Everyone knows that trucking and intermodal services are crucial for the U.S. consumer economy.
However, the current trucking situation is somewhat unstable. Capacity issues have come at the most unexpected time, and the supply of drivers is not catching up with increasing demand for trucking services. Recently, trucking companies have been struggling to hire and retain drivers.
In the U.S., the volume of freight shipped has steadily increased.
According to the American Trucking Associations, trucks shipped 9.1 billion tons of freight in 2003, but by 2017, the figure rose to 10.4 billion tons. Despite this increase in demand, the ongoing truck driver shortage is forecast to continue. This is a warning sign for the trucking industry – demand may potentially increase without enough truckers to fulfill increased volume.
Major tightening of current trucking capacity started in mid-2017, after a series of critical weather disasters.
Soon after, the situation deteriorated as the peak season arrived and revealed the grim reality the industry faces. Additionally, available trucking capacity has fallen due to the enforcement of compulsory electronic logging device (ELD) regulations for truck drivers, forcing them to not operate past required hours of service. The trucking industry estimates this new regulation reduced trucking capacity between 3% and 10%. All of these factors contributed to tightened trucking capacity, leaving cargo owners to shift to rail instead of using highways.
So, how have trucking capacity issues impacted intermodal rail?
The rail industry is benefitting from these capacity issues, as buyers and shippers began shipping or receiving more of their cargo via intermodal rail services. Rail options are typically cheaper, but have a slower transit time than long-haul trucking. So, moving less time-sensitive cargo with intermodal rail services is now more economical.
In the past, demand shifted from trucking to rail, but quickly bounced back to a focus on using trucks to transport cargo.
This time, the difference is that ongoing capacity issues may lead to the current shift from trucking to rail being long-term and permanent.
According to an Association of American Railroads report, U.S. railroads reported a 6.5% increase in intermodal traffic in March. Industry experts anticipate that an additional 7% increase will be experienced by the end of 2018. Railroads usually have long-term contracts with cargo owners. Therefore, variations within the trucking market may not enable railroads to adjust prices, or enter new contracts, unless shippers are willing to commit themselves to long-term contracts.
It’s clear that ongoing trucking industry issues are forcing business owners to explore more feasible options.
In business, each problem usually has a hidden opportunity. The unstable trucking environment may prove to help pave the way for reforms that make the overall shipping process more efficient and cost-effective.