Feature Article from Our Transportation Management Subject Area - See All
From SCDigest's On-Target E-Magazine
Nov. 2 , 2011
Logistics News: Is a Transportation Capacity Crisis Looming Big Time in "Variable" Infrastructure?
Logistics Economist Noel Perry Says Tough Times May Be Coming Soon for Shippers in Terms of Rates, Capacities - but there Really are Some Magic Bullets
SCDigest Editorial Staff
Many logisticians and other observers continue to worry about US transportation infrastructure, but they are likely barking up the wrong tree. But that doesn't mean there aren't going to be some real infrastructure challenges for shippers soon..
SCDigest Says:
Tight capacity will enable carriers to raise rates based on market factors. Drivers wages will have to rise to bring more drivers into the pool. And the cost of equipment keeps rising.
During both a panel discussion at the recent CSCMP annual conference and in a recent interview with SCDigest, Noel Perry, an economist who focuses on the transportation and logistics sectors, said the issues in the near to mid-term are not around what he calls "fixed" infrastructure (roads, port capacity, rail lines, etc.), but rather "variable" infrastructure (drivers and trucks). Perry is the founder of Transport Fundamentals, and also a partner at FTR Associates, both logistics research and consulting firms.
"Consider the overall capacity of our highways, terminals and things like that," Perry said. "We know that the amount of vehicle traffic and freight traffic had fallen since the peak of the last upturn [2006], considerably, currently by maybe 20%. So we are well below the previous levels of use of our infrastructure."
As a result, Perry said, as long as the current physical infrastructure is properly maintained - by no means a certainty, Perry acknowledges - that infrastructure should be sufficient to meet demand for the rest of this decade.
"The absolute level of our fixed infrastructure is fine for now, the only thing we need to worry about is are we repairing it properly," Perry said.
However, the state of what Perry calls variable infrastructure is much different, and should be of great concern to shippers, he says.
"Variable infrastructure are those things that a carrier can downsize whenever there is a downturn," Perry says. That includes tractors and drivers in the trucking industry, the two variables of greatest concern to Perry right now.
In this downturn, trucking companies substantially reduced both equipment and drivers, as well as the level of their recruiting programs, Perry says.
"Now that the level of freight transportation is growing again, maybe 2-3% per year, the carriers who were stung during the last recession, as they always do early in recoveries, aren't adding capacity as the new demand comes in. They lag it," Perry added. "The carriers aren't willing to take risks right now."
New regulations are exacerbating the problem this time too. The CSA 2010 driver safety rules are likely to have a significant impact on driver availability, and likely new hours of service rules will reduce the productivity of drivers overall, in effect reducing existing capacity and making the effective driver shortage even worse.
See Full Interview with Noel Perry
Perry noted that the last changes to hours of service rules occurred during an economic upturn, which made the natural capacity shortages worse, and that it appears this will happen again, with the impact of the CSA program really being felt this year, and new HOS rules expected any day.
"What is going to happen is that we will see a capacity shortage of about a 150,000 fully used trucks," Perry says. That's about equal to the shortage in the 2004-05 period, when there was a severe capacity crisis.
The same thing will happen with drivers.
(Transportation Management Article Continued Below)
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"I expect a driver shortage soon of about 300,000 drivers, about equal to the last period [2004-05],"Perry said. "The big difference is this time it lasts longer because the new regulations are being spread over a longer period of time."
He expects the current tight truckload capacity situation to get worse and last for at least the next 2-3 years.
Naturally, that will lead to higher rates, Perry said. Tight capacity will enable carriers to raise rates based on market factors. Drivers wages will have to rise to bring more drivers into the pool. And the cost of equipment keeps rising, primarily due to on-going fuel mileage and emissions requirements.
All told, Perry expects rates to rise at least 10-15% over the next 2-3 years.
"It happened last time. It will happen again," Perry says.
For Once, There Really is a Silver Bullet
Despite this rather dire situation for shippers, there really are a couple of silver bullets for shippers, Perry says.
At CSCMP, Perry emphatically stated the these two proposed changes together would easily offset the trends that are leading to a capacity crisis.
"It's simple math," Perry says, noting the level of capacity increase that could come if both laws are passed.
"We need to overcome the regular driver fear of driving next to larger trucks," Perry says. "We know from a scientific point of view that it's safe, but drivers don't feel that it's safe."
Do you to see several years of very tight US variable truckload capacity? Or do you think Perry's analysis is wrong? Should legislators pass new laws increasing trucking weights and lengths? Let us know your thoughts in the Feedback section below.
Recent Feedback
If legislation is passed to increase weight and length of trucks then I believe Perry's assessment is correct in that "it's simple math". However, if the silver bullets never come to realization then I do believe we will see a increase in rates and tight capacity. In all, it comes down to legislation.
Stephen
Domestic Logistics Planner
IL2000
Nov, 07 2011
