Why truckers face a "tough haul." - declining business and other factors affecting trucking - Column

Railway Age, June, 1992

The motor-carrier industry has problems, which are likely to fuel its soon-expected-push, again, for the right to expand the use of long combination vehicles (LCVs).

Standard & Poor's recently took a hard look at the trucking business, and concluded that the industry is facing a "tough haul."

Figures quoted, with American Trucking Associations cited as the source, show that in 1990 motor carriers gobbled up almost 78% of total freight revenues, with railroads coming in at less than 9%. But ATA numbers, along with S&P estimates, also indicate that the trucking industry's net profit margin hit its recent high at 4.85% in 1986 and has dropped to 1.50% (estimated) for 1991.

S&P analyst Brian McCullough sees rising operating costs for motor carriers, including (1) expenses related to acquiring and maintaining equipment fleets and terminals, (2) increasing labor costs, "especially with respect to attracting, training and retraining truck drivers," and (3) costs associated with stricter enforcement of environmental laws and regulations.

McCullough has a number of other interesting observations:

-Labor costs, including wages and fringes, soaked up about 60% of revenues for major less-than-truckload carriers last year, and about 40% of revenues of truckload carriers (an increase of about five percentage points in the last few years).

-On April 1 of this year, commercial truck drivers (an estimated 2.5 million of them) were required to have a new driver's license. But when McCullough wrote his story, which appeared in S&P's Creditweek in late April, more than 750,000 drivers had not taken the test. His conclusion: "Combined with random drug testing...the tougher standards for drivers and changing U.S. demographics are expected to exacerbate the industry's driver shortage. Another move that could affect both driver availability and truck safety is mandatory driver-training standards. The developing truck-driver shortage is viewed by many as the main challenge facing the industry during the next decade."

S&P's analyst says ATA will propose that U.S. Labor Department restrictions on hiring resident aliens as truck drivers be relaxed. Truckers are also expected to go for the ability to hire 18-to-20-year-olds as apprentice drivers. Proposals which are just a tad scary.

S&P's McCullough also calls attention to the motor-carrier industry's lobbying effort to expand use of 53-foot single trailers. And he says the industry "is expected to mount another campaign to allow LCVs in certain western states in the future."

Partnerships, rail and truck, are a final paragraph in the analyst's report: "In light of changing industry fundamentals, truckload carriers have already begun to find ti increasingly difficult to compete with rail intermodal operations. As a result, major truckload lines began forming joint truck-rail intermodal partnerships over the past two years."

He concludes: "This trend of truckers turning to the railroads in order to lower their linehaul costs is anticipated to accelerate in the 1990s."

As for the rail industry outlook, earlier, McCullough notes that "Besides improving the profit margins on traditional bulk commodity shipments such as coal, grain and finished automobiles, the new labor contracts will likely allow rail carriers to compete more efficiently against truckers for long-haul transportation of merchandise freight. Although trucks will continue to carry the vast majority of merchandise, the railroads should be able to regain some truckload merchandise traffic, particularly in high-density double-stack container markets."

Railroads do have an edge, if they can take advantage of it-and if quality truckers such as J.B. Hunt and Schneider are signing on, there are indications that railroads are in fact making the most of what they can offer. It is encouraging to note that Hunt now has partnerships with Santa Fe, Burlington Northern and Union Pacific, and in its first venture east, with Conrail.

If this isn't the wave of the future, a lot of people think it should be.