Thankfully, the first quarter of 2014 is behind us. The challenging winter across Canada and the northeastern USA and capacity shortages, brought on, in part by the weather, created a difficult environment for both carriers and shippers. Are we in the clear now? With the winter behind us and with the economy improving, can we expect freight supply and demand to come into balance? Here are some thoughts to ponder.
1. Climate Change will continue to produce Bad Weather
Because of its near-total dependence on petroleum fuels, the U.S. transportation sector is responsible for about a third of America’s climate-changing emissions. Globally, about 15 percent of manmade carbon dioxide comes from cars, trucks, airplanes, ships and other vehicles. A National Research Council report states that America’s transportation infrastructure is at risk due to the effects of global warming. Severe weather and rising water levels will impact roadways, railroads, and airports. Climate change will affect transportation primarily through increases in several types of weather and climate extremes. Climate warming over the next 50 to 100 years will be manifested by increases in very hot days and heat waves, increases in Arctic temperatures, rising sea levels coupled with storm surges and land subsidence, more frequent intense precipitation events, and increases in the intensity of strong hurricanes. The impacts will vary by mode of transportation and region of the country, but they will be widespread and costly in both human and economic terms and will require significant changes in the planning, design, construction, operation, and maintenance of transportation systems.
In other words, get used to it. The next winter may be worse than the last one.
2. Capacity Shortages May Increase and Get Worse
Some experts now believe that as the weather improves, the supply of trucks will improve. Since the economy is experiencing one of the slowest recoveries from a recession on record, demand will increase slowly and truck supply will come into equilibrium with freight demand. Will it? Capacity shortages are being caused by several factors. The driver population is aging and one of the biggest challenges faced by trucking companies is recruiting quality drivers. In one recent report, it stated that trucking companies are now spending more money on driver recruitment that they do on sales and marketing. Throwing money at the problem may not make the driver shortage disappear.
Truck driving is still not a respected profession. Young, unemployed people don’t want to spend their lives on the road, away from friends and family. They are not flocking to fill the available positions. Moreover, truckers don’t want to commit to purchasing expensive assets without commitments from customers to pay the freight and an adequate pool of drivers. In fact, as evidenced by a reports some of the public company fleets, they are parking trucks if they cannot find people to drive them. While there are “blue ribbon” panels searching for answers, there is no “quick fix.”
3. There is not much Impetus behind Fixing North America’s Infrastructure Problems
A new report by the American Road and Transportation Builders Association found that more than 63,000 bridges around the country — about 10% — are “structurally deficient.” Bridges deemed structurally deficient require significant maintenance. ARTBA emphasized its report highlights the need to repair critical infrastructure, even as the federal Highway Trust Fund is about to run out of money later this summer. The fund provides states with money for infrastructure projects, and the U.S. Department of Transportation has warned it could start slowing down payments to states as the account dwindles. Those of you who live in Canada or the northeast United States are aware of the damage to the nations’ roads caused by the winter weather. We have never seen potholes on the streets of Toronto as they exist now. Speaking with a neighbor of the weekend, she has already had two flat tires driving on these roads since the end of winter.
Unfortunately, infrastructure is not “sexy.” Most people can relate a lot easier to education, health care or defense than they can to infrastructure. The reality is that it is always hard for politicians to commit to spending money on fixing bridges, freeways and potholes while not allocating enough funds for hospital beds, doctors, classrooms and teachers. There is no “quick fix” here either. By spending less money on infrastructure, this decreases economic efficiency and increases costs. Summary It is costing increasing sums of money to hire drivers, improve the infrastructure in Canada and the United States and to buy trucks with energy efficient engines. That money has to come from higher taxes and higher freight rates. While fleets are being mandated to improve their energy efficiency, this is also a long term process. Purchasing trucks with energy efficient engines, while the right thing to do to combat climate change, results in higher costs. Also, look at the price of fuel itself. Do you expect to see diesel fuel prices go down to $2 or $3 a gallon in the future? Not likely. It is time to face the new reality of freight transportation.
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Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to investors, vendors to the trucking industry, transportation and logistics organizations. All posts by Dan Goodwill