Sustainability and the State of the Trucking Industry
Anh Man
Published on May 10, 2024
A recap of Tucker’s 25-minute insight on significant trends and updates in the trucking industry today, with an emphasis on sustainability and regulatory shifts impacting YOUR business.
During a recent webinar on May 2nd, Jeff Tucker, CEO of Tucker Company Worldwide shed light on key updates within the trucking sector, pinpointing changes in capacity and logistics trends. He provided an overview of current regulations affecting both carriers and shippers, particularly addressing challenges posed by the latest EPA emissions rule. Jeff also introduced the Carbon NetZero initiative, unveiling actionable and verifiable solutions that support our sustainable commitments.
Transcription: "It is 12:01 EST. So, my name is Jeff Tucker, CEO of Tucker Company, the oldest privately held trade brokerage in the U.S. And we have these webinars every other month or so. And I'm gonna ask right at the outset if there is anything that you would like to hear about, anything you'd like to learn about, anything that you would like to, you know, hear from an expert on, whether we are the experts or we find someone who is the expert, we're interested in your thoughts. We've got a lot of friends out there in the industry and can help us, you know, bring up almost anything that you'd wanna learn about. So please, throw it into the webinar chat, and we'll take notes and try to get that set up for you.
So gonna move on to the beginning here. Just a little bit of background. Several of us, including myself, have just returned from a whirlwind amount of trade show and association activity. This is just the sum of those that we have been to in the last several weeks. We're very involved in the industry. It's always been our mission to be involved in the 3PL group, which is the TIA, various shipper groups, to understand that...the issues that the shippers and our customers, right, are going through, and then the Truckload Carrier Association and some other carrier associations there to understand what our carrier partners are going through.
So, in order to be effective in that middle space where we exist, it's really important...it's always been terribly important since we were started in 1961 to really familiarize ourselves with and build strong relationships and bonds with. So that's a little bit of our background. Couple things that are top of mind. I wanted to sort of share with you, there's been a lot of talk of nuclear verdicts and insurance and the risk associated with those to shippers, to brokers, and even to carriers. Safety fitness determination is the future safety rating of motor carriers. Well, it was supposed to be out, like, in around 2010, and here it is, 2024, 14 years later, almost a decade and a half. And we are still waiting for the Federal Motor Care Safety Administration to get that program going and off the ground.
So right now, today, 90% of all carriers are unrated. That's not necessarily a bad thing, but it's certainly vague. And in science and in business, we don't like vague. In risk management, we don't like vague. FMCSA gets focused on a lot of different things that aren't safety. And right now, they're focused on a lot of things that are not safety, and unfortunately, we all suffer in between.
Fraud, I think a number of you put out... I was fortunate enough to testify before the House of Representatives in the U.S. Congress, the Transportation Infrastructure Committee, on fraud. Fraud is rampant in the industry, and, you know, it's not one type of fraud, it's all types of fraud. Bad actors that are masquerading as motor carriers, as brokers, and even as shippers, believe it or not. We're even seeing today MC numbers for motor carriers being traded on eBay, right? So, that is not a good sign for safety, for security of your freight, and, you know, it's something that a couple different trade associations we're part of, are getting involved with. In fact, I think I'm gonna be on a telephone call with FMCSA's, leadership and a couple of our trade associations in a couple of weeks to talk a little bit about that.
Fortunately, FMCSA is listening a little bit and taking baby steps in that right direction. So, they have a fraud task force that they're gonna be putting together. We'll have more on that as information develops. To the market. In the market, we're still at relatively lowest tender rejection, you know, since Sonar began measuring this a few years ago, about 3.5%. So that means over 95% of the first carrier, first provider in line in TMS, is receiving or handling that load. And at the worst of pandemics, we're at, like, 32% of rejection. So, you can see the flip has been big in that time.
Couple really kinda big pieces of news, I think. The ISM index is over 50 for the first time, which would indicate an expansion, not first time in a year and a half, an expansion in manufacturing. Good news for trucking, right? But at the same time, we're seeing the inflation numbers not going down as quickly as we'd like. So little challenge there, and we'll touch on that in the flatbed in particular market in just a moment.
