The Transport Navigator’s Perspective
Noël Perry | Transport Futures
Everyone Says LOH Is Getting Shorter
Trucking commentators talk about a shortening of length of haul (LOH) for over-the-road operations, a conclusion drawn from American Trucking Association (ATA) data that reports a 34 percent reduction in LOH – from 800 miles to 527 miles – since 2000. The explanations for the shortening LOHs are varied: closer distribution points, the loss of volume to intermodal, and the shift from West to East Coast importing.
ATA Delivers a Troubling Message
These claims deserve scrutiny. The ATA data covers 70 percent of truckload work, and if the numbers are right a 34 percent reduction in length of haul implies a 34 percent reduction in truckload work. Is the truckload sector really a third smaller now than in 2000? True, the LOH reduction is offset by a 25 percent growth in load volume, yet the combination of the two numbers creates a total reduction of 17.5 percent truckload work – more reasonable, yet still shocking. Since we also know that productivity is up six percent, the number of trucks required is down a bit more at 21.6 percent.
Is the For-Hire Industry Smaller Today than in 2000?
That’s what the ATA numbers imply, if you apply their LOHs to the general population. A truck averaging 527 miles per load can make 60 more round trips a year than a truck averaging 800 miles per load. An industry 21.6 percent smaller than in 2000 doesn’t feel right in a world of crowded highways and rest stop parking spots. Consider also the purchase of new trucks. Trucks last longer these days, so one could assume that a smaller fleet would require significantly fewer new trucks each year. However, annual heavy truck sales have increased 19 percent since 2000. Put differently, a 21.5 percent reduction in trucks implies a like reduction in the demand for drivers. Who says there is a driver shortage?
Results Depend on Whom You Measure
This issue with the ATA numbers is what they sample. It is widely believed that the numbers come mainly from the big fleets, who are big users of intermodal, and who also prefer dedicated operations that are usually short-haul. J.B. Hunt comes to mind, the dominant, domestic intermodal and very successful, dedicated player with a dramatically reduced random-route truckload footprint. Yes, those fleets’ LOHs are declining, but not because the market is going toward shorter hauls, but because their choice of loads is going toward shorter hauls.
If the ATA’s fleets are not representative, what is going on with the whole market? I look at the Federal Commodity Flow Survey, the only comprehensive source of LOH data. According to the 2007 and 2012 reports, there was a very small increase in the overall length of haul, but a four percent 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 percent increase we get from the heavy-truck retail sales numbers. The increase in loads more than offset the decreases in LOH and the productivity improvements. This strongly suggests LOH is down modestly for the for-hire trucker, but not the dramatic 34 percent reduction one gets from the ATA data.
What Is Causing These Changes?
Total length of haul is measured by the distance from the manufacturer to the consumer. Because 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 20-year timeframe of this analysis.
Since the mid-1970s, American supply chains increasingly have been sourcing manufactured goods overseas. Originally, that trend 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 10 years, however, some 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 that significant change lowered for-hire LOH by three to four percent, a number that lines up nicely with the commodity
An industry 21.6 percent smaller than in 2000 doesn’t feel right in a world of crowded highways and rest stop parking spots
How About Intermodal?
Larry Gross of Gross Transportation Consulting keeps track of share between intermodal and long-haul truckload. Gross documents a 1.5 percentage point gain in long haul share for intermodal. However, that segment accounts for only 30 percent of the total truckload market, so the gain is discounted to .5 percent when measured against the total market. A careful accounting converts that to a .7 percent reduction in LOH for the for-hire truckload. Again, the direction agrees with the ATA measurements, but not the magnitude.
How Is Amazon Affecting LOH?
The most popular theory for shortening of LOH references Amazon’s proliferation of warehouses to bring goods closer to consumers. But it’s a problematic theory for two reasons. First is the size of Amazon’s high-service portion of the market. Specifically, the trend is limited to the one-third of Amazon’s sales that fall within Amazon’s supply chain and, specifically, the high-service portion of that chain. That segment accounts for only .5 percent of the total market.
It is not clear that Amazon’s strategy is shortening length of haul for them. 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, 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.
Should the Industry Care About LOH?
LOH is important because, again, if you shorten the haul, 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 LOH.1 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. Yes, LOH is modestly declining in that for-hire truckload space, but not by nearly enough to offset the underlying growth in loads.
Noël Perry is Principal with Transport Futures, located in Lebanon, PA. He can be reached at firstname.lastname@example.org.
1 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.
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