January 2019 The Roemer Report

Auld Lang Syne and Trucking’s Brave New Year

Scottish poet Robert Burns is well remembered for his interpretation of "Auld Lang Syne,” an old Scottish song of remembrance and nostalgia for “Times Gone By.” A part Of Scotland’s ancient oral history, the popular, traditional song is sung at the stroke of midnight by people around the world ringing out the old year and ringing in the new.

While many may have warm feelings as they turn over the events of the past year and reminisce about days gone by, those in trucking might have a different attitude. Over the last 12 months the world of truck-based logistics and shipping collided head-on with ELD mandates, Hours of Service requirements and the lack of qualified drivers. It was a big year on a number of regulatory and economic fronts and these dynamics are sure to be ongoing as fleets and truck operators cruise into 2019.

Driven by demand

Trucking and freight industry analysists agree 2018 was a big year for trucking. Among the findings in this past year's edition of ATA Trends:

Trucks moved 10.77 billion tons of freight, generated some $700 billion in annual revenue, moved 69.1% of all trade between the U.S. and Mexico, and employed roughly 7.7 million people in jobs related to trucking activity, including 3.5 million drivers of whom 1.7 million are heavy and tractor-trailer drivers.

In their year-end view of the important stories highlighting the industry’s trends and direction, prominent logistics industry media outlet FreightWaves noted that at the close of 2017, that year’s volatility had extended into 2018 and set the tone for tighter capacity and climbing contract and spot rates. According to the web portal’s reporting, contract freight began to reset its prices as early as March in response to growing demand for freight capacity.

”With shippers keen to avoid the transport costs-related earnings surprises of 2017,” says FreightWaves, “carriers were able to enjoy low double-digit increases in contract rates.” The increases they say, proved strong enough to stabilize most freight markets and decrease tender rejections gradually through the year, with the exception of a bit of surge in June.

2018; Year of the ELD

In the wake of the soft launch of electronic logging devices (ELDs) it wasn’t long before the skepticism and conjecture about the technology’s impact on the industry gave way to the actual reality of its effect on drivers and operations.

Although the feared “Driver Exodus” largely did not occur, the law and HoS did have an impact on tightening capacity, but probably not in the way many had been speculating. William Cassidy, editor at JOC.com., reports that according to federal stats, five months after the law took effect, some 542,000 drivers had entered the workforce since 2012, settling to about 2.5 million drivers currently. He concluded that there actually might be more available drivers now than ever before!

Another big impact that failed to materialize was the expectation that out-of-service orders would skyrocket and pinch capacity as well, especially for the Christmas/holiday season. Cassidy notes that by

May 2018, less than 1% of all roadside inspections resulted in a citation for operating without ELDs in the cab. So what happened?

Loss of driving Hours, not drivers

With widespread compliance, it’s become clear that ELDs and HoS have reduced available, lawful hours of driving and that is what has been tightening capacity and pushing rates higher for shippers. Cassidy says that has “Dramatically” extended shipment times, displacing capacity across the U.S. “That led shippers to rethink everything from carriers selection to distribution center locations.”

FreightWave’s analyst Dean Croke estimates operators were driving “10% fewer miles,” and pursuing different freight; choosing either day-long short hauls or freight with higher rates to cover expenses associated with a second day of travel time.

A fresh perspective on the driver shortage

Although most major OTR shipping companies continue to gripe about the driver shortage constraining capacity, with emerging data comes a fresh perspective on the issue. FreightWaves, for one, said its view of the driver shortage has evolved. “Capacity constraints, are about far more than the nationwide number of truck drivers,” say FreightWave’s editors, pointing out that capacity can be constrained by external forces like HoS mandates, or loosened by digital technologies. For instance, informatics systems that match loads and trips more effectively will help reduce the number of dead-head miles and long wait times at terminals.

Attractive compensation, hours, is attracting drivers

Analysts are finding that competition for mid-length shipment capacity is heating up and that inflating shipping rates are helping mid-size regional truck fleets find and retain drivers. One fleet operator said it provides its drivers with 40 hours at home per week, while another is putting their drivers on salary and another reporting they are instituting wage increases to help retain drivers.

According to FreightWaves, driver’s wages are up about 12% year-over-year. Further, it estimates that (using a new metric derived from diesel fuel consumption and HoS data pulled from ELDs) that the number of drivers has actually increased by 2%.

The view ahead

Despite all the gnashing of teeth, political anxiety and some pretty wild swings by the stock market at the end of the year, it’s likely the U.S. economy will continue to motor on down the road with plenty of fuel in 2019. As time goes by, the positive impacts the President’s trade policies and his efforts to level the world-trade playing field will continue to be felt. On December 30, the BBC headline of the day was “China says it is “Ready to Work with the U.S.”

This news, “just in” as they say, after President Trump tweeted he had just finished a long and “very good call” with China’s President Xi. BBC reports China said it would be willing to work with the U.S. to "implement the important consensus" reached at December's G20 summit where the two countries agreed to suspend new trade tariffs for 90 days to allow for talks. These talks portend increased international trade; more goods in transit in the USA.

Pretty good from here on out

Bruce Yandle of the Washington Examiner, recommended folks turn down all the short-term noise coming out Washington and focus on the harmonies coming from our economic song.

Reviewing some of the coming pros and cons, Yandle made this essential point: “Taking these short- and long-run concerns into account, we can marvel at the ability of our market-based economy to still yield meaningful growth and prosperity for those fortunate enough to call America home.”

Amen for that. Meanwhile, Yandle supported his assertion by noting that as of December 2018, GDP growth was still at 3.0%, nearly two points better than last year at the same time, and that there has been real movement as far as wage growth is concerned.

All is not rosy, he says, and there are a number of forces out there that could foul the economic punch bowl in 2019. Listing everything from trade wars to real wars, the immigration problem and our public debt, Yandle estimates that if there is a confluence of crappy policy it could have a significant negative effect.

How much? Not too too much, at least according to the financialista, who are looking at GDP to grown somewhere between 2.5% and 2.8% for 2019. Although, like in football, hindsight is “20-20,” the tell-tails are already popping and it looks like 2019 should motor on, although not as robustly and dramatically as 2018. For instance recent retail sales trends are likely to continue due to the strong labor market, pushed by wage and earnings growth. However, an intractable trade conflict with our primary partners could suppress growth significantly.

Regardless, the diversity and depth of our economy will continue to drive prosperity in 2019. Although likely not as fast or as exciting regulations-wise, the coming year is still filled with potential; fortunately, it’s the upside that seems to have a little more in store for us and likely to produce the Happy New Year we all want for the next 12 months.

Bobtails:

Autonomous trucks: Easy as 1-2-3 … 4

https://www.trucks.com/2018/12/27/autonomous-trucking-likely-four-stages-consulting-firm-says/

Automated route planning company starts up

https://www.freightwaves.com/news/technology/trucking-logistics-startup-smarthop-gets-capital-to-modernize-traditional-dispatch-models

USA-Mexico-Canada Trade deal on front burner

https://www.dcvelocity.com/

Trucker gives “thumbs up” to Tesla’s Electric Class 8

https://www.teslarati.com/tesla-semi-gets-approval-trucking-veteran-convoy-mode/

News from the last mile

https://www.channel3000.com/news/money/amazon-helps-man-start-trucking-company/952055818