As rail freight rates rise, over-the-road trucking becomes a hard life made harder
 Few have been paying attention to rail rates, but their downward trending is expected to make the already hard life of the long-haul North American trucker even harder as long as tariff walls loom over China.
Ten years ago, 20 per cent of imports to the US came from China against eight per cent from the rest of Asia. Today, it's 14 per cent from China and 11 per cent from the rest of Asia.
All this has changed life as we know it in the overland freight world, divided as it is between road and rail. Road is convenient getting freight where it wants to go, but it is costly over the long haul.
With trucks, the cost is one driver and fuel paid from the revenue of hauling one box, profitable on a short haul, but prohibitively expensive on the long haul from LA to Boston.
While the rail journey will employ a 100 support staff, with three or four aboard the train itself, support staff cost will be quarter or a fifth of their actual number because their expense shared from the revenue of four or five double-stacked trains each carrying 230 FEU from LA to Boston - versus one man driving one box over the same distance.
The unwitting ally of growth of short-haul trucking, has been the Panama Canal. This has been since the Port of Savannah noticed that they were getting a balanced trade with Asia - that is, as many boxes coming as going.
That was in 2005, when the canal could only accommodate 4,500-TEU ships. After the expansion in 2016, the biggest ship to transit was the 14,424-TEU Triton. Another short-haul trucker ally has been the "four corners system" or strategy 10 years later.
But the phenomenon was largely the creation of the Port of Savannah, which aggressively appealed to Asian shippers to forget the US west coast for the all-water route, or as the Savannah salesmen said, "make the ship your warehouse". Soon other US east coast ports followed.
While the trend was growing, producing a boon for short-haul truckers, the pain was felt on the west coast. But not so much in the big Ports of Los Angeles and Long Beach, where tonnage figures continued to grow. After all, California is a big consumer market in its own right that also serves the comparatively short-haul consumers in neighbouring Arizona and Nevada.
No, the Panama pain was being felt increasingly in the ports of Oakland and further north in Portland, Oregon and in the ports of Seattle and Tacoma, Washington. Canadian west coast ports of Vancouver, from which more than 95 per cent of its imports go to Canadian destinations, and Prince Rupert, 900 miles further north is too far north to find the 6,000-mile detour through Panama tempting.
Over-the-road, that is, long haul, trucking didn't feel it at first. The fear in 2005 was that there was not enough port capacity, which prompted the opening of Lazaro Cardenas in Mexico, that opened of the Kansas City Southern rail link to El Paso, Texas, running all the way to Chicago.
But the buoyant spirit of 2006 was dampened by the downturns and uncertainties that followed by 2008 and beyond. Overcapacity and blank sailings became the talk of waterfront life, not the lack of capacity that so many had predicted.
As the Just-in-Time craze became passé, and getting to market with the latest and greatest deprioritized, the "four corners system" or strategy, came into being.
Simply put, this involved big box retailers at first setting up giant warehouses, called distribution centres, or more fancifully, "fulfilment centres". Soon other smaller but still substantial retailers did the same, IKEA being an example of this secondary type. Mega ships docked at major ports on the east, west and Gulf coasts and had freight railed or trucked to their DCs at the four corners of the North American continent, from where local trucks would make deliveries.
One thinks of Hitler and Napoleon and when thinking of US President Donald Trump, not in terms of their mean-ness and nastiness, but in terms of their audacious tactics. Hitler might have won had he been satisfied with taking over Austria and Czechoslovakia. But Poland was his bridge too far. Ditto Napoleon. He might have founded a dynasty after his daring conquest of Austria, Spain, Netherlands and what we call Germany today, then called the Holy Roman Empire.
And for a time, it all seemed to go so brilliantly. They were all knowing while the rest of the world stood agape like stunned deer in the headlights.
Whether, like Hitler and Napoleon, it is spring time for Trump before he faces a figurative Russian winter, is unknown. But unlike these figures from history, whose only disaster was their last ones, Trump has suffered catastrophic failures and has repeatedly snatched victory from the jaws of defeat.
He may well be able to play a long game and be seven steps ahead of his Deep State opponents, those Elders of Davos, who are the high priests of the media, academic bureaucratic complex that the British call the Blob.
Trump's intention is clear and is often stated. Job 1 was stopping the influx of illegal migrants flooding the United States and deporting the ones who got through. That is a work in progress, and is progressing satisfactorily.
Job 2 involves re-establishing America's manufacturing base, by inducing offshore manufacturers to open factories in the US or pay tariffs to access American consumers - or come to some reciprocal trade balance so American cars can be sold in Japan and Germany to the extent that Japanese and German cars are sold in America.
Job 3 is draining the swamp, which involves having the bureaucrats to do what elected officials tell them to do. Elon Musk's Musketeers are shocked and alarmed to discover the sheer size of corruption and waste in the federal bureaucracy. When one considers how little the DOGE team has done, it brings to mind one of the labours of Hercules in cleaning the Augean Stables. Hercules solved his problem by re-routing two rivers through the stables washing the livestock and their excrement in a torrential flush. Perhaps a South African style Truth and Reconciliation Commission would do the same.
Ending the war the Ukraine is part of Job 3, but as long as Kiev wants a de facto surrender from Russia, Moscow has no interest in a ceasefire. One side must sue for peace.
All of these weigh on the fortunes for North American trucking, the future of which is most promising in the short-haul sector rather than the long haul.
Looking to the mid-term elections, there is a risk of Republicans losing the House and/or the Senate as mid-term electoral results often punish the incumbent administrations. That gives the Trump administration 18 months to make visible progress on the three big jobs he has set for himself.
Things should look better for trucking if things go according to the Trump plan. More homeshore factory work means more money, more de regulation (always high on the Trump agenda) which means more opportunity for things to happen - and that's always good for trucking, short or long haul. |