The U.S. Department of Labor's independent contractor law is a real threat to trucking, and I'll touch on why in just a moment. You'll see the data in just a moment. But the Department of Labor and I understand where the desire is coming from. The desire by the government is to protect these independent workers who really are employees, let's say, of a company. So, they've advanced the line considerably where a contractor could be defined as an employee. Well, they did not carve out an exception in trucking. And in trucking, drivers do not want to be employees. They want to be owner-operators, okay? They want to work for themselves. They don't wanna be forced into employment. And, unfortunately, the DOL, in its infinite wisdom, passed this rule and did not carve out trucking. So, that is a big risk for trucking, big risk for driver supply, but five lawsuits, and probably growing, are challenging that rule right now. So more to come. Something just to keep in mind.
And, lastly, and I will touch on this in a moment too, the federal government has offered, you know, $148 million in incentives for various ports around the country, some of the biggest ports, and then also in Puerto Rico to begin electrifying and cleaning the air around the ports, right? There's a lot of idling there, and it's one of the areas. That's part of a much larger program, and we'll get into that in a few moments. But I wanna just talk a little bit more about market. So, there's a lot of charts, a lot of data. I'm gonna keep it really super simple and move on. The left chart is the one that we share most frequently, and that's the Morgan Stanley Truckload Demand Index. And the little black line with the triangles is the average of the last several years' demand for trucking. And it goes through seasons, you can see throughout the 12 months of the year.
Finally, right now, dry van, which is the largest segment in trucking, and trucking is not a monolith. Everyone says, "Oh, trucking is this, that, the other thing." There are so many different marketplaces within trucking. These are three big segments, and then there are all kinds of little ecosystems beneath each one of those and more. But generally speaking, the van demand index is equal to now, what it has been over the last several years on an average. So, are we at equilibrium? Maybe. Maybe we are. Flatbed, I believe, reefers in the upper right-hand corner. You can see reefers still lagging, and there could be a number of reasons for that. I don't have time to get into for right now. I've got a number of reasons for that. Also flatbed, you could see, is lagging considerably, I would imagine, and some of the analysts will point out that, hey, construction, because of high interest rates and housing, isn't there. So, the flatbed market is off a little bit. So, there's still probably a little bit of flex in the marketplace.
I wanna talk a lot about this for the next few couple of slides. So trucking industry, if you're not already familiar with what's happening in the trucking industry and what's been happening for well over a decade, you have to be... In the event that you're a buyer or that you're an operator and you've got procurement buying for you, you absolutely positively have to know what is happening in the trucking industry. And the trucking industry is getting bigger, but the bigger carriers represent the smallest market share than...that they've ever had, you know, at least in the last 15 years or so. And that is continuing. That trend is continuing.
So, we're at the smallest average, and this includes the largest carriers in the country, right? This number of 9.4 is where we are today. So, on average, there are 9.4 truck drivers in every trucking company. This is a chart showing two things. It shows the number of drivers in the marketplace, and the drivers are on the left-hand axis there. And the red line is a truck tonnage index as reported from the FRED in our Reserve Bank of St. Louis. They call it the FRED index. You can take a look there, believe it or not, through all those pandemic years from 2019, 2019 marks the highest freight tonnage mark. Remember, freight rates were through the roof, right? And supply chains were pretty messed up. It's all scientific business terms. And people were stealing carriers from one, you know, supply chain to another and just driving up the price. And drivers were entering the marketplace to feed on that bonanza, on that frenzy. It was the worst capacity crisis in history by, like, half of the year over the 2018 one and some of the others before.
So, you know, we are only approaching the same freight levels of 2019, relatively speaking, and we have more drivers than in 2019. So, it's my feeling that we still have more drivers than we need in this industry. And it's also a fact, as far as I'm concerned, that there is not a driver shortage nor has there been a driver shortage. There's driver shortage in liquid bulk and some real specialties because it takes a lot of time, effort, practice, and certifications that some folks just don't wanna go through, right? And a lot more challenging. Imagine being on top of a flatbed that's loaded, you know, nine feet high. You're 13 feet up in the sky, and you've got a gift wrapped with a tarp in the middle of winter. Well, that's a tough job, right?
So, you can see where some little pockets might have a shortage. There has not been a shortage. But the driver shortage is a narrative by certain Washington groups to get what they need out of Washington. But in reality, we've never met a day we weren't able to move a load for the right price in 63 years of business. Driver and carrier counts are just off their all-time high. I've been talking a little bit about that driver count. This is the carrier counts. Carrier counts this time in the blue bar charts. You can see there we're still above... Yeah, we are. We're still well above 2019. So, a lot of carriers started. A lot of drivers and more carriers spun off from the big carriers during the bonanza, and not all of them have gone back to the big carriers, clearly.
