(Editor’s note: This is the third part of a multi-part White Paper article by National Logistics Management (NLM) concerning carrier capacity issues. Part ll appeared in our Feb. 20, 2006 edition.)
Thomas Albrecht, a trucking analyst for BB&T Capital Markets, estimates that most trucking fleets have experienced a two-to-four percent drop in driver and tractor productivity largely due to the new HOS rules. Albrecht reported that five-to-eight percent of drivers interviewed by BB&T Capital Markets said they planned to leave trucking because of the HOS changes.
This trend will serve to increase the pervasive industry shortage of drivers, as will the overall demographic trend of a drop in the number of men between the ages of 20 and 44, the prime population segment from which to recruit new drivers.
For manufacturers, the new HOS rules could mean higher costs for shipping goods. Dow Jones Business News reported that the new rules could reduce a carrier’s productivity between two and four percent, with short-haul companies experiencing a greater negative effect. Some carriers have already passed these costs on to their manufacturing customers. However, there is a trend for carriers and manufacturers to work together to streamline operations to create cost efficiencies.
The new Hazardous Materials (hazmat) Regulations require drivers to get background checks and become certified before they can haul hazmat materials. While mandated by a federal regulation, each carrier must bear the costs to obtain the certification and carriers are seeking ways to pass this cost on to their customers. However, with the costs of the hazmat certification, it is estimated that up to 20% of the approximately 2.7 million drivers, or 540,000 drivers, may elect to not renew their hazmat endorsements. Additionally, the required background checks may keep new drivers from applying for the certification. This creates a carrier shortage in a highly important and specialized area of the trucking industry.
Another factor affecting carrier capacity is that other traditional modes of transportation, including rail freight cars, locomotives and ships, have decreased significantly, which puts additional pressure on ground transportation to compensate.
Rising fuel costs and fuel surcharges
Rising fuel costs add to the list of challenges facing carriers. Fuel costs typically consume about 10 to 15% of a trucking company’s expenses, according to Bob Costello, chief economist for the American Trucking Association. The average price for diesel fuel was $1.81 a gallon in 2004. With the cost of diesel at $2.24 at the end of March 2005, the Department of Energy is forecasting that the cost of diesel will remain above $2.00 per gallon throughout 2005. For small carriers, a 15- to 20-cent per gallon increase in the cost of diesel is enough to put them out of business. This already bleak outlook for diesel prices is being compounded by Hurricane Katrina-related damage to domestic oil refineries in the Gulf of Mexico, and fuel costs could go higher and for a longer period of time, which will have a significantly negative impact on the carrier industry overall, especially the small carriers, and may force some out of business. This would serve to further increase the carrier shortage crisis.
A ripple effect of rising fuel costs will be felt beyond the trucking industry. As consumers spend more on gasoline they will naturally cut back on the purchase of other goods, which has the potential to cut into economic growth and ultimately reduce the demand for trucking.
To combat the consistent incremental rise in fuel prices, many carrier companies have instituted fuel surcharges, which are negotiated individually with each shipper as part of the shipping contract. The surcharge is an additional charge to customers added to cover the cost of fuel as prices rise. Fuel surcharges are a relatively common practice in the carrier industry and have been accepted by customers as part of the business process. This is where carriers can