Insights from Henry E. “Hank” Seaton, ScoopMonkey board of directors
Article after article discusses how technology is changing the transportation industry. Startups are flooding our sector, looking for ways to replace intermediaries with apps and services like Uber and even drivers with drones or trucks that drive themselves.
Yes, technology is changing trucking, but there are major changes on the horizon unrelated to technology. Three trends in particular will reshape our industry during the next 15 years.
The Generational Shift
Dan Baker, the truckers’ humorist from Bulverde, Texas, offers an intriguing view of the future by contrasting a stereotypical middle-aged, seasoned driver and a Gen Y recruit. Baker sees the older guy as the true road warrior who knows and appreciates the challenges of the road. He values his home time, but works hard to save money and maintain his family’s way of life – often in the same the rural community where he grew up. This driver is a dying breed, Baker says.
The Gen Y driver, however, isn’t really interested in trucking as a profession or lifestyle. He wants immediate gratification and has little patience for doing what is needed to get the job done if it inconveniences his plans. Baker argues that this shift in the attitude of truck drivers will create shortages simply because of driver attitude.
This generational change means that driver retention will be increasingly ineffective. The only way to prevent severe driver shortages will be for carriers to recruit more drivers than they are losing. That might feel like the situation now, but the challenge will only grow larger. The upshot is that fewer carriers will be able to pull this off, reducing capacity in terms of both the number of carriers and the number of trucks running.
A second trend affecting trucking is cost of regulation, including both the Federal Motor Carrier Safety Administration and the Environmental Protection Agency. The latter has forced truck and engine manufacturers to adopt technology over the past decade and a half that has substantially increased the cost of a truck. This financial barrier alone is a challenge to the one-truck operator.
On top of higher equipment costs are a host of regulations constricting productivity and keeping drivers from getting enough miles or money to pay for those pricey trucks. At the forefront of these regulatory challenges are the hours-of-service regulations, which have eliminated reasonable and safe efficiencies such as split rest in sleeper berths. In the next few years we will see more challenges due to new and upcoming rules on electronic logging devices and speed limiters, both of which will cut into productivity.
Meanwhile, the independent contractor model used by most one-truck operations to lease on to larger carriers is under serious attack at the federal and state levels.
As with the generational shift, the pressure on small independents and on leased owner-operators will reduce capacity and the number of carriers. Shippers and brokers that generally have enjoyed a competitive advantage relative to carriers for many years will realize that their leverage is gone and then some. Carriers who survive should expect higher rates and greater bargaining power to thwart unfavorable contract terms such as unreasonable indemnity obligations, waiver of credit and collection remedies, extended payment terms, waiver of duty to mitigate, and more.
Prior to deregulation, carriers faced only limited competition. Well-run small trucking companies with operating authority and established customers could build a solid business that could stay in the family for generations.
Following deregulation, most large shippers centralized their traffic function either by following a “core carrier concept,” which greatly limited small carriers’ access to freight, or by outsourcing carrier selection to third-party logistics companies, or 3PLs. The LTL and unionized carriers that had dominated for so long suddenly lost out in the marketplace to against broad, all-state operations that could accommodate shippers’ just-in-time inventory strategies and to abrupt changes in supply and demand. While this structure got these new carriers business, it also created new challenges because they had no market density to solicit and obtain their own return shipments.
We likely will see another major shift in the coming years as trucking companies respond to changes in economics and distribution patterns. Retailers increasingly are using virtual inventories and regional fulfillment centers to offer online and home delivery, allowing vertically integrated providers like FedEx and UPS to gain business by providing in-home and “white glove” services for items such as furniture and electronics.
We are also beginning to see the impact of intermodal growth. As many as 12,000 trucks and four- or five-stack trains cross the border at Laredo each day. And international commerce appears poised for growth with the dredging of the East Coast ports to accommodate even larger container ships.
Dray carriers that own and maintain their own chassis should find increasing opportunities, particularly in the short-haul movement of full containers from rail head in PU and PD services to or from the rail head or ocean port. With a growing shortage of trucks, don’t expect to see may reverse auctions like shippers conducted for freight only a few years ago. Shippers slowly are realizing that they will have to pay more for freight and make greater use of dedicated service in order to ensure deliveries.
A shift in the “balance of power” could help carriers bring back the concept of reasonable dispatch. Shippers quickly will recognize they cannot expect carriers both to comply with hours-of-service rules and to consistently make 15-minute delivery windows. The cost of operations and hours-of-service requirements will not allow free detention.
A book published by Spencer Johnson in 1996 called “Who Moved My Cheese?” offers a great way to think about trucking in the years to come. The driver shortage, the cost of operations, changing distribution patterns and the threat of government regulation will make trucking volatile. How these interrelated and dynamic changes will play out is hard to predict, but you can bet that somebody will move your cheese and your continued success will depend on your ability to recognize it and respond quickly.
Henry E. Seaton is a member of Vienna, Va.-based law firm Seaton & Husk LP, specializing in freight claims, freight charge collection, contracting issues, carrier representation before the FMCSA and bankruptcy issues. He is a frequent speaker and lecturer on cargo claims, freight charges, contracting, risk and insurance issues. In 2014, Hank received a Lifetime Achievement Award from the Transportation Lawyers Association