Despite individual hurdles to overcome, the North American trucking, rail and barge sectors are still barreling through the economic recovery.
High demand for truck transportation exacerbates low driver supply
According to US government statistics, the trucking sector accounts for approximately 70 percent of all cargo moving through the US, and while the sector suffered during the economic recession along with every other industry, it has rebounded impressively--the American Trucking Association's truck tonnage index grew 5.5 percent in the first half of 2011 compared to 2010. Nevertheless, tonnage levels would undoubtedly be higher if not for the trucking industry's most pressing issue: a severe driver shortage.
The shortage is a result of several factors, but the most damaging, according to trucking industry insiders, is the US Department of Transportation-imposed CSA 2010, a regulatory initiative that has done more harm than good to the already-dwindling driver population. While the CSA has well-meaning intentions--getting drivers who don't meet rigorous safety standards off the road--it is expected to not only increase the operating costs of trucking companies by 7 percent, but reduce the number of drivers by 10-15 percent.
While such a drop in employment levels might not have a significant impact on large trucking companies, it will be devastating to small to medium-sized carriers, which make up the vast majority of US trucking. According to Universal Truckload Services, Inc., 96 percent of all trucking companies in the US operate with 28 or fewer trucks, while 82 percent have six trucks or less. Individual owner-operators, meanwhile, account for 11 percent of the approximate 3.5 million truck drivers in the US. Compounding the effects of the CSA 2010 regulations is data that suggest about 15 percent of owner-operators are at or close to retirement age--and their independent employment status means there will be no one to replace them.
The effect of the shortage has already been apparent in the second half of 2011, as the seasonally adjusted ATA truck tonnage index fell 1.3 percent in July after rising 2.6 percent in June. The not seasonally adjusted index, on the other hand, fell 9 percent month-on-month in July. The only bright spot in the results was news that year-over-year, the seasonally adjusted index was up 3.9 percent.
"Despite a solid June, our truck tonnage index fits with an economy that is growing very slowly," said ATA Chief Economist Bob Costello. "The good news is that tonnage continues to increase on a year-over-year basis, but it is likely that the rate of growth will moderate in the second half of the year."
Any growth would be attributed to vigorous recruiting campaigns that both major and minor trucking companies have deemed necessary for the survival of their business. According to sources, companies are focusing heavily on non-traditional potential employment sources, such as legal immigrants, women and discharged members of the military.
Investment secures rail's position in the future
Private--as opposed to public--investment in the North American rail sector has kept it chugging along through the US economy's slow growth this year, not to mention the past 200 years.
"Even during the worst recession in a generation, freight railroads have been plowing record amounts of private capital back into the rail network each and every year, achieving one of the highest capital investment rates of any US industry," said Edward R. Hamberger, President and CEO of the Association of American Railroads (AAR). According to the AAR, US freight railroad companies are planning to spend a record $12 billion on capital expenditures in 2011, which is especially notable considering that unlike other transportation sectors, rail doesn't rely on taxpayers to fund its basic infrastructure-from 1980 to 2010, freight railroads have reinvested approximately $480 billion back into cars, tracks, bridges and tunnels, which translates to over 40 cents of every revenue dollar.
In one of many examples of such investment, Union Pacific Railroad announced in April plans to invest $400 million in a state-of-the-art facility in New Mexico, which will include an intermodal yard and ramp with an annual lift capacity of 250,000 containers. The facility is just one aspect of Union Pacific's commitment to $3.2 billion in capital investments this year. Additionally, the Canadian National Railway announced in early August plans to invest $165 million to expand its yard in Gary, Indiana, which will increase its processing capacity from 1,500 to 2,500 cars per day.
Such investments have ensured that steel-related sectors, from iron ore and coal to finished products and scrap, have an affordable option to move freight across North America. Already, carloads for such products have enjoyed a steady uptrend throughout the year, regularly improving from year-ago results. The most recent statistics show that combined North American rail volume for the first 34 weeks of 2011 totaled 12,845,598 carloads, up 2.2 percent compared with the same period last year, and 9,589,436 trailers and containers, up 5.8 percent comparatively. During the month of July alone, iron and steel scrap carloads increased 32.9 percent, metallic ores jumped 22.4 percent and metal products increased 9.5 percent.
On the other hand, coal cargos have reflected a downtrend for the last few quarters-in July, coal carloads decreased 7.3 percent year-on-year-but it has not dampened rail's outlook significantly, especially when other factors regarding the industry are considered. For instance, another example of investment in rail's future can be seen in employment levels-according to the AAR, the rail sector expects to add 15,000 jobs this year alone in anticipation of a full economic turnaround. It would be wise to take note "when railroads begin to hire and invest in infrastructure and do things that are positioning them for growth," said AAR spokeswoman Holly Arthur, adding that "these are very shrewd businessmen who believe things will return."
Tight availability and high rates spotlight barge's economic resilience
To say barge availability in the US is tight would be a massive understatement. With the approach of grain season (which runs from mid- to late-August through October/November), the majority of barge fleets are positioned in the Northern part of the country, leaving anyone expecting to move cargo up from Southern ports in a bind--including many steel importers.
While there is nothing unusual about this situation, which is an annual occurrence that many plan for, this year is likely to be a bit more intense. "The barge supply leading into grain season is the tightest it's been in a long time," said Colin Schneider, Vice President of Mid-Ship Logistics. "If you think you can mess with barge revenue by pulling capacity from Southbound ports, you've got another thing coming."
Logistics experts agree that unless importers have barge availability secured far in advance, they will not only encounter extreme difficulty moving their cargo upriver, but they might even have to make alternate arrangements with rail or truck (which are typically much more expensive).
However, even steel-related Southbound cargo has had to contend with the barge sector's soaring demand levels. On the Great Lakes alone, iron ore shipments totaled 7,046,146 tons in July, representing a 12.2 percent increase over June and an 18 percent increase year-on-year. As for coking coal, shipments on the Great Lakes totaled 3.1 million in July, an increase--albeit slight--of 58,000 tons over June.
Because the export-bound iron ore and coal market is so strong, it has presented a unique problem for the barge market. Usually, iron ore and coal move in open-top barges because exposure to the elements is not an issue for the products. However, open-top availability has been completely absorbed, leaving exporters no choice but to pay a premium to use covered barges, which are already in high demand for grain and other vulnerable products.