“Hold on to your hats,” the top executive of a Pittsburgh-based carrier advises. “The flatbed market will get considerably tighter this year and into 2018. Here’s why.
The availability of trucks, particularly flatbed vehicles used to transport metals and other materials, such as building products, is likely to tighten, exacerbated by a shortage of drivers and the introduction of regulationssuch as the electronic logging device (ELD) mandateagainst a background of rising freight volumes.
Estimates indicate that some 70 percent of the nations freight is moved by a fleet of nearly 32-million trucks and that tonnage has been increasing. The seasonally adjusted For-Hire Truck Tonnage Index of the American Trucking Association (ATA) registered 144.1 points in May, up 4.8 percent from a year earlier. The figure marked the largest year-over-year gain since November.
Bob Costello, chief economist for the Arlington, Va.-based trade association noted that flatbed trucks have registered the largest gains.
Jonathan Starks, chief operating officer for Bloomington, Ind.-based FTR Transportation Intelligence agreed, noting that volumes being hauled by dry van trucks have actually been fairly stable with only about three-percent, year-on-year growth while demand for flatbed trucks is a much stronger at 8- to 10-percent year-on-year.
Starks noted, however, that during the economic downturn, flatbed truck volumes fell further than those associated with other truck types. So they have a deeper hole to dig themselves out of, he noted.
Much of the recent pickup in flatbed demand is tied to the transport of construction materials rather than metals, Costello maintained. Recent statistics support his assessment.
The American Institute of Architects Architecture Billings Index, which reflects construction activity nine-to-twelve months into the future, recorded its fourth consecutive month of growth in May with a score of 53.0 points, up from 50.9 points in April.
ConstructConnect reports that the value of nonresidential construction starts were up 1.9 percent year-to-date through May. Housing construction has also been strong with the National Association of Home Builders reporting a 7.2-percent, year-to-date increase in single-family starts.
Costello noted that total housing starts are expected to reach 1.3 million this year, up from a current, seasonally adjusted annual rate of 1.09 million units.
Metal volumes are also picking up but at a more moderate pace. Greg Burns, president and chief executive officer of Pittsburgh-based PLS Logistics Services pegged metal volumes at up about one percent from this time last year.
There is more demand, Burns said. The energy sector is recovering as is the construction sector. Overall metals end use markets are much stronger than they were a year ago, he pointed out.
J. Scott Cordin, president of Steel Express Logistics, a Chicago-area, short-haul, dedicated steel trucking company, noted, in fact, that his companys volumes are double what they had been last year.
Cordin said that he started to see the pickup last September or October, attributing the strengthening to the Trump Administrations more pro-business agenda. So far this year, each successive months volumes have outpaced the prior months shipments.
This should hardly come as a surprise given that the average steel mill operating rate year-to-date climbed to 74.4 percent in late June, up from 72.6 percent for the same period last year, according to data compiled by the Washington, D.C.-based American Iron and Steel Institute.
Similarly, service center steel shipments, about 98 percent of which are transported by truck, were up 4.0 percent year-to-date through May. The figure is much improved over the 6.3-percent decline recorded for the full year 2016 and a 35-percent decline vs. a decade ago, according to Robert Weidner, president and chief executive officer of the Rolling Meadows, Ill.--based Metals Service Center Institute.
The steep downturn in the energy market over the past few years not only impacted the total volume of steel pipe shipped, but also the mode of transportation used to ship the material, Stephen W. Fulton, general manager of shipping and logistics for Houston-based TMK Ipsco, pointed out. Fulton is also the outgoing transportation committee chairman for the Washington, D.C.-based Steel Manufacturers Association (SMA).
Fulton noted that when the pipe business hit a low point last June with only some 400 drill rigs operating in the United States, the ensuing uncertainty prompted oil country tubular goods (OCTG) producers to sell a higher percentage of their pipe on a spot basis.
Because of that, nearly 80-percent of TMK Ipscos shipments went via truck last year as opposed to our traditional 45- to 50-percent level because we didnt have enough lead time to utilize rail or barge, Fulton explained.
Now, with energy prices starting to recover and the Baker Hughes Inc. drill rig count moving up to 940 active rigs at the end of June, TMK Ipscos order books are a little stronger, positioning it to better forecast shipments. As result, the percent of pipe being shipped by truck is beginning to return to more typical levels.
And with the U.S. economy appearing to continue to grow on a number of fronts, PLS Logistics Services Burns said the volume of metals hauled by trucks is also expected to keep growing through the remainder of this year and into the next. Flatbed truck capacities, in the meantime, are expected to continue to decline at a single-digit percentage rate.
Hold onto your hats, Burns advised. The flatbed market will get considerably tighter this year and into 2018, he predicted.
The flatbed truck market tends to be somewhat of a roller coaster ride, John Maniatis, trucking logistics manager for Jack Gray Transport Inc., Valparaiso, Ind., said. We are at the mercy of people who want their material.
Burns estimates that there are approximately 36 available loads per flatbed truck right now. And I think that supply will get tighter before the supply of trucks catches up with demand, he said.
The shortfall isnt due to a massive number of trucks having been taken out of service, as was the case during the economic downturn, Burns pointed out, commenting on an action that created a severe tightness of truck capacity once the economy began to recover.
Instead, over the past year and a half, many trucking companies pulled back their horns in response to the low freight volumes, Burns said, and have invested very modestly in their fleet capacity.
A trucking company with a fleet of 100 trucks needs to buy 20 to 30 new trucks annually just to keep up, he indicated. But because of the age of their trucks, their fleet size has shrunk by a single-digit percentage rate in response to the companies poor profitability, he noted.
