As I write this, the end of 2013 is fast approaching. Snow is falling here in New Jersey and only a few hours remain of a year that has seen significant changes in all segments of the vehicle transport industry. Those changes have not yet made themselves fully felt. But they will.
What Happened in 2013?
First, Jack Cooper bought Allied out of bankruptcy. The combined companies now account for about 4,000 trucks; easily the largest Carrier system in the vehicle transport market.
Then, United Road bought Waggoners Trucking, bringing its total owned-units to about 1,500. Trucks under contract to UR/WT add significantly to that number.
The Jack Cooper purchase was characterized as a “capacity” play. It’s good to be big!
The United Road / Waggoners transaction was essentially a market reach expansion. The two companies had “very little overlap” according to United Road. While the customer base was similar, the market coverage was “complementary”.
In both cases it seems clear that the combinations increase the market power of the two resulting entities.
A new association representing auto haulers, the Atlanta-based Auto Haulers Association of America (AHAA) posted substantial growth in its first full year of operation. While the auto hauler division at the National Association of Small Trucking Companies (NASTC) has been around for a while, AHAA represents the first really significant representation of the auto hauler community.
Time will tell what the impact of this new association will be, but it is off to a strong start and could create some leverage for the auto haulers on key issues as it finds its voice and power.
2. Shake-out in the Brokerage community.
An increase in the required bonds carried by vehicle transport brokers from $10,000 to $75,000 in 2013 has had the effect of shaking out many smaller and financially weaker participants.
Even though some bonding and bond-finance firms brought products to the market that softened the immediate blow, anecdotal evidence suggests that the change in requirements has caused many smaller players to exit the market.
3. Regulatory changes increase costs in the Carrier community.
The change in permitted Hours of Service regulations that went into effect at mid-year directly reduces the number of hours solo drivers can be on the road. The driver’s cost of living remains the same. But he can work fewer hours. Required income per hour, then, has to rise to offset the loss of hours worked.
The change in HOS regulations is far from the only regulatory change affecting the Carrier community. There are many other, less-well-publicized regulatory changes that will negatively affect Carriers. Essentially all of those changes will result in increases in the cost of doing business as a Carrier.
What’s the likely impact in 2014?
Vehicle manufacturers had a very good year in 2013. Overall sales increased to about 15.6 million units. As we look into 2014 a continuation of healthy demand is expected to move that total to about 16.6 million units.
As demand for new vehicles increases, the OEM-driven demand for vehicle transport increases.
The trend towards more and more on-line sales of used vehicles, both to private parties and to dealers, also strengthened in 2013. The evidence that on-line sales cause increased demand for and complexity of used vehicle transport is clear. As geography decreases in importance, logistics increase in importance.
So, it seems likely that 2014 will find demand for and complexity of auto transport continuing to increase across the board.
In the face of increased demand, consolidation in the carrier community, improved carrier representation, increased carrier costs and increase broker costs, will almost certainly put upward pressure on transport pricing.
If transport pricing pressure rises, either:
a) the increase is transmitted throughout the system and results in an increase in cost to the end customer,
b) the increase is absorbed by brokers or shippers or dealers, decreasing profitability somewhere in the transport chain, or
c) offsetting cost savings are found to allow participants in the system to protect profitability.
Given the sensitivity of vehicle buyers to price changes, we believe that upward cost pressures have to be absorbed in the manufacturing/sales/transport system without causing prices to the end-customer to rise.
The good news is that, in our view, there is ample opportunity to reduce costs through increased efficiency. Those efficiencies are to be found in the application and use of improved technology to better manage the transport process.
The even-better news is that those efficiencies are capable of reducing costs at a rate greater than the cost increases the industry now faces.
Not only can impending cost increases be offset by available savings: those available savings, we believe, can actually increase profits for all parties in the transport process without increasing prices to the end-customer.
But the willingness to adapt to changes and to adopt new methods and technologies will be required to make that happen.
Visit us at www.autoloadlogic.com and take a look at the tools that can help all participants in the vehicle transport process protect and improve their profitability even in the face of cost pressures.
And have a great 2014!