This is a breakdown. This is from a market share standpoint, just in the last five years. So, it's, like, the COVID years, right? So, from 2018 to today. And today is 2024, is the orange bar, and you could see that each of the carrier size segments. So, the largest carrier is 2501+ trucks is at the top, and you can see the smaller carriers at the bottom. The only group of carriers that added to their fleet size, excuse me, and added to their market share, excuse me, the only carriers adding their market share were the smallest carriers, the one to 100 truck size fleets. And I've said before in number of occasions, those fleets average about 5.3 trucks per operating company.
So, what does all this mean? Well, it means that if you're not paying close attention, the capacity crisis for you as a shipper will be worse the next time than it was before. And the reason is because more than 50% of all drivers drive for the smallest fleets, well in excess of 70%, 75% of all drivers drive for fleets that you've never heard of before. Everyone has heard of the largest carriers. So, if you think you're asset-based and you're protected, and things are good now, things are good now because things are soft. You've gotta have a solid base of reliable, you know, third-party freight forwarders, brokers in there who can build assets, but smaller fleets and access these huge numbers of drivers, these huge numbers of reputable companies.
And another narrative that comes out of the Washington Trade Associations is that these drivers are unsafe. These drivers are on drugs. These drivers... That is not true. Keep it clean. That's absolutely not true. That is what you say, again, when you're trying to influence regulators and lawmakers. You'd have to prove that in order to make that truth.
Moving on to sustainability. It's so funny, I've had a lot of talks in the last several months where I've indicated for 14 years, our company has been an EPA SmartWay provider. And we have not had a soul, not a single customer has cared. I think it's...maybe they feel it's a good thing. I'll touch on SmartWay in just a second. But this year in particular, almost every RFP that we've received as a company has asked us, "Hey, vendor. What are you doing about sustainability?" They're asking us to put down in writing what we're doing, to give them advice, to give them places to look, and it's a major fact-finding. We have some customers in certain industries who are asking us to help them on their journey at 10% a year, right?
So, just a few weeks ago, end of March, the editorial board of "The Wall Street Journal" excoriated the administration on their EPA's EV mandate. And it was just at the time, we were having a couple different panel discussions on this topic and a couple different trade associations. So timing was good to touch on this. I'm not getting into politics. I'd never get into politics. I am talking about the industry and talking about data and facts.
The latest EPA guidance, you know, it's aggressive, and there's a Clean Freight Coalition that opposes, and it came out pretty loudly, kinda a few weeks ago, opposing these new rules, and, you know, for a good reason, right? I think that there's recognizing that the challenges ahead are numerous, right? I think that anyone who thinks that electric trucks are, you know, in the next couple of years, it's not reality. There's about 55,000 electric vehicles predicted by the end of 2025. There's, as you just saw, 3.4 million drivers driving, you know, in the for-hire fleet. So, it's a hair on the elephant's back, so to speak, in terms of what it's gonna provide.
And what they're currently concerned with, right, is the payloads. These batteries are extremely heavy. The payloads are gonna be reduced. In addition, where these vehicles are already in use at some ports around the country, you need two times as many trucks to move because the battery can only handle a certain number of turns before it's out. So it can't keep up with the amount of fuel that a diesel engine can keep up with. So, a lot of challenges. In addition, the cost for the infrastructure is, you know, around $600, $700 billion with a "B," and that is the entire cost of all freight transportations over the course of a year. So, not small peanuts by any means.
So, the Clean Freight Coalition is a group of, primarily, industry associations. I think ATA and Truckload Carriers Association are two members, but there are many others. And to hear ATA, and we've heard the chair of ATA speak numerous times in the last several weeks, they're really concerned about these rules. However, when you're in a situation like us and many other companies who are being asked to find ways and doing nothing isn't the option, what can you do? And realizing that, you know, these EVs or hydrogen, or whatever, this is way down the road. It's coming. There's something that's coming. I don't know what it is. Alternative vehicles are coming in some way, shape, or form, and at some point. But to answer the questions on our RFPs, to answer the questions that our customers have, and to help our customers on their path to reducing, the easiest button to push, the easiest lever to pull is mode conversion, right?