This pattern is expected to not only affect the ability of shippers to readily find the trucks they need to move their freight, but also result in higher freight costs for the shippers. It is also having a collateral effect in the form of greater selectivity on the part of some carriers in choosing what loads from which shippers they accept and even going so far as to fire customers that they do not view as being a shipper of choice, FTRs Starks said.
Essentially, companies considered shippers of choice do whatever they can to get trucks in and out quicker as well as provide truckers greater access to their facilities than is currently the case. We used to have 24-hour-a-day access, Cordin recalled. Now there are more restrictions regarding hours of operations with some companies only allowing us to deliver or pickup freight from midnight to 6 AM, he said.
To become more driver-friendly, the shipper needs to implement changes to their operations, Stark advised. While we could see more willingness to do this going forward, at the moment, the majority are still not willing to do so, he commented.
Although Fulton identified such an approach as a priority for TMK Ipsco, he acknowledged that the steelmaker could probably refine its processes even further to make them more carrier friendly. We realize that our carriers generate their income by keeping their wheels turning, not by sitting idle, he said.
Fulton went on to note that there are a number of benefits in doing so. If we are willing to work with them and do what we can, it isnt only easier for us to get a truck when we need it, but we could also possibly get a break on pricing, he said.
Given the recent and anticipated tightening of the trucking market, some carriers could conceivably expand their fleets, Charles Clowdis, managing director of the IHS Markit economics and country risk services transportation group, allowed. But that will only happen if they see three consecutive positive quarters of growth and if they are optimistic that the economy will continue to turn upwards, he said.
Other factors, including the driver shortage and certain regulatory requirements, have compounded the supply/demand situation.
The retirement of baby boomers at an increasing rate is causing an across-the-board worker shortage, including in trucking with a number of drivers seeking jobs in other sectors, such as construction and retail, Bill Ritter, chief executive officer for Chesterton, Ind.,-based ADS Logistics pointed out.
This exodus has been particularly problematic for flatbed trucking, especially for companies that transport metals, Clowdisis said. He maintains that steel doesnt rank as the first choice among truckers as a preferred cargo given all the extra work involved in securing that type of load.
The driver shortage hasnt been as severe in 2016 and 2017 as it had been previously, but if, as we expect, freight volumes continue to pick up without companies adding any trucking capacity, the driver shortage will likely get worse, ATAs Costello predicted. It definitely wont get any better.
On the regulatory front, the trucking industry was given at least a temporary reprieve last December from the implementation of more restrictive U.S. Department of Transportation safety-oriented hours of service rules. The legislation would have required that truck drivers only restart their work-week clock once every 168 hours and after two off-duty periods between 1 AM and 5 AM versus allowing them to restart their work after a 34-hour rest period.
AISI worked with a broad coalition toward its repeal of the proposed legislation and in December 2016, the House and Senate approved a provision in the FY 2017 Continuing Resolution that reinstated the 34-hour rest period permanently until and unless DOT is able to provide evidence that the 2013 regulation could provide significant and overwhelming benefits to safety, and truck driver health and fatigue, a spokesman for the trade association said.
Another safety-oriented regulation that is expected to further tighten truck capacitya requirement that truck drivers use an electronic logging device (ELD) rather than paper logs to record the hours they workis garnering a lot of attention.
The ATA has been pushing this mandate (which is to go into effect this December) because of the safety benefit, Costello said. He acknowledged, however. that the regulation could result in a 2- to 8-percent reduction in truck capacity because it would make it much more difficult for drivers to skirt the hours-of-service rules.
The Owner-Operator Independent Drivers Association (OOIDA) had appealed to the U.S. Supreme Court, claiming that the Federal Motor Carrier Safety Administrations ELD mandate violates drivers right to privacy under the Fourth Amendment. OOIDA argued that ELDs equate to warrantless surveillance of truckers.
That intrusion on the rights of hard-working Americans cannot be justified, the association said in a statement. The trade group also maintains that the mandate will not improve safety, but instead amounts to another costly regulatory burden heaped upon an already over-regulated industry.
The Supreme Court refused to hear the case, however, meaning that truckers must transition to ELDs by Dec. 17.
Comparing the fervor over the new mandate to that which occurred when the now, well-accepted requirement for truck drivers to carry mobile phones was proposed, Clowdis said that since most medium- and large-sized trucking companies already use ELDs, he doesnt believe that the regulation will tighten capacity all that much. It will mainly effect small companies with fleets of less than 12 trucks, he said.
It is actually hard to say what the impact will be as it could have a ripple effect, Burns shared his opinion. He agreed that the immediate effect would be felt by companies with smaller fleets, some of which might choose to exit the industry. Such a move, of course, would result in even fewer trucks being available than there are now.
Fleets could also choose to raise their freight rates to pay for the implementation, which could be costly as it not only involves installing the ELDs but training their drivers how to use them, Burns pointed out.
If the smaller companies raise their prices, large- and medium-sized companies could use the move as an excuse to increase their prices as well, Burns noted.
Overall truck availability isnt that bad right now, although it is tightening for some lanes, particularly those that are very congested, such as in the Chicago area, Maniatis said.
It will likely tighten up, however, especially for flatbed trucks as the construction market continues to strengthen, Costello observed.
As the years go on, it will be more important that shippers do what they can to be more competitive vs. others looking for flatbed trucks, TMK Ipscos Fulton advised. This includes making their facilities more available, loading and unloading the trucks quicker, and providing carriers with backhauls whenever possible.