Why The Trucking Industry Is So Fragmented And Chaotic

trucking is a highly fragmented industry where it takes little more than a commercial driver's license and a truck to get into business this makes it an appealing choice for workers looking to earn wages or even start their own companies but it means the industry is subject to extreme boom and bust cycles the kovid 19 pandemic has delivered its own challenges including lockdowns restrictions troubles in the supply chain and shocks to the broader economy a large share of truck driving schools have shut down some permanently and there are shortages of new trucks which need to be replaced every few years drivers are badly needed and the trucking industry has a very high turnover rate they're always looking for the next company that's going to pay them the most it's not uncommon for a truck driver to have several jobs in one year unfortunately the life of a truck driver is not the easiest it can mean long trips away from home and tough conditions on the road stiff competition among thousands of trucking companies in america for contracts and for drivers contributes to the fragmentation and chaos and makes it difficult for companies to consolidate impending technological shifts such as autonomously driven trucks may change all of that this could have huge implications for the future of the industry and for the roughly 3.5 million truck drivers now on america's roads the freight business is 12 percent of the global economy 40 percent of the global economy is dependent in some way on freight and logistics like shipping trucking is part of the massive global supply chain and logistics industry that moves goods around the world but these two links in the chain are extremely different in some key ways trucking is far more fragmented than shipping is the top 10 shipping carriers represent 85 percent of shipping capacity the top 10 trucking companies on the other hand only account for about 12 of the total trucking capacity the largest asset based trucking company in the united states is night swift based out of phoenix arizona it had revenues of 4.7 billion dollars in 2020 the industry total is about 800 billion the reason the industry is so fragmented starts with the fact that the barriers to entry are quite low whereas it costs tens or even hundreds of millions of dollars and at least a couple years to build a single ocean-going container ship a new truck can be bought for 150 to 200 000 you can easily finance that through a bank you don't have to have a lot of capital to do that and you don't have to make plans that are measured in years craig fuller runs an industry news source called freight waves trucking runs in fuller's family fuller's father started one of the largest privately held trucking companies in america called u.s express in 1985. his uncle started another very large company called covenant fuller says the industry has changed a lot since its grandfather started in the business around the middle of the 20th century the industry used to be highly regulated but rules were relaxed in the late 1970s and it became a lot easier for people to get into trucking it's a lot more competitive but also a lot less stable and more vulnerable to these big booms and busts as with just about any other industry when demand is strong businesses are incentivized to take advantage of higher prices they purchased more trucks hire more drivers and boost wages to attract workers but these are thousands of small companies often ones that are not sharing information and that are each acting in their own interests for example there are three hundred fifty thousand to four hundred thousand self-employed truck drivers alone in the united states independent truck drivers in small fleets make up about 90 percent of the industry so the effect of thousands of small trucking companies boosting capacity to meet demand can add up quickly to an excess of supply which in turn drives down prices and creates conditions for a bust in the five years leading up to 2021 there were at least five freight boom and bust cycles 2018 was a record year for the trucking industry but 2019 was the worst year since the financial recession for example a remarkably high number of trucking companies filed for bankruptcy 1100 to be exact that is compared to 310 in the previous year 2020 alone produced three cycles there was a dramatic surge in demand early in the year followed by a crash and then another surge when covet hit things did change and it changed dramatically uh for us it was not a lot of freight uh a lot of shippers were closed there were a lot of companies that were closed and um that just you know took the amount of freight that we could actually pick up um the demand wasn't there for freight but truck drivers they um were driving and you know it's it's it was important that we keep the truck drivers on the road to get the food from point a to point b and the kovid 19 pandemic produced other challenges one was a shortage of new trucks a truck has a short life trucking companies expect to get about three years of good use until they turn it over to the used market where it will be bought by shipping ports or customers who use trucks for less strenuous tasks as of september 2021 there is a nine month wait for a new truck and some manufacturers are not even taking new orders the second big issue is labor competition among trucking companies for drivers can be brutal this is in part because there are so many of them and there is not much that differentiates one from another the employee driver turnover rate in the industry can be quite high about 80 percent at larger carriers as of september 2021 a lot of that turnover is made up of people moving from one company to the next with truck drivers they tend to jump around different companies uh just depending on who's paying the most hankins would like to retain more drivers but frequently finds people are lured away by the promise of a pay increase as modest as a few cents per mile when we do feel like there's a good driver that we're going to have for a while there's another company that could pay them extra five or maybe even 10 cent more and i can't you know compete for that i know that's not a lot of money but over uh of course per mile