As the peak shipping season gets underway, shippers are facing a “perfect storm” brewing that could drastically affect how efficiently and economically their goods will delivered this fall. In terms of the looming capacity crunch, the motor carrier industry currently has neither enough trucks nor enough drivers to handle all the business. The recent suspension of the new Hours of Service rules only adds to the confusion.
Generally, motor carriers have to deal with three factors: facilities, rolling stock and manpower. On the facility side, motor carriers appear to have sufficient terminal space to manage the volumes they are seeing, even after some rationalization over the last couple of years.
When it comes to the “iron,” though, truck manufacturers are facing component shortages that hinder their ability to produce enough vehicles to meet the demand. The situation comes down to a race to get new rolling stock out to carriers and on the road.
“It will likely take a few quarters for the supply/demand to come back into balance,” reports equity research firm Morgan Stanley (www.morganstanley.com). The problem is that output at the truck manufacturers is running at the replacement rate of 19,000 units per month, while orders are in the 33,000- to 38,000-unit range.
Though there are no statistics to describe the current state of the trailer manufacturing industry, Dick Bowling, president of the Truck Trailer Manufacturers Association (www.ttmanet.org), says expectations are for the industry to produce 215,000 to 230,000 units in 2004. That's a sizable increase from the 130,000 produced in 2002.
Trailer manufacturers saw a peak in 1999, just before the U.S. economy declined. The nearly 300,000 units produced that year fell precipitously over the next couple of years, but, says Bowling, the industry didn't see major consolidations nor did it see big players exit the business. The one manufacturer that was nearly shut down permanently — HPA Monon — ended up being purchased by Vanguard National Trailer, a subsidiary of China International Marine Container Ltd.
The challenge, then, is not meeting increased demand with less capacity; it's in ramping up existing capacity to respond to that demand quickly.
Class 8 trucks are in demand as well. Heavy-duty truck sales have continued to rise in recent months, posting double-digit sales increases and achieving a nearly 50% increase over prior year-to-date figures into the summer. Freightliner, for one, has been ramping up production and adding workers to meet demand similar to the effects Bowling describes on the trailer side.
Prices have been affected in part by government action on imported steel. That effect has moderated somewhat, and Bowling believes prices have not hit historic highs, but they certainly have been on the rise.
Bowling's members make domestic containers, but don't manufacture ISO containers used in international trade. One reason is the demand for containers is in Asia. Building a container in the U.S. for a customer in Asia would mean adding more empties to those already moving out of the U.S. West Coast. Some industry sources estimate one in four containers moving in export lanes from the West Coast is full.
Shipping lines have been keeping their containers on a short leash for the last couple of years. They've added charges of $800 to $900 for containers that are moved inland plus transportation costs if the container is held for any period. Backhaul rates for the full containers are also low, so there is little incentive to move the containers far from ports.
According to Patrick Casey of railcar provider TTX Co. (www.ttx.com), the container shortage is real. Asked if it is a result of imbalance — containers needed in one market are sitting in ports on the other side of the world — he says no, it truly is a shortage.
Issues centering on the container chassis also pose a significant challenge. Specifically, getting a container onto a set of wheels so it can move off the port facility to an intermodal ramp or distribution center is becoming more difficult. A debate is raging over safety of container chassis, and supply could tighten further if safety inspections get stricter and chassis are taken out of service or loads are stopped due to a chassis violation.
According to the Institute of International Container Lessors (IICL) (www.iicl.org), members and non-members responding to recent surveys say they have ordered 625,100 TEUs of new containers valued at $664 million.
The container fleet will grow slightly in 2004, according to IICL, reaching a total of 4.78 million units or 7.3 million TEUs. That's a 1% increase in units but a 1% decrease in capacity.
The chassis fleet won't see a significant increase either. The fleet stands at 325,411 units vs. 323,627 units in 2003.
Huge volumes of freight moving through U.S. West Coast ports have choked the facilities and led to significant headaches for rail intermodal operators. The problems on the Union Pacific (www.up.com), for instance, are almost legendary. The railroad has hired more train crews, but even with the surge in manpower, it seems to have only shifted problems from one region to another.
With the peak shipping season upon us, it looks like there is little relief for now. Asian textile quotas were due to expire at the end of the year, and many importers had shifted sources to Mexico and Central America as they depleted their Chinese and other Asian import quotas. This temporary shift in volume has not offered much relief at West Coast ports. Once the peak retail shipping tapers off late in the fall, Asian textile and apparel shipments should start up again, replacing at least some of that volume.
One logistics industry executive says when he asked port officials about congestion, they looked out the window and said, “What congestion?” Of course, he notes, their windows were all facing the water.
The manpower problem — drivers and port labor — is many faceted. Port drivers have been unhappy recently and have staged shutdowns at West Coast ports and other U.S. ports. The concerns over another major disruption similar to the lockout in 2002 are never far from shippers' minds. The issue may not be technology this time, and it could be drivers, not longshoremen. The Port of Los Angeles/Long Beach recently had 300,000 job applicants for 3,000 temporary dockworker jobs, as the port attempts a short-term response to overwhelming amount of cargo arriving from the Far East. In any event, shippers continue to cast an anxious eye toward the ports.
Anti-idle legislation has been going into effect at a number of ports and others have stepped up enforcement. Fines and other facets of the rules don't sit well with drivers.
In short, capacity is constrained on all fronts, and there is a delicate balance necessary between equipment, facilities and manpower. There are no simple or quick solutions on the horizon, so it appears the crunch will be with us at least for the near future. LT