Where have all the Trucks Gone?
By Myra Pinkham, Contributing Editor
Transport capacity promises to get even tighter as the economy improves, potentially making it difficult for service centers to find the trucks they need.
The transportation industry is facing a serious capacity shortage—one that is likely to only get worse as the economy gets better—threatening the ability of service centers to get metal from suppliers and ship it to customers. Even with economic activity still lagging pre-recession levels, the availability of trucks, railcars and barges was tight in the first quarter, say the experts.
“It loosened a little in April and early May, but I believe it will tighten again due to a perfect storm of fleets reduced during the economic downturn, relatively low investments by freight carriers, an improving economy, more regulations and a declining pool of truck drivers,” says Greg Burns, chairman of PLS Logistics Services in Pittsburgh. Structural tightness in U.S. shipping capacity could persist, and perhaps worsen, for the next five to six years, he adds.
Harry Clark, traffic manager for O’Neal Steel Inc. in Birmingham, Ala., says equipment availability is already tight for service centers, which tend to rely primarily on trucks. Logistics managers at the mills, which use a wider variety of transportation modes, are facing a wider range of challenges, says Thomas Danjczek, president of the Steel Manufacturers Association in Washington, D.C. Mill capacity utilization is at 70 to 75 percent, vs. over 90 percent prior to the downturn, with the economy growing at a lackluster 2 to 3 percent. “If steel production was back to 2007 levels, I don’t know how we would transport all of our goods,” he says.
U.S. steel mill shipments totaled 22.5 million tons in the first quarter, up 9.6 percent vs. first-quarter 2010, reports the American Iron and Steel Institute, Washington, D.C. Service center shipments were up 20.3 percent through April, according to the Metals Service Center Institute, Rolling Meadows, Ill.
The American Trucking Associations’ U.S. Freight Transportation Forecast projects that U.S. freight tonnage overall will grow 24 percent by 2022, during which time trucking’s share will rise to 70 percent of the total, up from 67 percent today. The forecast— produced in collaboration by the ATA, IHS Global Insight and Martin Labbe Associates—indicates that rail’s share of freight tonnage will fall to 14.6 percent in 2022 from 15.3 percent today. Intermodal tonnage, however, will rise 6.6 percent a year until 2016 and then 5.5 percent annually through 2022. Domestic waterborne transportation is expected to grow only modestly in the next decade.
“In general, [truck] supply is currently tighter than a year ago, and we anticipate it will get tighter in the future as little capacity, if any, is added,” says Bob Costello, vice president and chief economist at the Arlington, Va.-based ATA.
“Despite my concern that higher energy costs are going to begin cutting into consumer spending, tonnage levels were pretty good in the first quarter,” Costello says. ATA’s seasonally adjusted for-hire tonnage index increased 3.8 percent from the previous quarter (and 6.1 percent from the first quarter of 2010). Truck supply, however, increased less than 1 percent. “Even if a carrier wanted to add a lot of trucks, they couldn’t because it would be difficult getting drivers,” he adds.
Clark at O’Neal, which transports 95 percent of its goods via flatbed truck, is concerned about its ability to move product during the peak shipping season. While it will service its regular contract customers with its own fleet of trucks, “there will be some transportation lanes where it will be particularly difficult to get our product delivered on time, especially when it comes to spot business,” he says.
“Right now, flatbed trucks [the type generally used to move steel] are definitely at a premium,” says Allen Dworakowski, executive director of PGT Trucking Inc. in Monaca, Pa. “For a while there, as many as 800 to 900 companies a quarter, mostly local or regional companies with five to ten trucks, were closing their doors.”
In fact, due to such trucking company failures, as well as surviving companies parking or even scrapping some of their fleet during the depths of the recession, there are only about one-third as many Class 8 heavy-duty trucks on the road as there were in 2006, estimates Burns at PLS.
Metal shippers have been affected to a greater degree than other types of businesses, adds ATA’s Costello. “I believe the flatbed industry, in percentage terms, lost more capacity during the recession than any other sector.”
Trucks, a just-in-time mode of transportation, were affected more directly by the economic downturn as shippers, less pressed to move their products quickly, turned to cheaper rail and barges wherever they could.
“Now that has reversed,” says Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. “There is a very tight market for trucks, even more than other modes of transportation. Now shippers are again committed to just-in-time deliveries, which has put a strain on truckers’ ability to meet this demand.”
Now that demand for trucks has built up some steam, the truck driver shortage is worsening, says Ken Kremar, a principal in the industrial practice at IHS Global Insight, Washington, D.C. Even with the high unemployment rate, the industry has had trouble attracting and maintaining good drivers. Some of this is due to demographic factors, he explains. The average age of truck drivers continues to creep higher as few young people seem willing to take over. “This was even a problem during the recession, and it has gotten worse as the economy has improved, giving potential truck drivers other, possibly more desirable, employment opportunities.”
New safety regulations currently being phased in could exacerbate the driver shortage. Burns calls the new Comprehensive Safety Analysis 2010 “a game changer” that could reduce the driver pool by a further 10 percent. Initiated by the Federal Motor Carrier Safety Administration to improve large truck and bus safety, CSA 2010 will create a national database of drivers with less than perfect safety records, identified by their social security numbers. “[Once fully enacted], this means drivers can’t change jobs and then start over with a clean slate anymore. Also, the trucking company’s safety record is affected for three to five years if it hires someone on this database.”
