As we stand on the brink of 2024, I want to take a moment to share some insights into the current state of the trucking industry in the United States. These thoughts come from my perspective as the VP of Operations at ASF, and I believe they provide a valuable glimpse into the challenges and opportunities that lie ahead.
The trucking industry is facing a unique set of challenges as we move into 2024. These challenges are the result of a complex interplay of factors, including weak demand, stagnant trucking rates, and the persistent rise in diesel fuel prices over recent months. It's a tough environment out there, and it's taking a toll on the sector's profitability.
In response to these unfavorable conditions, many trucking companies are finding themselves compelled to reevaluate their operations. We may witness a scaling down of trucking capacity as market consolidation and even liquidations become more prevalent.
But in the grand scheme of things, it's clear that the key to ensuring long-term market stability lies in fostering a resilient and balanced ecosystem of landside providers. This ecosystem should encompass businesses of all sizes, from small enterprises to large corporations.
Here at ASF, we're actively working to optimize and enhance our landside services and processes. One of the ways we're doing this is by partnering with premier, service-oriented truckers. By leveraging our volumes with these key partners, we're building strong, collaborative relationships that enhance efficiencies. These cost savings are then passed on to our clients, while service performance improvements help optimize their overall end-to-end global supply chain logistics. It's a win-win scenario where partnerships matter, and our commitment to people-first relationships drive supply chain success.
Nearshoring – A growing landside trend
Now, let's shift our focus to a growing landside trend: U.S.- Mexico nearshoring. This practice involves relocating manufacturing and production operations closer to the home market.It has gained significant traction due to various factors, including global supply chain disruptions and the desire to reduce lead times.
This trend is fueling demand for cross-border logistics and freight operations, including trucking, warehousing, customs brokerage, and transloading. As nearshoring continues to gain momentum, the demand for all these logistics services will inevitably rise. With the establishment of a reliable and effective infrastructure, particularly in southern Texas, the resources will be in place to accelerate cargo velocity to U.S. markets.
Freight moved from our southern neighbor doesn’t necessarily stop in Texas, though. Manufacturers across industries, from OEM auto manufacturing to food service, transport product from Mexico throughout the United States via weekly truckloads.
Recent data from the Department ofCommerce indicates a notable shift in U.S. import patterns, with China imports declining by 25% in the first half of 2023 compared to the same period in 2022. As of Q3 2023, China ranks third among suppliers of goods to the United States, trailing behind Mexico and Canada (as reported by Bloomberg News).
Trucking emissions in the spotlight – California climate action impact
Another significant development in the industry that cannot be overlooked is the focus on trucking emissions, driven by California's climate action initiatives. On April 28, 2023, California passed several environmental regulations with the ambitious goal of accelerating the transition to electric vehicles (EVs) and achieving 100% zero emissions by 2045. These regulations will have a profound impact on the U.S. trucking industry.
Among the regulations, the phasing out of medium and heavy-duty combustion trucks by 2036 stands out. Drayage carriers will only be able to purchase zero-emission trucks starting from January 1, 2024, and these fleets must be entirely zero-emission by 2035. All other vehicles covered by the regulation must also be zero-emission by 2042.
The implications of these regulations are significant. Large trucking companies will need to convert their fleets to electric models, requiring major infrastructure advancements to ensure an adequate number of charging depots. Additionally, the power grid will need to scale up to accommodate the influx of electric trucks.
It's worth noting that this transition comes with its own set of challenges. As Chris Shimoda, the senior VP of government affairs at the California Trucking Association, pointed out, "We're talking about a transition that is on the order of when we traded in the horse and buggies for diesel trucks. It's that consequential. We just do not have the technology figured out."
Fortunately, both public and private entities are working diligently to develop the necessary infrastructure to support EVs. Funding for charging stations will be provided by the state, and SCE, a power provider in southern California, is also playing a role. Additionally, grant funding opportunities are available through the California Energy Commission.
However, it's important to acknowledge that there are challenges related to the time it takes to charge an electric truck, which can be several hours each day. Moreover, electric trucks tend to be heavier, leading to a reduced payload, which means they can carry less freight. This will undoubtedly impact the overall trucking capacity available to serve high-volume ports in southern California, such as the Ports of Los Angeles and Long Beach, as well as the Port of Oakland and numerous smaller ports.
As with nearshoring, freight moving through the ports of California does not necessarily terminate in California. Containers are pulled from LA to places like Phoenix and Las Vegas and importers based in places like Salt Lake City utilize California-based drayage carriers.
In conclusion, as we approach 2024, the U.S. trucking industry is grappling with persistent challenges stemming from weak demand, stagnant rates, and rising fuel costs. This challenging environment is prompting the industry to introspect and adapt, potentially leading to downsizing and market consolidation. Yet, the path to long-term stability lies in fostering a diverse ecosystem of landside providers, regardless of their size.
At ASF, we remain steadfast in our commitment to enhancing our services through strategic truck carrier partnerships. We're determined to pass on the benefits of these collaborations to our clients. Meanwhile, the burgeoning trend of U.S.-Mexico nearshoring is reshaping the logistics landscape, and California's stringent emission regulations are ushering in a significant shift toward electric vehicles.
As our industry continues to evolve, embracing change and nurturing collaborations will be the keys to success in the ever-changing landscape of global shipping.
Learn more about ASF's Trucking services here.
Vice President of Operations, ASF