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Trucking industry gets a boost from lower fuel costs

Trucking industry gets a boost from lower fuel costs

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WATERLOO | The road for the trucking business isn’t exactly glass-smooth these days, but there sure doesn’t seem to be as many potholes, industry officials say.

“There’s been some interesting developments in 2015,” said Waterloo native Bob Costello, chief economist at the Arlington, Va.-based American Trucking Association. “The industry is still growing, but freight slowed down.”

Tonnage of goods shipped by truck will have increased by about 2.5 percent by the end of the year, although factory output has slowed and inventories have increased, Costello said.

“If you ignore the Great Recession, inventory levels are at the highest we’ve seen in more than a decade,” Costello said.

Lower fuel prices have served as booth bane and boon to the trucking business, Costello said.

The price of oil has dropped to an 11-year low of around $36 per barrel -- a product of increased domestic production and less consumer demand, according to some energy analysts.

However, the bottoming-out of the price of crude has cut into a fracking industry that boomed only a couple of years ago – and had sent demand for oil-carting trucks spiking.

Now, that demand has dropped, and the trucking industry has noticed, Costello said.

“That generates a lot of business for trucking, going and getting the oil and gas,” he said.

Price break

On the upside, haulers are no longer paying upwards of $5 a gallon for diesel fuel. Indeed, prices for diesel fuel averaged $2.141 across Iowa Dec. 24, compared to $3.062 a year earlier, according to Triple-A.

“The drop in diesel fuel prices have been a big help,” Costello said. “For most trucking companies, diesel is right up there with driver pay as a No. 1 expense.”

With fuel costs down, many haulers are passing the savings along to drivers, Costello said.

That, he said, is bound ultimately to address another nagging concern in the industry – a driver shortage.

“A driver shortage continues to be an issue, despite the slower growth in volumes,” Costello said, nothing that the industry currently has about 48,000 fewer drivers that it needs.

Companies that can pass some of their fuel savings to drivers will retain more of them, Costello said.

“You got a shortage of drivers, driver pay is going to go up, so they’re taking some of that savings and giving it to the drivers,” he said.

Some experts have predicted a driver shortage of 175,000 within 10 years, but ATA doubts the number will reach that high, Costello said.

Lower fuel prices have helped cut surcharges on delivered products, which has been positive, said Dick Donnelly, CEO of Warren Transport, a Waterloo-based trucking firm.

“There’s over a dollar difference per gallon in fuel this year, so charges and shipping costs have been reduced considerably because of that,” he said.

Farm economy still a problem

The slumping farm economy has been a major challenge facing the industry, Donnelly said.

Warren, which works with independent owner-operators, is working the blunt the effects of the agriculture slide, he said.

“Our goal is to diversify and find multiple shippers of better and different segment of the industry manufacturing outside of ag products and ag construction,” he said. “We’re meeting it head-on, and we’re making positive steps to getting into those markets and recovering what we’ve lost. It has been a big hit.”

Warren, which has about 140 employees, has focused on growth in the last year, both in recruitment and in other areas, Donnelly said.

“We continue to buy new trailers to update our fleet the last several years and spent several million dollars in each of the last several years, and we’ll continue that,” he said.

Gray Transportation, Waterloo trucking firm that has 160 trucks, also has been hit by the agriculture downturn, but the 145-employee company had a good year, said LeRoy Gray, owner.

“This is the best year we’ve had for several years, and I think next year will be pretty much the same,” Gray said. “I could probably put 20 more drivers to work, with the current customer base.”

Gray does a lot of refrigerated business with Tyson and also has a dry van business, he said.

“We have enough of a customer base that we will keep our employees all busy and equipment on the road,” Gray said.

Gray, like Warren, does a lot of business with John Deere.

“We’ve enjoyed an increase in business over the past three or four years,” Gray said. “Naturally, we expect that to decline in the next couple of years, due to the farm economy.”

Overall, the industry is closing 2015 in good shape, Costello said.

“It’s doing well,” he said. “I wouldn’t say this is the greatest time we’ve ever seen, but it’s certainly not the worst. But most importantly, the fundamentals are solid. We just need to work through this inventory. Things in 2016 can be even better than they were in 2015.”

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