Business Insight: What can be done to solve the trucking industry's challenges
This insights piece was originally published in the American Journal of Transportation.
By Sundar Raman and Aaron Swan, Aaron Swan, CEO, 24 HR Truck Services, Inc.
The Current Environment
From congested ports to empty shelves at the supermarket, it’s clear that many goods aren’t getting where they need to be on time. The challenges in the trucking industry certainly have contributed to this, but what exactly are the major issues the industry is facing and, more importantly, what can be done to solve them?
Seeking answers to these pressing questions, a team at Rutgers Business School conducted a research project in collaboration with 24HR Truck Services Inc. to collect and analyze data from the industry and identify solutions that may alleviate the major problems. To better understand their current environment, business models, challenges, opportunities, resources, and long-term plans, the team interviewed over 20 trucking companies.
The Major Challenges
When companies discussed their most pressing problems, finding and retaining drivers appeared to be of utmost concern. This issue, however, is not the only one that demands attention, as parts shortages, vehicle breakdowns, and maintenance problems were also identified as top concerns. This is further exacerbated by the industry facing higher operating costs due to aging equipment, increased regulation, growing performance expectations from customers, and inflation.
The potential need for major investments in electric and autonomous vehicles, and services to support these new technologies only adds to the costs incurred by these companies. These issues may drive companies to hire more contractors or outsource labor to avoid the costs of hiring, training, and retaining employees. These steps will not, however, solve the industry’s challenges in the long run. To achieve sustainable improvement in business performance, a more innovative and transformative approach is needed.
Driver Shortage and Retention
A trucking company’s operation relies heavily on having an adequate number of drivers. According to one executive interviewed, they felt that "the pool of drivers looking for work has declined from 75,000 to 6,000." With some companies experiencing annual turnover rates as high as 125%, demand for drivers exceeds supply, and the cost of replacing drivers has climbed to $10,000 within the past five years.
Driver shortage and retention issues pose a large threat to a company’s sustainability, and many are caught in the dilemma of not having enough drivers, but also being unable to afford the costs of hiring new ones. Companies struggling to increase their workforce are sometimes driven to hire more contractors, who often do not have the same level of experience, productivity, and reliability as employees.
Long working hours, low wages, and a lack of good benefits have also contributed to this loss in drivers. COVID-19 forced many drivers to re-skill themselves in other trades due to the business shutdown in many parts of the country or take early retirement. Despite many challenges faced by the drivers in performing their work, including unexpected vehicle breakdowns, accidents, traffic congestion, or inclement weather, drivers are still often paid by the mile, leaving the extra hours they spend on the road unaccounted for. These unexpected delays not only increase travel time, but also put a driver’s safety at risk. By regularly maintaining trucks and other equipment, companies can also work towards improving driver safety and working conditions.
The key is to balance increased driver utilization with the need for driver retention. To meet demand and stay profitable, companies need drivers to meet mileage requirements, but also cannot overwork them to the point they decide to leave and find a job elsewhere. Incentives can be offered to encourage drivers to stay, such as increased wages, performance bonuses, college tuition, cross training, or providing healthcare or pension benefits.
Finally, mental health is an equally important concern, which, when addressed, can greatly improve retention. For example, extending help to drivers experiencing depression or anxiety, as well as demonstrating appreciation, will allow them to feel more satisfied with their job. A good way for companies to pinpoint what can be done to increase retention is by collecting feedback directly from drivers. Putting money into improving driver conditions is a worthwhile investment, especially if it means that companies can save the cost of replacing drivers or, better yet, avoid loss of revenue due to driver shortage.
Truck Utilization, Repairs, and Availability
Despite the differences in their business models, the data shows that most companies have more drivers than trucks. While this helps to maximize revenue, when the truck-to-driver ratio becomes overly skewed, efficiency and productivity suffers. It’s clear that if a company has fewer working vehicles, having more drivers doesn’t compensate for the lack of trucks.
