Supply chains can be divided into three main areas: purchasing, manufacturing, and transport. In a global supply chain, in which goods very rarely end up where they have been manufactured, it’s important to have a responsive, economical transportation network to ensure that products reach their destination in a timely manner, as and when demand dictates.
As such, the trucking industry is of vital importance to the success of supply chains. However, trucking companies are struggling, with shares dropping far faster last year than other transport stocks and the broader financial markets, and thus fall is likely to continue this year. The cause - a weak freight market.
Last year, there was a 27% fall in the Standard & Poor’s index of trucking stocks, far higher than the 18% decline in the Dow Jones Transportation average, which also includes railroads and airlines. One of the primary reasons for this is the driver shortage that has arisen as a result of low wages in the field. This is unlikely to improve as freight volume expectations are expected to remain low. Factors such as reductions in inventory, increased exports and higher energy prices that encourage exploration could resuscitate the 2016 trucking economy and share prices, but over the past few years, shippers have squeezed costs in their trucking operations as far as they can.
Several major trucking firms are now delaying the expansion of their fleets until conditions improve, in order to ensure capacity from exceeding demand and triggering price cuts remains. Success will depend on whether consumers show the kind of buying power that convinces retailers to resume refilling warehouses.
According to Chuck Clowdis, managing director of North American markets for IHS Global, a Lexington, Mass. based economic think tank,: ‘As the economy improves, whether slowly or as a result of some big event, capacity will be tight, given the exit of so many carriers from the market. Driver availability can only worsen. The demographic group is smaller, and many drivers have found other work.’
In the last quarter of 2015, 1,380 trucks came out of service, taking the total for the year to 4,405 trucks. Avondale Partners reported that fleet failures jumped in the fourth quarter of last year and will climb in 2016. The weak freight market has wider implications too, and could indicate an impending recession. Obviously this would be far more worrying than a struggling supply chain, and everyone needs to be prepared.