[This article was originally published by Independent Institute].
City dwellers forget that so much of what makes their lives possible is sourced from the non-urban realm. Whether it’s food, fuel, or plastics, this happens through the extraction and manufacturing of raw materials nation- and worldwide. Then it’s mostly delivered by trucks.
The U.S. freight trucking industry continues to be crucial for urban supply chains – especially during coronavirus. But the industry, which carries 71% of U.S. freight, had already been going through flux before the shutdown. I spoke with Rachel Premack, a freight trucking reporter for Business Insider, to ask how the industry is being influenced by federal policy, new technology, the virus, and more. Our conversation was edited for concision.
Before coronavirus, what were the major trends in the trucking industry?
There was actually a huge recession last year. The trade war with China disrupted what a lot of industrial manufacturing was planning for. That, in turn, caused a lot of disruption in the trucking industry. If you look at the first half of 2019, there were 3 times as many bankruptcies as there were the year before. That was the most bankruptcies the trucking industry had seen in decades.
But wasn’t the whole idea behind that trade war that it would strengthen U.S. manufacturing? Yet it went into recession…
There was basically just this feeling of uncertainty [because of the tariffs] about what was going to happen, how manufacturing was going to be affected. That destabilized how much people were going to be investing in factories.
The trucking industry is split into two halves: retail and manufacturing. Retail was doing really well last year, but on the industrial side, we’re seeing the lowest factory activity since 2009.
I assume other factors, like technology and e-commerce, have also disrupted trucking?
In the past 10 years, the number of start-ups that are looking at supply chains has exploded. Often, they’re looking at the digital freight brokerage industry. That involves the process through which truck drivers, retailers, and manufacturers match up, and companies like Uber Freight try to automate it. They’ve had some success, but not as much as you might think. Truck drivers are an older and pretty independent, pro-privacy, anti-interference group of workers. It’s challenging to get them to agree to use an app that will track their locations as they drive across the U.S.
Other disruptions, besides all these startups trying to get into the industry, is e-commerce. The average mileage of a trucking route has halved over the past 10 years because way more of the driving is from warehouse to warehouse. The nature of what’s being carried has changed. Then Amazon is building up their own truck driver workforce, and changing a lot about how truck drivers are paid and employed. A lot of trucking companies are scared of Amazon.
Another one is self-driving trucks, but that won’t be the case for 15-plus years. People have gotten way less optimistic about that.
How do you think the trucking industry will be influenced by COVID-19?
2020 was already forecasting bad news in the trucking industry; with this, it’s getting worse. There have been layoffs. What’s probably going to happen is some small companies go bankrupt, and the most well-financed companies will be equipped to weather the economic disruption.
What are the biggest companies in trucking?
Well, there’s UPS and FedEx. But then there’s also XPO Logistics, JB Hunt, Schneider, Werner, U.S. Xpress.
But the industry is weird, because there’s something like 200,000 trucking businesses, and 90% of them have fewer than 5 trucks. It’s a textbook example of perfect competition – so many firms, so many potential customers, so many actual customers, that the price for trucking services is the lowest it can possibly go. It’s good for us because prices are so much cheaper, but maybe not so good for the companies themselves, because they can’t invest in technology in the same sort of way, and the workers aren’t very well paid.
You’ve written about the Motor Carrier Act of 1980. Signed by President Carter, it deregulated the industry from New Deal-era protectionist regulations and really fostered this perfect competition.
It’s interesting: with airlines, deregulation concentrated power within 4 to 10 companies. For trucking, it caused the opposite. There had been a small number of companies that the federal government set the prices for; now with deregulation, it’s a bunch of tiny companies.
Several drivers have noted to me that trucking is one of the few industries, besides maybe the restaurant industry, where you can just be any kind of American and still become a small business owner. You don’t need to depend on some mega-corporation for your take-home pay. Deregulation put more power back into the average driver.
But there was also a huge decline in salaries. It’s still a job that requires people to be away from home. It’s pretty common for a lot of drivers to have multiple divorces, or they aren’t close with their children because they didn’t see them growing up. It’s a job that takes a big toll on your personal life.
What is a unique feature of modern trucking that people might not think about?
A weird way that the coronavirus has benefited the trucking industry is that, because everyone’s working from home, traffic is way down. That’s made it easy for drivers to do their jobs. The average speed of a truck has doubled or tripled in major metros. Drivers get paid per-mile, so that means more money for them.
Another thing is gas prices have tumbled. Fuel is often a quarter or third of the expenses they pay. So that’s another benefit of everything going on.
Freight trucking is an interesting beat. How’d you get hooked on this anyway?
I wrote a one-off piece about the trucking industry when I had just started at Business Insider two years ago. The story was about the truck driver shortage driving up the prices of retail goods, but I ended up getting a lot of responses from truck drivers telling me that I got the story wrong.
I talked to a few of them and was told that a new government regulation was really the issue causing the shortage. My next piece was about that new regulation. The response was fantastic – I got probably an email every minute for the next day or two from drivers. After that whole experience, I was pretty much hooked on reporting on trucking.