Trucking moves America forward, or so the slogan goes. But trucking rates and shipping times aren’t so straightforward for small and midsize businesses (SMBs). When truckers suffer higher costs, driver shortages, or changes in demand, that can alter the equation for the speed of an SMB’s supply chain, reliability of its deliveries, and cost of its operations.
Few businesses may soon forget the supply chain disruptions and price hikes of the early 2020s, with trucks backed up at congested seaports, in some cases, or simply unavailable to carry loads, in others. Reduced demand for trucking in the wake of the pandemic has depressed shipping rates as of 2023. That may not last, as inflationary pressures and worker shortages have been increasing the industry’s own costs, while demand has also been creeping back up.
It’s an open question whether, when, and how much rates and shipping times may be impacted, in an industry that has historically experienced cyclical booms and busts. Here’s a closer look at what the trucking industry has been going through in 2023, and what to expect on the road ahead.
State of the U.S. Trucking Industry
Companies large and small rely on affordable, efficient shipping options for their supplies and products. That’s where trucks come in. According to the American Trucking Associations (ATA), trucks move nearly three-quarters of U.S. freight, amounting to trillions of dollars of goods each year.
Freight rates were rising in the second half of 2023, according to the ACT For-Hire Trucking Index, after a pandemic spike followed by a post-pandemic drop. While they were expected to continue rising, truck rates can be seasonal – and regional – and they are subject to a long list of price and performance pressures over time. That list currently includes higher fuel prices, driver shortages, increased wages, spare parts delays, rising repair fees, lower post-pandemic demand, weather, aging infrastructure, regulatory requirements, and even parking problems.
According to a 2023 American Transportation Research Institute (ATRI) survey of over 4,000 trucking industry stakeholders, many of truckers’ challenges are linked to what they call their No. 1 issue: the economy. Trucking is experiencing a post-pandemic lull in demand, and so freight rates have dropped. But their costs hit a new high in 2022 for the second year in a row, according to 2023 operational costs research from ATRI, which may push rates back up for SMBs. Here’s a closer look at some of the trucking industry issues that could affect your bottom line.
According to the American Trucking Associations (ATA), trucks move nearly three-quarters of U.S. freight, amounting to trillions of dollars of goods each year.
Driver Wages Increasing
Truck drivers’ wages increased by double digits in 2022, ATRI’s operational costs research shows. Truck fleet operators are paying more to reduce the problem of driver churn, as an aging workforce increases retirements, while lifestyle preferences limit the number of people going into the profession. Experts say there’s an enduring driver shortage but debate how big a problem it really is. Meanwhile, although trucking demand fell off after the home shopping surge of 2020-21, it’s rebounding, ATA said. All of which means that drivers’ wages should keep increasing according to ATRI’s operational costs research, but only moderately if inflation continues to recede.
Fuel Prices Rise
Diesel fuel also experienced double digit increases in 2022, and fuel prices continued increasing in the third quarter of 2023. It typically takes some time for such increases to be passed on to customers. Looking ahead, a New York Times article referred to the cost of diesel fuel as “a wild card that few analysts have been able to predict well.”
Weather Worsening
Weather has always impacted trucking, but weather events of increasing variety, frequency, and intensity are causing ever more accidents, delays, and financial costs. Many truckers must drive through more rainfall due to warming oceans, across roads that are buckling from high temperatures, amid haze from wildfires, and in other disruptive weather conditions. That said, other truckers benefit from regional warming in the winter. Seasonally, weather also impacts the fuel costs truckers pay. In turn, weather exposes SMBs’ supply chains to fluctuating costs and delays.
Truck Operations Pose Challenges
The cost of purchasing, leasing, repairing, and maintaining trucks and trailers also rose by double digits in 2022, according to ATRI’s operational costs research. Tightening emission regulations, labor costs at production plants, and other factors are expected to keep pushing up the cost of new trucks. Meanwhile, the cost of highway congestion for U.S. truckers hit a peak of nearly $95 billion in 2021, while also delaying trucks and slowing supply chains, according to an ATRI report on the cost of traffic congestion. The lack of available parking also disrupts the speed of pickup and delivery – and was the second-highest complaint in the above-mentioned ATRI survey of trucking industry stakeholders.
Regulatory Requirements Tightening
In addition to new mandates for lower emissions, including a transition to electric vehicles, truckers face a range of shifting regulatory requirements that they say increase their costs and lower their efficiency. Among them: a proposed requirement for devices that limit truck speed, which truckers have said may slow supply chains; proposals for automatic emergency braking systems, which they said would add another cost while reducing control; and a safety rating system that they argue creates uncertainty, blocks smaller trucking companies, and reduces drivers’ safety. The give-and-take over the pros and cons of these regulations is ongoing at the national and state levels.
Technology Offers Solutions
In addition to technologies for cleaner trucks, mentioned above, other supply chain innovations are coming into play to improve the efficiency, cost, and safety of trucking. Here are examples:
- Fleet management software: Truck fleet operators have turned to wireless technologies such as GPS, sensors, and other telematics to track drivers and vehicles. The benefits include lower fuel and insurance costs, as fleet management software helps maintain vehicles, monitor driver and vehicle performance, and improve dispatching.
- Autonomous trucks: Proponents of this technology tout the cost, efficiency, and safety benefits of trucks with at least partial self-driving capabilities. In some states, autonomous 18-wheelers are already in road trials, albeit with “safety drivers” behind the wheel. But technical, regulatory, and consumer trust issues, as well as truckers’ reservations, are expected to hinder widespread adoption.
- Artificial intelligence: As in other industries, AI is coming into use in the trucking business. For instance, a major freight delivery company is testing the technology in robots that automate manual truck-loading. In another case, AI use in detecting unsafe driver behaviors is said to help reduce insurance rates.
What SMBs Can Do
SMBs interact with the trucking industry in different – and often indirect – ways.
- Some use FedEx or UPS to handle retail packages.
- Selling through a marketplace such as Amazon may mean that they use the e-commerce giant’s huge private fleet.
- Others outsource their supply chain needs to logistics companies who manage trucking arrangements for them.
- An SMB might rely on a cloud-based transportation management platform that compares various brokers’ and shippers’ rates and times, while also enabling tracking and performance reports.
- Some SMBs need their own fleets of trucks, too.
Whichever way, here are tips for SMBs to minimize the impact of trucking industry ups and downs:
- Stay on top of trucking: If using a logistics company, try to plug into the dashboard it uses to monitor shipping in real-time. Many companies offer this option.
- Know your seasons: Trucking can be very seasonal – whether due to holidays, harvest times, or warm-weather construction periods. During these periods, trucking supply can dry up. And those seasons often hit earlier than many SMBs expect. Try to plan ahead.
- Diversify options: Contracting with multiple trucking companies can provide alternatives during times of industry turmoil and volatile prices, just as making multiple suppliers part of your supply chain can keep goods flowing during disruptions.
- Develop contingency plans: Know how to route around events such as extreme weather, by considering different shipping companies and routes in advance.
- Communicate: Try to know your shipping representative and stay in touch, to handle delays, adjust lead times, and manage the expectations of your customers.
The Bottom Line
For many SMBs, freight rates remained lower in 2023, as the trucking industry suffered a drop in demand post-pandemic. But industry researchers declared that 2022 was the costliest year ever for trucking operations. And issues such as extreme weather and growing traffic congestion have also increased inefficiencies and delays – all of which could drive shipping rates back up again. Trucking is a boom and bust industry, and SMBs should keep apprised of these cycles because they can impact supply chains, supply chain management strategies, and bottom lines.
A version of the article was originally published January 27, 2021.
Photo: Getty Images