DC Velocity - May 2012

truckload market is sized at more than 50 million loads. It is the rare trucker that has noticed anything.

As for the short-haul segment, little is happening there because intermodal costs are still too high to compete effectively much below 1,000-mile lengths of haul. The cost burden of ramp operations is simply too great a hurdle to overcome—at least until some serious innovation occurs. Since Norfolk Southern is the only railroad that is committing major capital to this segment, I don’t see much happening this decade.

QIn our pages, you were quoted as aying that in the 75-plus years of modern-day trucking, capacity problems have been virtually non-existent, but that for the first time in memory the issue of “capacity assurance” has taken center stage. Will capacity issues be a multiyear worry for the supply chain?

AThis is the issue of the next 10 to 20 years. The hyper competition of a very mature industry has made holding any capacity buffer a risky proposition. At one time, growth and cost reductions would erase any mistakes in six months. Not any more. Fleet managers are learning to manage for growth in margin rather than growth in revenue.

Consider that we have a 100,000-unit shortage in today’s market with little or no driver pay inflation. Nobody is trolling aggressively for drivers. I conclude that the fleets are content to take the benefit of scarcity purely in price, at least until things get much tighter. Given the troubling hiring demographics of the next decade, this situation will only worsen—except late in upturns when the fleets finally add capacity, and early in downturns when demand falters faster than the fleets shed capacity. Those periods account for two years out of the current seven-year economic cycle. So most of the time we will have shortages.

Note that this issue will be particularly acute in those segments where customers need volume flexibility: one load this week, 10 loads the next. Most of the fleets are applying their precious capacity to moves that have the volumes that keep the trucks full. If you don’t believe that, take a look at the big swings in spot pricing during this upturn. ;

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