Trucking executives say freight demand remains sluggish, but getting better

Freight demand is starting to increase, but compared to levels before 2016, it’s still sluggish, said Eric Fuller, CEO of U.S. Xpress.

Fuller was featured Wednesday (July 12) on a live webinar hosted by Transport Topics, a publication of trade organization American Trucking Associations. Fuller and other industry leaders discussed the economic outlook and the impact the electronic logging device (ELD) mandate will have on the industry.

“We’re in a transition period,” said Daniel Bearth, a writer for Transport Topics, adding that the U.S. economy is growing but not as quickly as people expect, and carriers are hesitating to do something.

Fuller said the industry has been in a freight recession for 18 months, but it feels like things are getting better. Events like Amazon’s Prime Day remove capacity from the market and create demand. He expects demand to rise in the latter part of the year.

ATA chief economist Bob Costello said the best news for the industry is that the glut of inventories throughout the supply chain is starting to decline. Talk of investing into infrastructure is also positive, and if carried out, it’s something that will pay off for the industry.

Derek Leathers, president and CEO of Werner Enterprises, said he’s receiving mixed signals on the economy, but the carrier’s freight demand has been “strong.” The carrier’s business is about 50% retail, including discount retailers and dollar stores. Bearth said Werner was the first to adopt ELDs.

“We have a 20-year plus history with electronic logging devices,” Leathers said.

ELD MANDATE IMPACT
In the first year of implementation, it impacted the company’s productivity by 4.5%. But after the first year, the hit on productivity started to decline. By the third year, it was neutral, and started improving thereafter. As a result of the mandate, he expects to see a capacity reduction of 3%. Werner represents about 1% of total capacity in the market, he said. So it would be like removing three Werner Enterprises from the market.

He’s also seeing shippers shifting to carriers that are compliant with the mandate. Fuller said he still has a wait and see approach on the mandate. He expects a 4% to 5% reduction in capacity if it’s enforced to the level that it needs to be, but he doesn’t expect the capacity to decline until 2018.

“Roughly half of the trucks on the road do not have ELDs today,” he said.

He expects it will benefit the larger carriers, like U.S. Xpress, because they are already compliant with the mandate. Smaller companies that aren’t might see their drivers migrate to larger carriers that are ready and as a result will struggle to find drivers.

“People are expecting to see a leveling of the playing field,” Bearth said. “Yes, this will reduce capacity because we will lose drivers.”

And, the driver shortage only looks to be getting worse. Drivers with more than six months of experience are less available, and with the low unemployment level, drivers are leaving the industry and going to others, such as construction, Fuller said. The least attractive segment for drivers has been the over-the-road jobs, where they are away from home two to four weeks at a time and traveling in 48 states. But he said the dedicated segment, which comprises of about 40% of the company’s business, has not been impacted as much by the driver shortage. Dedicated jobs allow drivers to be home more often as they are shorter hauls.

INDUSTRY OUTLOOK
Bearth said people are expecting to see more mergers this year. Some carriers have recently acquired other carriers, but the largest deal so far this year has been the merger of Knight Transportation and Swift Transportation. Bearth said a benefit of consolidation is a reduction in overhead, but company leaders in the merger have explained they will operate the companies independently.

Fuller said when U.S. Xpress was a public company it had 28 acquisitions, but since it’s been private, it’s not had any.

“I think you look at it differently as a public company,” he said. Expect to see the public companies “fairly active.”

In most of the earlier acquisitions, U.S. Xpress rolled the purchased company into the existing one, he said. But this caused many issues because of differences in systems, processes and culture. In the last few acquisitions, it kept the companies separate and adapted to processes along the way as needed. The latter way is the “preferred way to do it.”

While the company has not been purchasing other companies, it’s looking to grow the business organically. The plan is to increase its dedicated segment to include 50% of the business. But it doesn’t look to expand into intermodal, in which it does handle in its brokerage division.

“It’s tough to get into this late in the game,” he said.

Fuller expects technology will be an important factor for the company and the industry, and sees electric trucks as part of the future. Also, he expects to see more implementation of automated features in trucks. But he doesn’t expect to see driverless, self-driving trucks for at least 20 to 25 years.

He sees the automated technology take over driving on interstates while a driver remains in the truck ready to take control if needed. Yet he’s uncertain how electric trucks and the increased use of automated features will impact the lifestyle of a driver, such as whether they’ll need to go to truck stops anymore.

In Arkansas, the following are a few of the publicly-traded carriers and the dates they are expected to report second-quarter earnings:
• ArcBest Corp., July 28
• J.B. Hunt Transport Services, July 17
• P.A.M. Transportation Services, July 25