going to dig deeper and look at a 7-day recap, and what you did yesterday,” he said. “The first step is, are you connected, and the second level compliance is when they start doing safety checks is the deeper dive. I believe there’s tightening to come.” Throw that in with such things as hair follicle testing that could limit capacity “and I think that may ELDs pale in comparison,” Leathers said.
David Parker, the chairman, president and CEO of Covenant Transportation, said his company believes ELDs have reduced miles traveled by about 9 percent. His company’s brokerage group is repeatedly talking to contracted drivers who are now stopping before they would have in the past and saying, “I’m out of hours.”
But James Reed, the president and CEO of USA Truck, said he had a “slightly contrarian view.” Surveys his company did first found that 25 percent of the industry would be leaving their jobs as a result of the ELD mandate; a follow-up survey last November saw that number drop to 17 percent. He cited the Martinez number as a sign the adoption had been smoother than those earlier surveys might have anticipated.
Still, he said, there is one factor that has not been taken into account: insurance providers. “If they stop doing insurance renewals for those trucks that are not compliant, I think that is where you will see a capacity crunch really manifest itself,” Reed said. Such a push yet on compliance to reveal those numbers has not really occurred yet, he added.
Driver Squeeze & cost inflation
Tim Kohl, the president of Marten Transport, said the squeeze on drivers is structural but also not equally as tight across the board. Intermodal and dedicated driver jobs can be paid less than those for whom “we’re asking to do a lot more,” like OTR drivers. “So in all your jobs, you’re not going to get people home at night, so you’ve got to pay more,” Kohl said. “You’re definitely seeing a change out there with older drivers retiring and new drivers wanting more balance in their life.”
Leathers said that one upside to driver turnover is that newer drivers can be brought in at a lower rate. “You’re not going to lower existing driver wages and get away with that,” he said. But still, the capacity squeeze is so significant that paying new drivers less than experienced drivers is merely hypothetical. “There’s no economic data that indicates overcapacity is coming anytime soon, so we’re going to focus on our drivers and what they’re worth,” Leathers said.
Shelley Simpson, the executive vice president of J.B. Hunt, said the cost inflation her company is facing is across the board: drivers, technical and maintenance staff and the back office. Costs will continue to move up for these categories, some of them in the double digit range.
Parker laid out what Covenant had done with driver pay: an increase for its transport sector in February of about 5%, another 5% in May, “and there will be another one in two to three months.” Its refrigerated division saw an increase of about 10% in March. “I’m not sure we won’t be having more,” he said.
The market
No disagreement here: the market is strong. All the executive painted a picture of a market that slowed a bit in early April, which they said was likely in part due to the slow start of spring weather—the sluggish start to the beverage season was cited by a few—but which has snapped back in May.
Leathers said Werner is sticking to an estimate of contractual price increases of 7 to 10% this year, even though most of the increases in the second quarter have been running in excess of 10%. Kohl said most of their increases in the first half of the year so far have been in the “low to mid teens.” The second half of the year should see increases that will moderate into the high single digits.
Reed said in the first quarter, USA Truck turned down more loads than it moved. “We started saying we have got another USA Truck waiting to be dispatched,” Reed said.
But it’s not all “nirvana,” as one panelist put it. Leathers noted that in the first quarter, Werner had a 1000 basis point increase in average price but only a 200 basis point increase in margin. He cited weather as a key factor there, with significant costs in excess of normal. And the industry needs to take advantage of the current conditions now that the weather has normalized, Leathers added: “It needs to be here because the industry as a whole is not at reinvestable levels. We need that if we’re going to grow and solve this capacity issue.”
The rate of reinvestment
Kohl noted that the industry in general did not reinvest in their fleets in 2017, mostly as a result of a weak resale market. USA Truck was no exception, he said; its fleet is the oldest in the history of the company. The company therefore has to buy more tractors, but in the meantime, maintenance costs are a “real headwind,” he said.
Lightning round survey
Scott Group, the Wolfe transportation analyst who led the panel, finished up the session with a request for brief responses to a survey.
Percentage of the fleet that will be electric in five years? The answers: very little…zero…still need to hear from the OEMs…zero…I don’t know.
How many years until you get two-truck platoons with one driver? The answers: Over five…ditto…don’t know…don’t know what the regulatory outlook will be in five years…non-testing with full regulatory authority, maybe within five years but closer to five than that.
Fully autonomous vehicles? The answers: I’ll be retired…a long time…5-10 years…there’s a hacking problem and it could be a pretty powerful terrorist weapon…questions about infrastructure to support it could mean 15 to 20 years.