Transportation Industry

What is the growth/decline in the transportation industry:

PwC’s Strategy& reviews the commercial transportation industry at its “2015 Commercial Transportation Trends”.
• With lower fuel prices and rising volumes, firms that cut back during the recession are adding jobs and expanding.

According to a May 2015 article in Material Handling & Logistics entitled “The Future of Transportation,” “consolidation is the biggest business trend in transportation.” Small operators will not be able to compete “because of the rising cost of insurance, slimmer margins due to lack of discounts provided by vendors to conglomerates, increased costs of compliance and licensing, and an inability to recruit and retain talented employees.”

PlanetFreight highlights growth and loss trends at “10 Transportation Industry Trends,” May 14, 2015.
• “As the west coast port issues are subsiding, shippers are expected to shift volumes from airfreight to ocean freight.”
• Volume expectations were slowing from the last quarter and were at the “lowest level since 2010.”
• Small package/express pricing was expected to improve.
• Rail pricing forecasts were at their “highest level since 2007.”
• While intermodal pricing was the highest in four years, the expectations for share gains were slowing.
• LTL pricing was expected to decelerate.
• Shippers were “expected to continue to grow in dedicated TL and ground parcel volumes,” with “continued in-sourcing to the U.S.,” but “less near-sourcing to Mexico.”
• Freight budgets were expected “to decelerate due to the lower fuel surcharges and volume expectations.” However, “shippers are still expecting increases in the base rate prices this year.”
• “Rail is continually seeing cost pressures. However, fewer shippers are seeing capacity constraints with rail.”

According to the American Trucking Associations, “trucking continues to be the dominant mode of freight transportation in the United States.”

Highlights of the 2015 American Trucking Trends report include:
• “In 2014, trucks moved 9.96 billion tons, or 68.8%, of all domestic freight.
• The $700.4 billion in revenue accounted for 80.3% of all freight transportation spending.
• Trucking employed more than 7 million people, including 3.4 million drivers.
• Combination trucks logged 168.4 billion miles in 2013, or an average of 69,000 per truck.
• Since Deregulation, the number of registered motor carriers has grown by 68 times to more than 1.3 million carriers.”

The American Railroad Association states that “freight railroads account for approximately 40 percent of intercity freight volume.”

IBISWorld data follows:
• Long distance trucking: IBISWorld, in its Long-Distance Trucking, report 48412, Oct, 2015 calls for a return to growth. Long distance freight trucking “returned to growth as household disposable income grew, leading to increases in industrial production and general trade volume. There were also “massive drops in oil prices.” “In lieu of weak growth in 2013 and slight losses suffered in 2014, IBISWorld estimates that industry revenue will increase at an annualized rate of 3.0% to $175.3 billion in the five years to 2015.”
• Local Freight trucking: IBISWorld, in its Local Freight Trucking, report 48411 Oct. 2015, says, “In the five years to 2015, IBISWorld expects industry revenue to increase an annualized 3.1% to reach $40.7 billion, including a 1.2% jump in 2015.”
• Rails: IBISWorld’s Rail Transportation in the US, report 48211 July 2015, predicts that “over the five years to 2015, industry revenue is estimated to grow at an estimated annualized rate of 4.6% to $84.0 billion.”

Deloitte, in its Rethinking profitable growth in the transportation industry: When efficiency is no longer enough recommends the following:
• While downsizing and labor contract restructuring are traditional cost reduction measures, Deloitte recommends a re-evaluation of operating models to take advantage of changing market conditions (see challenges/threats above).
• Companies that invest in “adjusting the overall operating model or organizational structure” can save up to 25% or even more.
• Solutions to “meet the demands of more sophisticated consumers” include a trial “tri-modal” service, which bundles rail, road, and air freight into one offering; reducing customer loss with a “proprietary electronic freight management system that allows customers to forecast shipping dates, track individual cargo units, and exchange electronic data;” and the Access Point system used by UPS for more efficient parcel routing.
• The report includes a step-by-step guide when planning new strategies.

Transportation management systems are used to reduce operational costs. A good system helps reduce overall delivery time and covers “all the inbound and outbound operations of supply chain management that involves transportation management, planning and decision making, transportation execution, transport follow-up, and measurement.” (Transportation Management System Market – Global Forecast to 2020

An integrated transportation strategy has a “central team that uses technology to track and identify potential disruptions.” It covers not only internal functions but goes “across the supply chain ecosystem” to “suppliers, partners, and customers.” (“Time for an integrated transportation strategy,” Logistics Management (2002), June 2015

“3 Trends That Will Change Field Service,” by John Cameron, B2C, Nov. 10, 2015

• “Automatic emergency braking will become standard.” This can lower “insurance claims by as much as 35 percent, according to the Insurance Institute for Highway Safety and federal Transportation Department.”
• Drivers can be equipped “with mobile apps that monitor their behavior on the road and help correct habits.” They will connect with “fleet and workforce management systems,” help promote driver safety, “and help mitigate risk for the fleet operator.”

