What’s next for trucking?

There’s an old saying: “The way to make a small fortune in the trucking business is to start with a large one.” That’s never been more true than in the past year, with a high number (31,000+) carriers exiting the market.

There are a number of reasons for this, mostly tied to the ever-present changes in the business cycle. This time it was the COVID effect, and the next time it will be something else.

When capacity gets tight, rates rise—in this last instance dramatically. This invites expansion, with new capacity being added by existing companies as well as new entrants, which then inevitably leads to over-capacity as markets soften and rates fall. Carriers with strong balance sheets can weather the storms, while carriers with too much debt or overhead collapse under the weight.

The industry is so fragmented that it’s difficult to bring stability to it in any sustainable way. Depending on how you take the census, there are some 1.1 million for-hire trucking companies in the U.S.

The Federal Motor Carrier Safety Administration says 929,000 and an additional 799,000 private carriers, with just under 4 million Class-8 power units. Over 80% are classified as small businesses, with 95.7% operating with 10 trucks or fewer. On the other hand, the top 10 truckload carriers account for only 6% of the total truckload market.

Despite all of this capacity and decades of focusing on improving asset utilization, empty miles remain an unresolved bugaboo for virtually the entire industry. This amounts to anywhere from 10% to 20% of miles driven by common carriers, depending on who you listen to. Private and dedicated contract carriage fleets fare even worse at 35% to 50% non-productive utilization. Even with all the advances in technology over years, this had been—with rare exceptions—an almost irreducible number.

Of course, all this non-productive, non-revenue cost has to go somewhere. Generally, it’s too great to be absorbed in the margin, so it makes its way into the rates paid by shippers.

Perhaps looking at this through a different lens will provide a potential answer. The rapid rise of artificial intelligence (AI) is enabling solutions heretofore unavailable. It can provide speed to solution and enhance performance visibility and optimization to improve operating efficiency when combined with appropriate business intelligence.

Of course, used solely on an individual carrier basis improves the situations at the margin, not at the core. The real advantage would come from combining available assets from various providers across a broader spectrum into what amounts to a gray pool of capacity, with the overarching goal of keeping the wheels rolling with revenue freight and keeping empty miles to a minimum for all players.

Look at how Uber ride share and Lyft work: They maximize the use of the asset (car and driver) and minimize non-revenue miles using an on-going, real-time algorithm that continuously updates, matching capacity with demand for optimal efficiency and minimal overhead. The driver makes more money, the customer pays less.

In virtually every instance, independent operating companies—from smallest to largest—are still saddled, to varying degrees, with administrative overhead for marketing, sales, pricing, billing, collections, and dispatching that may run from 10% to 40% of operating revenue.

Much of this is contained in physical structures, requiring rent, utilities and telecom services and the human resources housed therein to run the business. Entering into some form of asset-pooling agreement, operationally enabled by AI-based solutions, can help reduce non-productive expenses, improve service, enhance margin and lead to greater market share.

This sort of operating model would require collaboration among potentially competing carriers, but if costs and efficiency improve, it may prove worthy of consideration.