In the last two articles, we discussed how hours of service and the driver shortage are impacting all truckers, including J.B. Hunt Transport (JBHT). Now, we will look at other major challenges faced by the industry.
In 2015, railroads invested around $30.0 billion in rail infrastructure. Railroads like Norfolk Southern (NSC), Union Pacific (UNP), and BNSF Railway (BRK-B) spent heavily on capital assets during the recession. Railroads are giving a tough fight to the trucking industry in the intermodal space.
This reflected a shift by shippers and motor carriers away from the highway due to container supply constraints and capacity restrictions in trucking. According to Progressive Railroading, “Railroads once again will top 18 percent of annual revenues on CapEx, compared with 3 percent for the ‘average industrial’ company.”
Seasonal peaks and any event which swells demand or degrades capacity could cause a series of short capacity crises. Truckers expect another wave of regulations to hit the industry in 2016 and later through 2018. The recent field reports suggest increasing labor and purchased transport costs in the trucking industry. FTR Transportation Intelligence predicts the fragile balance to “continue until regulatory pressures increase again in later 2016.”
Rising equipment costs
An increase in demand requires full truckload carriers to maintain the reliable fleet and grow it. Mainly due to rising tough emission standards, the cost of new Class 8 tractors continues to rise.
The US Environmental Protection Agency rulings, inflation, and manufacturer cost increases have triggered the base price increases. With new emission and related mandates, the carriers are gearing up to the mechanical challenges for the next generation tractors.
Driver and asset productivity has fallen with the tightening of regulations, especially hours of service. Trailers and tractors must be kept in productive running to fetch a justifiable return. According to the American Transportation Research Institute (or ATRI), “More than 80% of surveyed motor carriers have experienced a loss in productivity in relation to the changing hours of service, and nearly half of these have stated more drivers are necessary to haul the same amount of freight.”
Trucking and railroads form part of the industrial sector. The iShares US Industrials ETF (IYJ) invests 5.25% in major US railroads.
In the next part, we will take a look at J.B. Hunt Transport’s new peer group.