Length of Haul

 In Carriers

Is the Long-Haul Trucker on the Road to Extinction?

Closer than it appears?

Everyone is saying that the length of haul is getting shorter for trucks.
It has become fashionable for trucking industry commentators to talk about a shortening of length of haul (LOH) for over-the-road operations. Such a trend could be a good thing for fleets because the long-haul moves are toughest on drivers.  Shifting that work to the short haul would make recruiting easier.  The conclusion that LOH is shortening is based statistically on ATA data that reports a 34% reduction in average length of haul since 2000, from 800 miles to 527 currently. The four most common explanations for the change are: a move to multiple, closer distribution points, the loss of long-haul on-road volume to intermodal services, and the shift from West Coast to East Coast importing.

The ATA stats deliver a troubling message.
These claims and conclusions deserve close scrutiny on statistical and logistical grounds. Statistically, the ATA data covers some 70% of the national for-hire truckload work. If the ATA numbers are representative of the market, a 34% reduction in length of haul implies a 34% reduction in truckload work per load. Is the truckload sector really a third smaller now than in 2000? True, the LOH reduction is offset by growth in load volume of 25%. The combination of the two numbers creates a total reduction of truckload work of 17.5%⏤more reasonable, yet still shocking. Since we also know that productivity is up 6%, the number of trucks required is down a bit more, 21.6%.

So, the for-hire industry is 21.6% smaller today than in 2000?
That’s what the ATA numbers imply, if you apply their lengths of haul to the general population. A truck averaging 527 miles per load can make about 60 more round trips a year than a truck averaging 800 miles per load. An industry 21.6% smaller than in 2000 doesn’t feel right to me in a world of crowded highways and rest-stop truck parking spots. Consider also the sale of new trucks. Trucks last longer these days, so one would assume that a smaller fleet would require significantly fewer new trucks each year. However, annual heavy truck sales have increased 19% since 2000. Put differently, a 21.5% reduction in trucks implies a like reduction in the demand for drivers. Who says there is a driver shortage? Something is missing here!

Results depend on whom you are measuring.
This issue with the ATA numbers is clearly a sample bias. Although the ATA does not release the biases of its samples, it is widely believed that the numbers come mainly from the big fleets that have a national viewpoint, and the resources to submit data to Arlington, VA each month. They are the big users of intermodal, favoring their intermodal operations over long- haul trucking operations, and they also prefer dedicated operations that are usual short-haul. J.B. Hunt comes to mind, the dominant domestic intermodal player and a very successful dedicated player with a dramatically reduced random-route truckload footprint. Those fleets’ tractor counts are truly down, something the publicly-reported fleets reveal openly. Yes, their lengths of haul are declining, but not because the market is going towards shorter hauls, but because their choice of loads is going towards a shorter haul mix.

If the ATA’s fleets are not representative, what is going on with the whole market?
Every five years, (on years ending with 2 and 7), the Federal government conducts its Commodity Flow Survey, the only comprehensive source of LOH data. (Unfortunately, the full 2017 data will not be released until next December.) [1]

According to the 2007 and 2012 data, there was a very small increase in the overall length of haul, but a 4% decrease in length of haul for the for-hire segment. When that number is converted to a tractor sales count, it yields a result right on top of the 19% increase we get from the heavy-truck retail sales numbers. The increases in loads offset the decreases in LOH and the productivity improvements. This strongly suggests LOH is down modestly for for-hire truckers, but not the dramatic 34% reduction one gets from the ATA data. Note also that the overall truck LOH change (including private haulage) is a small positive, up a little less than 1%. That means that the short haul moves that private trucks usually make are getting longer, perhaps as much as 10% longer, indicating a healthy increase for the fleet. (More about this below.)

[1] As is typical of commodity flow survey data, the “preliminary” totals that DOT has already released, including LOH estimates, is unreliable. These preliminary numbers postulate a 36% reduction in for-hire trucking. This number falls on top of the ATA number, suggesting corroboration. However, the same summary postulates a 31% reduction in average railroad haul at the same time it claims a slight increase in overall U.S. transport length of haul. How either of those estimates could be accurate is beyond me. It is best to wait until December when the scrubbed numbers come out.

What could be causing these changes?
Let’s start with the basics. Total length of haul is measured by the distance from the manufacturer to the consumer. Since changing those distances requires the movement of buildings or sources, they change relatively slowly. Since World War II, we have had two such large changes: specifically, the movement of manufacturing and people to the South. That trend continues, but at a slow pace, and any change in LOH would be small on the twenty-year time frame of this analysis. Since the mid-1970s, American supply chains increasingly have been sourcing manufactured goods overseas, highlighted by the surge in Chinese imports occurring since 1990. That trend’s effect on LOH became a function of the distance from ports to consumers. Originally, it lengthened LOH because most of those imports terminated at West Coast ports and then had to move long distances across the country. Over the past ten years, however, enough of that volume has switched to Atlantic and Gulf Coast ports, resulting in dramatic reduction of LOH to consumers within 400 miles of those coasts. I estimate that significant change to have lowered for-hire LOH by 3-4%. The number looks familiar, doesn’t it? It lines up nicely with the commodity flow survey.