Air is the most polluting kind of freight, pound for pound. So, air to truck, air to ocean, that saves a lot, right? The challenge there, well, you've gotta have more product because there's gonna be errors, you know, same day, next day. Ocean could be two weeks, right? So, you've gotta have more product, and you've gotta involve your CFO, clearly, and the whole organization to do that. But that's the one that a lot of folks are pressing. That's a lever you can pull just once, and that's it. That gain is gained, and that's it, right? You can't do anything more with that, right?
I alluded to this earlier, you can use SmartWay partners. Again, we've been a SmartWay partner for 14 years. No one has ever asked us to quantify the savings. We're ready, willing, and able to quantify those savings. If you're doing business with SmartWay carriers, SmartWay providers, you're more likely to have connectivity to emerging technology that is coming, when it does come.
I don't have too much time to get into this. Scope 3 is really the emissions as a result of trucking and freight operations. So, if you're a manufacturer, your scope 3 emissions come from folks like us who arrange your freight. That's the simplest and shortest answer to that. Another lever that we can pull, right, in addition to using the SmartWay carriers and mode conversion, is to say, "Okay. We can remove a portion of the CO2 that we put up in the sky by alternative methods." And there's a lot of technology, a lot of companies out there using machinery to extract CO2. It's gonna be very expensive, terribly expensive. And there's a question as to how effective it's gonna be and where you store it.
The most natural way is to reforest forests. In particular, we are focused on the Amazon. We've got an NGO relationship in South America where we're reforesting the Amazon. On a 600-mile shipment, and that's about the average truckload shipment in the U.S., a 600-mile shipment loaded with 40,000 pounds of freight throws off 2.2 metric tons, approximately, of CO2. That's equivalent to the weight of an African elephant, elephant again. And, you know, that's a lot. That's a lot of CO2, even with today's cleaner engines. So, one hectare, which is, like, 2.5 acres, one hectare of rainforest removes from the atmosphere about 400 metric tons of CO2. So, this is one more lever that we're offering our customers. And it's primarily over a 30-year period, but over the first 15 years was when most of that CO2 is removed. But we've already replanted almost two hectares today, just since the beginning of this year, and we're offering this to our customers as well. So, it's a relatively inexpensive, about 10.8 cents a mile at today's land availability. That may change as more land becomes available.
Very quickly, these photos will show the Amazon Forest way out there in the distance, but what is happening is land is being taken for cattle. The lumber is taken away and sold. The cattle grazed for about 10 years. They waste the land away. Soybean farmers come in. They till the land. That's that center bottom photo. That land is tilled ready for soybeans. The photo on the left is the soybeans. They run that land for another 8 or 10 years until it's arid, it's got nothing left. And then they do it, and they take more, and they take more. So, there's an opportunity here to, you know, reforest, and it can happen very quickly. And the left picture is, like, one week's worth. That was out of the right side of the truck. Out of the left side of the SUV was the second photo, and that's 11 months of growth in the Amazon rainforest. And the right-hand photo, that's me in the foreground, is a photo that shows about 10 years of growth in the Amazon.
So that's how quickly this thing can take off. So, that is, in summary, you know, what we are here to talk about. I ran a little longer than normal, but had a lot of content to share. And it's been a few months, probably, since we last spoke. So, happy to answer any questions, if we have any. See any questions, Tucker team. That said, we're looking... Again, please encourage, you guys listening, if there are any ideas, any thoughts that you would like covered in the future, we know a lot of folks are happy to, you know, invite those folks, you know, to share their views, their thoughts, their areas of expertise.
Okay. See if there's... Going once, going twice. I appreciate everyone's attention here today and your attendance, and thank you guys. You know, the market is in that state of equilibrium. We do think, like most folks do, that, you know, probably toward the end of this year, we start to see a tightening. Where we are seeing tightening, I didn't mention this, is in areas where performance matters. Our team will tell you that carriers are being a little bit more selective in terms of the lanes they're accepting, whereas last year, this time, they don't most accept anything. It's a little bit more selective now, especially with the high-performing, you know, providers.
So, I think that's the first thing we typically see when things begin turning around is that initial feeling of, "Hey. Yeah. No, that doesn't work for my operations," you know. It's a good thing for our industry. I think it's been a tough go for a lot of folks in the freight industry, and, you know, I think we're getting back to normal. All right. Folks, thanks so much, and we'll call it a day. Have a great day."
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