Freight Capacity Threat
In last month’s newsletter we discussed the heightened threat to capacity. Among slightly less impactful factors, such as increasing tolls and pushes in some quarters to classify independent contractors as employees, there will be some pretty big challenges to capacity this year.
“Capacity issues are on the horizon and I urge everyone to begin making contingency plans for the day when you cannot get a truck,” says Rosalyn Wilson, senior business analyst with Declan Inc. and author of the annual State of Logistics report. Bob Costello, chief economist of the American Trucking Associations agrees, stating that a“capacity crunch” is well on its way.
Mike Regan of Tranzact Technologies attributes this crunch to a suffering economic climate: “shippers will experience firsthand the correlation between economic and freight activity.”
While there are a variety of factors at play, here are the four primary factors that stand to contribute to the impending capacity crunch:
1. Too Much of a Good Thing
The economy is on the up and up, and this has carved out an excellent opportunity for consumer goods businesses to ship more inventory and increase sales, making them more dependent on a reliable freight service. However, few freight companies are prepared for the seemingly sudden increase in demand. Companies just can’t keep up.
2. A Lack of Qualified Drivers
According to an analysis conducted by the American Trucking Association, there are as many as 30,000 unfulfilled driving positions out there.
A complicating factor in this driver shortage is that becoming a truck driver isn’t as easy as it used to be. A typical driving academy requires its students to enroll in a 20-week program, which includes 600 hours of training and can cost more than $10,000. And many aspiring students fear this investment could go to waste if they so much as get one speeding ticket, as recent regulations have made maintaining a driving job significantly more difficult.
And then there are the baby boomers: as boomer drivers retire, younger drivers aren’t signing up in the numbers necessary to replace them.
3. Red Tape: Restrictive Government Regulations
For most companies, recent regulations have affected capacity on every imaginable level—and probably more so. Existing regulations affecting capacity include, but are not limited to:
- The DOT’s Compliance Safety Accountability program, which is likely to dramatically increase the average turnover seen by most companies, if they aren’t prepared. Costello blames the CSA outright: “Due to the economic recovery, as well as regulatory factors like [the federal Compliance, Safety, Accountability program], we are seeing the market for good, quality drivers tighten.”
- Electronic On Board Recorders (EOBRs) threaten shipping companies that aren’t prepared with the proper resources. Shippers who want to break the law in the name of adding capacity may soon need to put the breaks on overextending their drivers, and without the proper resources and strategies in place, EOBRs will surely compromise everything, from schedules to costs.
4. Fleets are being replaced but not built up.
On average, carriers are operating with 8% fewer trucks than they were in 2007, before the recession.
The average life of a tractor and/or trailer is 6.5 years. However, most shipping companies have held off on replacing equipment due to the slowed economy. Now that demand is on the rise (at a rate faster than most can keep up with), investments are finally being made in new equipment.
The problem: the new equipment is simply replacing the old, rather than adding to the existing fleet and increasing capacity.
In fact, 24% of companies reported that they made no changes to the size of their fleets in the last two years, making finding a reliable carrier a difficult task for companies trying to manage logistics in-house.