How about intermodal?
Share loss to another mode can happen more quickly than the movement of sources and destinations. My friend Larry Gross of Gross Transportation Consulting keeps track of share between intermodal rail service and long-haul dry van and reefer truckload operations. That is the only segment where there are any significant share gains for rail over truck. Mr. Gross documents a 1.5 percentage point gain in long haul share by intermodal over truck in that arena. However, that segment accounts for only 30% of the total truckload market, so the gain is discounted to .5% when measured against the total market. Still, it is the subtraction of the longest haul truckload freight. A careful accounting of such factors produces a .7% reduction in LOH for for-hire truckload. Again, the direction agrees with the ATA measurements, but not the magnitude. One more important point: Domestic intermodal share gains have slowed substantially over the last three years. Further major gains are increasingly unlikely, minimizing this factor as a substantial change agent in the future.

Is Amazon shortening length of haul as they add warehouses to give shorter delivery times?
The most popular theory for shortening of LOH is the notion that Amazon’s proliferation of a warehouse network is bringing goods closer to consumers. That is a problematic theory for two reasons. First is the size of Amazon’s portion of the market. To date, this trend towards closer warehouses is largely limited to Amazon. Specifically, it is limited to the goods that fall within Amazon’s supply chain and, specifically, the high-service portion of that chain. That segment, growing that it is, approaching $17 billion in retail sales, is still tiny when compared to the whole U.S. truck market. It accounts for .5%. If the trend does shorten LOH for the entire market, it cannot be shortening it by much.

What is Amazon really doing to LOH?
That big “if” in the last sentence is the second problem with the theory. This is because Amazon is adding local warehouses, moving their distribution points closer to the consumer, thus reducing the short-haul delivery segment of the total move. Amazon is, in many cases, lengthening the long-haul, line-haul portion of the move. While it will take more research to determine the net effect on the long-haul portion, it is clear that the effect will be small. The only change in distribution geography that has a definite reduction to average line-haul LOH is the addition of stops along the way. Since that practice adds substantial costs to a supply chain, it is unlikely that Amazon, or its competitors, will use it. Amazon will not be moving goods from origin to legacy distribution centers, and then on to its new forward distribution centers. It will be moving goods from origin directly to the new forward distribution centers, employing the same number of handling points as much as possible. It is hard, therefore, to see a strong case for shorter length of hauls from Amazon’s changes.

The Amazon theory does direct attention properly to the distribution, short-haul portion of the supply chain.
After a short pause between 2008 and 2011, the prevailing post World War II trend towards lower density urban neighborhoods has picked up steam again. American manufacturers, retailers, and consumers continue their clear preference for low-density land use. Smaller, less concentrated retail shops in strip malls are replacing the huge mega-malls, and smaller houses on smaller lots are going up in the suburbs again. While the small, fashionable apartments near downtown in traditional cities are getting a lot of press, the numbers show that the majority of new apartments are appearing farther out from the city limits, in places where people have better access to transport, green space, and good schools. This strongly suggests that any shortening of delivery LOH from the Amazon effect is working against a lengthening of delivery LOH to serve the new, low-density, suburban construction. The developments may still be classified as “urban sprawl”, and their people will count towards the slow urbanization of our population, but those urban developments are moving farther and farther from downtown and traditional distribution points. The delivery trucks have longer routes.

Why should the industry care about length of haul?
Length of Haul is important because, again, work in our industry is the moving of goods mile by mile. Shorten the haul, and there is less work. Moreover the nature of the work changes as LOH shortens. My analysis indicates, then, that the volume of work in our industry or its nature are not under fundamental threat due to a reduction in length of haul. [2]

Suppliers to the industry need not despair over a no-growth future, at least not from this influence. Fleets that specialize in the long haul will keep their places as will their drivers. This reassuring conclusion applies especially to participants and supporters of the long-haul segment of the industry. Yes, LOH is modestly declining in that segment, but not by nearly enough to offset the underlying growth in loads. Barring another severe recession, loads will grow enough to provide ample business and employment within the long-haul, for-hire segment.

[2] One can postulate such a threat as some of the new digital manufacturing technologies mature, but that more distant threat is a discussion for another time.

Cool analysis vs. rash judgement.
I also suggest, in closing, that the industry take great care in evaluating the large-scale effects of trends we can see in specific segments. Yes, the big carriers that report to ATA are shortening their LOH. Intermodal has reduced truck share in major West Coast to Inland lanes, and Amazon is implementing a new supply chain design. However, each of these trends is small part of easily the largest trucking market on the Globe. Transportation economics requires revolutionary new technology that improves service at the same time it lowers cost. I believe strongly that we will see that kind of change perhaps ten years out. Not in 2019 though. Length of Haul is stuck in a well-justified rut, falling enough to fuel convention talk, but not enough to cause fundamental supply design change.

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