Fuel prices continue to fall, but the operational costs for trucking companies remain on the rise, according to a recent study conducted by the American Transportation Research Institute.
The organization, which is the research branch of the American Trucking Associations, said financial data collected from motor carriers revealed that the average marginal cost per mile increased from $1.68 in 2013 to $1.70 in 2014.
The rise was largely attributed to increases in equipment purchases and driver wages in 2014, according to the transportation research institute. The nonprofit research organization said the trend is expected to continue.
"Due to an economic-based freight demand increase, and growing repair and maintenance costs, carriers are moving quickly to replace older equipment," the report said. "In turn, the additional insurance costs associated with those purchases, along with increasing driver pay to recruit and retain their drivers, it is likely that the trucking industry will continue to see overall operating costs rise in spite of projected fuel price decreases."
ArcBest Chief Executive Officer Judy McReynolds is chairman of the American Transportation Research Institute board of directors. Maverick USA Chairman and CEO Steve Williams also is a board member. The institute began seeking data for its annual analysis of operational costs in trucking in April, and responses were collected from carriers through late August.
Companies providing data combined to operate 54,833 tractors and trucks that traveled an estimated 5.3 billion miles in 2014. About 71 percent of the responses came from companies that operated midsized fleets of less than 250 power units, according to the American Transportation Research Institute.
Fuel remained the largest expense last year, accounting for about 34 percent of operating costs. But fuel costs dropped nearly 10 percent from 64.5 cents a mile to 58.3 cents last year, which was its lowest level since the 2010 study.
The decline did not result in lower operating costs. Money spent on purchase and lease agreements for newer trailers and tractors -- which are more efficient and technologically advanced to meet federal regulations -- increased 31.9 percent to 21.5 cents per mile. The report said there were 375,000 Class 8 truck orders in 2014, the second-highest year on record.
The new orders led to an increase in insurance premiums, which climbed 10.9 percent. Repair and maintenance costs on the rising number of new tractors and trailers increased by 6.8 percent.
"The engines are more complex," said Brad Delco, a transportation analyst with Stephens Inc. in Little Rock. "It means maintenance costs are up."
Driver wages, which remained the second-largest cost for carriers, rose 5 percent to 46.2 cents per mile in 2014. It was the second-straight year that costs for wages increased by 5 percent as the industry tries to combat a driver shortage estimated at 30,000.
P.A.M. Chief Executive Officer Dan Cushman said his Tontitown-based company was having difficulty attracting and retaining qualified drivers. He said in a second-quarter earnings release that the difficulties required the company to make "significant investments" in driver recruiting and retention efforts.
USA Truck Chief Executive Officer Tom Glaser said last month that driver retention had been an issue for the Van Buren-based company, as well. USA Truck has steered away from hiring student drivers, concentrating on hiring veterans in hopes of curbing the turnover rate and lowering other costs like maintenance and accident claims.
"The single greatest inflation of cost pressure we've seen in trucking the past two years has been driver wages," Delco said. "You're talking about 10 percent driver wage increases, and it represents about 25 percent of your cost structure. It's a big deal."
Delco said the best way to combat the rising costs is for companies to push price increases onto consumers. But Jason Decker, vice president of operations at ART Transport in Van Buren, said it's not that easy with consumers and manufacturers requesting that prices to be lowered or maintained.
So Decker said rising operational costs will continue to put "substantial" pressure on some carriers.
"The consumer is pushing the manufacturer to lower prices," Decker said. "The manufacturer says you need to maintain where you're at. But our equipment, driver insurance, everything else is going up.
"That's where trucking companies are struggling. Everyone going up and down the road knows that there's a lot of money in trucking. But what they don't understand is, although the companies are paid a lot of money, their expenses are great and the margin can be very minimal."
Business on 10/01/2015