Operational issues related to dispatch, inadequate emergency roadside services (ERS) and preventative maintenance services (PMS) pose a threat to the number of trucks available at a company’s disposal. Due to the ongoing supply chain crisis, many equipment manufacturers are experiencing delays when attempting to distribute spare parts to companies. As supply fails to meet demand, the prices of spare parts begin to skyrocket. In just 2 years, the cost of trailers has increased by $15,000, and companies expect spare parts to cost between $9,700 to $10,000 per month for each spare truck. With the world still suffering from the effects of the pandemic, such expenses make it incredibly challenging to maintain profitability. The inability to ship parts in a timely manner also hinders operations, since fewer functioning trucks result in less revenue, more money wasted on maintenance, and higher opportunity costs.
It seems that the parts shortage not only increases the cost of breakdown and maintenance services, but also makes it much more difficult to find service providers. According to the data, out of 14 companies, 3 had no internal ERS and PMS, while another 3 had no outsourced ERS and PMS. Some even reported spending hundreds of dollars per month per truck on maintenance alone.
In the event that a large number of trucks are taken out of service due to breakdown or maintenance issues, a company will be unable to make as much revenue due to a decrease in shipments. Since most companies have proportionally more drivers than trucks, a shortage in functioning trucks can result in many idle drivers. In an effort to avoid such situations, companies often plan a 10-20% truck redundancy, but these trucks also require regular maintenance, further escalating operating costs.
At the end of the day, balance is the crucial factor to consider. Strong investment in PMS can reduce the necessity of ERS, and reliable insourced and outsourced services will allow for greater flexibility, faster service, and lower operational costs. In order to sustain the maximum number of functioning trucks, it is imperative that companies prepare a sufficient number of resources to maintain their trucks and respond to breakdowns.
Herein lies a major problem. It seems that it is almost impossible to collect, organize and maintain good service providers to support a company’s network of drivers, whether internally sourced or external. Small companies do not have the resources to contract with large service providers. Large companies contract with large service providers, but large service providers don’t always have predictable capacity, since they are large in name only and often operate as several independent businesses. Small service providers that are individually owned may offer excellent service capabilities, but they don’t appeal to large transport carriers, as they only cover a tiny fraction of the carrier’s overall geographic territory.
So even though a small, specialized provider may offer mechanical services with lower costs and better quality, they are restricted from entering into an agreement because of their size and capacity. On the other hand, a company might organize a large service contract, but that only covers employed drivers. But what about the goods being transported by the company’s contracted drivers? Large service providers have excellent processes but can’t be measured by the company’s business needs. This is because the service provider holds all the data regarding performance, or the service provider offers the services with no true way of measuring their own performance, which can lead to false data and a mismanagement of customer expectations.
The Bottom Line
When all of the factors (driver shortage, utilization, retention, parts shortages, breakdowns, and maintenance issues) are analyzed together, we begin to realize that they are all interconnected, with each factor acting as a major contributor to overall fleet operations performance and supply chain issues. The inescapable reality is that there is growing pressure to reduce operational costs and to find new ways to connect, streamline, and automate hugely repetitive tasks. Many companies miss the greatest opportunity to tackle driver management, retention, repairs, and utilization issues simultaneously by addressing each problem individually. With a centralized software and database that brings together all the required data and creates a national network of diverse service providers, companies will be able to respond to the issues collectively without major capital investments. A platform that embeds solutions to ERS, PMS, driver management, and truck utilization will give companies a solid foundation for investments in electric and autonomous vehicles, as well as the ability to develop additional resources and services that are required to move into a future of operational success.
About the Authors
Sundar Raman is an Assistant Professor of Professional Practice in the Department of Supply Chain Management at the Rutgers Business School, teaching undergraduate courses, advising students in their career planning and course selection, and working closely with corporate sponsors to promote partnerships and facilitate collaborative experiential learning programs.
Aaron Swan is CEO of 24 HR Truck Services, Inc.
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