it tends to add up several of the largest trucking companies have raised pay in the last several months night swift raised pay to 50 cents per mile for experienced drivers that means if a driver covers about 100 000 miles per year they can make about fifty thousand dollars median pay for the industry was forty seven thousand one hundred thirty dollars in 2020 though it is relatively easy to enter into truck driving is not an easy career to maintain for a long time truckers spend a lot of time on the road and the lifestyle presents a lot of difficulties truck drivers have high levels of obesity and other health problems and personal health remains one of the biggest reasons for the high turnover rates in the business there are also big challenges finding parking which means it is hard for truckers to find a safe and comfortable place to spend the night after a full day on the road there is an estimated shortfall of about 600 000 parking slips nationwide drivers often find they have to park for the night in empty retail parking lots or even along the highway it is a serious structural problem for the industry but one that is unlikely to be solved soon there isn't really a good market solution available for that kind of problem according to industry analysts and parking for freight carriers isn't really a top political priority even as far as transportation issues are concerned the federal government is not doing enough to support parking if you think about parking as an asset it doesn't make sense as a property owner to really develop truck parking lots because there just isn't enough money out there to do it and so there isn't a big investment in parking that will enable trucks to park there when they're traveling across the country the other big issue is that you think about where freight is often consumed it's often in cities where real estate is much more valuable doing something other than providing parking truck drivers don't have much control over their own schedules and often have to wait sometimes hours for crews to load or unload their trucks these crews often have their own schedules and have little incentive to move faster to help a driver get back on the road it's not uncommon for a truck driver to sit somewhere six to ten hours a day just to wait to be loaded or wait to be unloaded the trouble is truck drivers are only allowed to drive so many hours a day the amount of time they spend loading or unloading can count against that these kinds of challenges incentivize a lot of drivers to seek out the best pay per mile they can find the challenge lies in the fact that the trucking industry is so dependent on drivers you can't have a trucking company without drivers and if a merger or an acquisition by one company of another angers the drivers they might leave and go somewhere else how do you know you're going to retain the drivers anyone who's ever done m a knows how risky m a is because you don't know if the culture of one company is going the acquiring company is going to match the culture of an acquirer e there are exceptions companies knight and swift merged in 2017 to form a nearly 5 billion company but that deal had a lot going for it both knight and swift were phoenix arizona-based companies the managers of both firms knew each other well knight's founders were former swift executives and the companies sometimes swapped employees they served different types of customers so one company's business didn't really cannibalize the others there were other features knight's management team took over swift but knight was much smaller than it was just that the company was much more profitable and so one of the things that happened is that night in many ways uh when management took over swift it improved a lot of the businesses because they were able to bring a sort of a smaller company mindset to how swift it operates the canadian company tfi is probably the best example of one that can roll up smaller trucking operations but it keeps them largely separate it is possible that the industry could see more consolidation and there are some technological innovations that could help that along one is autonomous or semi-autonomous driving removing the driver from the truck removes one of the biggest variables involved in keeping a truck on the road a truck without a driver would remove the challenge of recruiting and retaining drivers and allow companies to scale more easily but there are many questions about how far off autonomous vehicles on u.s highways are there are numerous regulatory hurdles to getting self-driving trucks approved across the united states not to mention about 3.5 million drivers jobs are at stake post 2030 i think you'll see point-to-point autonomous happen and it's going to take it's going to be a slow roll out it's not going to be something that in the initial phases happens very quickly but once it does take hold it promises to eliminate a large portion of the operating cost of a truck it gives the ability for a truck to operate for longer hours than what a driver can do and frankly eliminates a lot of the lifestyle issues that drivers have to contend with once there is autonomous driving massive consolidation becomes a lot more feasible because it will allow companies to achieve economies of scale just as ride sharing companies have done in the meantime trucking companies continue to rely on drivers and drivers continue to make the best of a life on the road you get to see the united states and how beautiful it is going to the countryside going through cities going through mountains it's it's a it's a beautiful place traveling in florida you get to see a lot of the tropical side of florida truck driver is mainly stay in trucking i believe just so that they can get away and not be confined in the office really be able to get out and explore the united states [Music] you

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Id: CP1LyV6n5TA

Length: 12min 30sec (750 seconds)

Published: Sun Oct 31 2021

Reddit Comments

[u/SheridanVsLennier]

$50k/yr seems abysmal for such a lifestyle. I know there's a lot of different pros and cons, but I drive a truck in Oz doing local routes, sleeping at home each day, and get $75k/yr. No wonder US truckers are eager to jump ship for 5c/mile.