Individuals placed in the database will have to get out of the business, making it even harder for trucking companies to find drivers. “It is essentially a good program [for reducing accidents], but it will have a negative impact on some carriers, as will the new FMCSA hours of service regulations.”
The hours of service rules will restrict the number of hours that drivers can be behind the wheel each day and each week and will dictate how many hours they must have off between shifts. (The rules are complex but basically state that an individual may drive for a maximum of 11 hours after 10 consecutive hours off duty, and may only be on duty for 14 hours straight.) Thus the rules put more pressure on shippers to load and unload trucks more quickly. “If a truck sits for three hours to be loaded or unloaded, that is how much less time the driver can drive that day,” Burns notes.
Billy Johnson, director of political and public affairs for the Institute of Scrap Recycling Industries in Washington, D.C., calls the new hours of service rules “a bit arbitrary.” Clark at O’Neal also has reservations. “It would be a mistake to change the service rules,” he says. “While it could be good for safety, it would have a dramatic impact on the industry.”
The negative effect of these new rules could be lessened should Congress approve the proposed Safe and Efficient Transportation Act. This legislation would allow state transportation departments to selectively set interstate gross weight limits of up to 97,000 pounds for trucks equipped with a sixth axle, therefore, allowing more freight to be hauled per truck. “Under current regulations, some trucks have hit their weight limit with the truck still half empty,” Johnson notes, so this change would result in considerably more hauling power.
“Right now we are waiting to see what will happen, but at least in the short term there will be continued capacity challenges,” says Dworakowski at PGT. Industry observers point to a pickup in investments in new truck tractors and trailers, but those will primarily replace older units that have been parked or scrapped. “Trucking companies aren’t increasing their fleets much, and new trucking companies are not emerging to take up the slack. As business picks up, it will just get worse,” Clark predicts.
Rail’s on a similar track
The availability of rail cars is also starting to tighten, although not as much as for trucks. NAFTA commodity rail traffic was up about 4.5 percent in the first quarter, compared with a year earlier, following a 9 percent increase in freight rail loadings in full-year 2010. “It will continue to be strong as the economy expands, and the rate of increase will accelerate once housing and nonresidential construction join the party,” says Global Insight’s Kremar.
Troubling to SMA’s Danjczek is the limited number of railcars in service, especially the gondolas and coil cars used to transport steel. “The railroads have chosen not to build new railcars over the last several years—since even before the economic downturn,” he adds.
Others aren’t quite as concerned. David Reid, a managing partner at Metal Strategies, called metal-related railcar availability “okay at the moment. But the metals industry is not yet operating at levels that one would expect. As capacity utilization increases, things will get tighter.”
ISRI’s Johnson agrees. “Right now our members are in good shape as far as railcar availability, but three months from now they might not be doing as well.”
Jim Schaaf, group vice president for metals and construction at the Norfolk Southern Railway Co., says railcars were in short availability from the fourth quarter of 2010 through the first quarter of 2011, mainly due to extreme weather conditions across the rail system, especially in Chicago, which is the epicenter of rail traffic. Those weather delays have had a ripple effect across the system that persists today.
Contributing to the issue was the large number of railcars put into storage, Schaaf admits. At the peak of the recession, Norfolk Southern had 30,000 railcars offline, a big percentage of which were coil cars and gondolas due to the severe downturn in the steel sector.
Plummer notes that there has been a high scrappage rate of older railcars. Given that the average railcar contains about 20 tons of steel, worth nearly $10,000 at today’s scrap price, there is a strong financial incentive to retire old equipment.
Still, as of May 1, a total of 276,228 freight cars, or 18.2 percent of the total U.S. fleet, were still in storage, according to the Association of American Railroads. That was a decrease of 7,421 cars from the previous month.
“But we are more fluid again in the second quarter due to both improved utilization of equipment and a very aggressive spending program, including the expenditure of $30 million for maintenance and repair of equipment,” Schaaf says of Norfolk Southern.
Overall, there was an explosion of orders for freight cars in the first quarter of this year, says Peter Toja, president of Economic Planning Associates, Smithtown, N.Y. A total of 36,903 cars and intermodal platforms were ordered during the quarter, compared with a scant 5,078 freight cars ordered in the first quarter of 2010. “This, however, included very few coil cars or gondolas, as the metals industry is still in the doldrums,” he says. “The railroads can meet the needs of their metals customers with their current fleet.”
That is what Norfolk Southern is doing, Schaaf says. “We are in the process of forecasting our needs for 2012 and beyond. We have no new builds for freight cars serving the steel industry at this time, although that is subject to change. Any such decision will be based on the demand from our customers. Right now our priority is to keep our fleet in good working order and to push the utilization of our current fleet.”
Due to the flooding of inland waterways, there is very little movement of freight by barge. Sandor Toth, publisher of River Transport News, Silver Spring, Md., says the pent-up demand could be significant once the waterways open up again. He does not believe there will be a problem with barge availability, however. “By this summer, once the flooding situation has been alleviated, there should be plenty of barge capacity,” he says. “The industry has been going crazy building new barges, about 1,100 since the downturn. The only real tightness could be with the open hoppers used to transport coal. But there shouldn’t be any problems with covered hoppers.” n