Connected vehicle technology currently being developed will minimize congestion, pollution, safety, and wasted fuel. (“The Future of Transportation,” Material Handling & Logistics May 2015)

What are the challenges/struggles the industry faces:

The major challenges across all industry sectors include:
• Fluctuating fuel prices
• An uncertain regulatory environment (tax changes, safety regulations)
• Rising insurance costs
• Lack of qualified workforce
• Weather-related disturbances

Deloitte, in a report entitled Rethinking profitable growth in the transportation industry: When efficiency is no longer enough, offers insights for the transportation industry, which it defines as airlines, logistics/trucking, rail, and shipping/maritime.

Note that the report is heavily sourced. Challenges/threats include:
• Slow recovery of the consumer economy
• “Sluggish new home construction”
• E-commerce is raising consumers’ expectations of fast and free delivery.
• To combat a labor shortage, especially for “truck drivers and rail operators,” companies are “offering higher wages, increased bonuses and other incentives to retain workers.”
• Disruptive weather will worsen with extreme weather conditions caused by climate change.
• Oil prices, while lower, are always volatile.

CarrierDirect, an advisory firm to trucking and logistics providers, identifies some challenges in an article entitled “Mixed signals ahead for freight market, says CarrierDirect,” by Sean Kilcarr, Fleet Owner, Sept. 25, 2015.
• Industrial production is lower than it has been, so “shippers won’t need to replenish their stockpiles.”
• Equipment and driver costs have risen and will continue to rise.
• The Federal Motor Carrier Safety Administration is finalizing a rule to mandate use of electronic logging devices by fleet operators, which will result in “higher operating costs while curtailing their ability to run more miles.”

The risk of cyber-attacks is growing, since many carriers “rely on a “patchwork” of different information technology (IT) systems to conduct business electronically.” Because of this growing threat, cyber-specific insurance rates will also rise. (“Gauging the growing cyber threat to trucking,” by Sean Kilcarr, Fleet Owner, Sept. 14, 2015

Strategy&, at its “2015 Commercial Transportation Trends” cites 3D printing as a threat to the industry.
• More items can be made in one location, reducing shipping needs.
• It suggests that 3D printing, in conjunction with reshoring (moving manufacturing back to home markets) may affect as much as 41% of air cargo and 37% of ocean container business.
• While the threat is not imminent, transport companies may want to start to “lay the groundwork for some completely new logistics services.”

Small carriers are struggling with higher costs and regulatory compliance (including the mandated use of electronic logging devices), according to the Council of Supply Chain Management Professionals. (“Are small carriers facing extinction? By Sean Kilcarr, Fleet Owner, June 24, 2015.

IBISWorld identifies long distance trucking challenges in Long-Distance Trucking, report 48412, Oct. 2015:
• “With high levels of fragmentation, industry operators experience intense price competition and generally earn low profit margins.”
• Industry operators must pass on fuel costs to consumers with surcharges to mitigate “the effects of increasing diesel fuel expenses,” increasing revenue but not profit margins.
• The large number of companies in the industry also “forces operators to offer competitive wages and benefits to draw in and retain the best employees.”

A newly released trucking forecast, a collaboration between ATA and IHS Global Insight, predicts the following:
• “Overall freight tonnage will grow 23.5% from 2013 to 2025 and freight revenues will surge 72%.”
• As the freight economy grows, “trucking will maintain its position as the nation’s dominant mode of freight transportation.”
• “Trucking’s share of freight tonnage will grow from 69.1% in 2013 to 71.4% in 2025.
• Truckload volume will grow 3.5% a year through 2019, then 1.2% annually from 2020 to 2025 – however, truckload carriers will make greater use of intermodal rail for intermediate- and long-distance hauls.
• Rail intermodal tonnage will grow 5.5% annually through 2019 and 5.1% a year through 2025.
• Railroad market share will, however, shrink from 14.5% of all tonnage in 2013 to 13.8% in 2025.”

The transportation management systems market for all subsets of transportation is predicted to grow “from USD 9.22 Billion in 2015 to USD 19.03 Billion by 2020” according to a recent report entitled Transportation Management System Market – Global Forecast to 2020.

According to “The Future of Transportation” (“The Future of Transportation,” Material Handling & Logistics May 2015):
• “The DOT predicts freight volume to grow by 45%, to 29 billion tons annually, by 2040, fueled by rising population and expanding trade.”
• The trucking and ground freight industry will consolidate.
• Technology being developed now includes connected vehicle technology which will minimize congestion, pollution, safety, and wasted fuel.

IBISWorld data follows:
• Long distance trucking: IBISWorld, in its Long-Distance Trucking, report 48412, Oct, 2015 predicts “that industry revenue will grow at an annualized rate of 3.6% to $209.7 billion” in the five years to 2020.
• Local freight trucking: IBISWorld, in its Local Freight Trucking, report 48411 Oct. 2015, predicts “industry revenue is forecast to increase at an annualized rate of 2.2% to $45.4 billion” in the five years to 2020.
• Rail: IBISWorld’s Rail Transportation in the US, report 48211 July 2015 predicts that “over the five years to 2015, industry revenue is estimated to grow at an estimated annualized rate of 4.6% to $84.0 billion.”