GTI Industry Update 2010
During the last 18 months, the entire US economy has been challenged like never before. Many companies faced falling demand and difficult choices; the trucking industry was no different. Facing a severe imbalance of capacity versus demand, the market re-priced trucking services severely downward. In order to adjust to the market, GTI, like many other companies, took the necessary steps to reduce costs:
* Starting driver pay was reduced and longevity increases were discontinued
* Non-driving staff was reduced 10% and wages were frozen
* Focus was put on fuel costs by reducing MPH, managing idle and more aggressive pricing negotiations with fuel vendors
* Safety improvement programs were strengthened and cost reductions were closely monitored
* Strategic empty mile reductions were essential while tightening the management of our freight network
These were challenging initiatives, but necessary as we commit to remaining a sustainable and viable service provider for our customer base. Through it all we strive to build a stronger and more efficient operation.
So far in 2010, with inventories worked back into balance with reduced customer demand, we have seen some areas of capacity shortages. After right-sizing everything from tractor fleets to office staff in 2009 to reflect dramatically lower demand and pricing levels, many carriers have been challenged to respond to any increased demand. Fleet growth will meet with significant headwinds to meet this growing demand. Namely:
ENVIRONMENTAL REQUIREMENTS: Federal and state regulations have significantly increased the up front costs for both tractors and trailers. It will take years for companies forced to invest here to see any payback (if at all) for many of these mandated new technologies.
CSA 2010: Comprehensive Safety Analysis will tighten regulations on trucking companies and driving associates, ultimately reducing capacity further as individual drivers are forced out of the industry. Experts estimate that potentially 10-15% of the nation’s drivers may be “unemployable” under these new regulations.
HOURS OF SERVICE: Changes to the HOS rules are due in July 2010. This will likely restrict overall productivity with lower driving time.
FUEL PRICES: In 2010, The Department of Energy Information Administration is projecting diesel fuel price to rise 19.9% year-over-year. There is a well established link between high fuel prices and fleet bankruptcies, one that will only prove more severe with less compensatory fuel surcharge programs compared to the last spike in 2008.
DRIVER BASE: We are already seeing signs pointing to a return of the industry’s chronic “driver shortage.” Truck driving continues to be a challenging vocation. Most companies reduced starting pay, froze or lowered existing pay, reduced MPH and performed other management tightening initiatives. It won’t be long before some amount of the savings in these areas will need to be returned to drivers. Already, sign-on bonuses are resurfacing in the recruiting world, increasing the costs to hire new drivers.
GTI has worked very hard to position ourselves well through the economic downturn. We were fortunate to continue growing our business, investing in the company’s future with new assets, technology and terminal resources. However, responding to freight surges or long term demand growth at today’s rates simply isn’t sustainable moving ahead. As always, the market will set the price, but we believe with these headwinds and a shrunken capacity base, the market for transportation services will move significantly higher in the coming months.
We ask that you work with us as this recovery takes hold, realizing that pricing changes will be essential for our ability to grow and serve you.