Everyday Factors Affecting The Freight Industry

Fuel prices, fuel prices, fuel prices. Whenever anybody talks about what makes a haulage business profitable, they immediately start talking about fuel prices. Yet, that is only a small part of the freight trucking economy. The reason why fuel costs are such a popular subject is that their prices have an almost immediate effect on a haulage company’s profits. When prices go up today, profits go down tomorrow. Yet, there are actually several factors that affect the freight trucking economy. Here are a few of them.

The Overall Profitability of The Freight Economy

Let’s start with the broadest answer to what affects the freight economy. How profitable is it to hire freight trucks over parcel van drivers, trains, planes, drones and so forth? There is an obvious degree of supply and demand involved, but on the whole, will it cost companies less to send things by freight truck than by other transit methods?

Typically, the best prices are paid when demand is higher. New factories, new buildings, urban regeneration, and surges in consumer spending will all benefit the freight truck industry. The USA has an $800 billion dollar freight truck industry because the US economy often has the sorts of peaks and lulls that benefit freight trucks. The USA also has something else that makes trucking a big plus. They have lots of flat land.

An advanced road and motorway system like that of the UK is a big benefit to trucking, but the most desirable element within any country is lots of flat land and straight roads. These offer a very big benefit for any sort of trucking and haulage company.

The Local Terrain and Weather Conditions

Trucking is a big part of the US economy because there is a lot of flat land in the USA. It is far easier to lay and maintain roads than it is to lay train track across vast plains of flat land. As a result, trucking is easily a big part of US commerce. On the other hand, in places like Russia or Canada, things like trains and smaller vehicles are used because road and weather conditions do not suit a strong reliance on trucking. On a similar note, places like China and India rely more on trains because of their uneven terrain and because there are far fewer areas with long stretches of road that would suit a strong reliance on freight trucking.

But wait, doesn’t China have the second-largest freight trucking industry in the world? Yes, it does, and yet it is only half that of what the USA has. In fact, with the modernisation of Chinese train systems and docking systems, trucks are being relied upon less and less in China.

The Supply of Freight Haulage Truck Services

This article touched upon demand for freight trucking, such as when the economy is going through a peak time, or when there are buildings being erected or areas being regenerated. However, supply also has a very strong influence on the profitability of trucking companies. The more trucking companies there are, the less profit freight companies have to make. Yet, there is a weird micro-economy that exists in the haulage industry.

When the economy is booming, haulage companies spring up like weeds in a garden and lots of people make lots of money. The barriers to entry are pretty low because all you need is a commercial trucking license, insurance and a truck, and you can start your own trucking/haulage company.

Yet, when things cool off, the industry seems to shed its poorer performers like the snake moults its outer skin. Running a freight trucking company is very expensive, and most smaller to medium-sized companies cannot last very long during a recession. Where supply is obviously a big issue for freight trucking companies, it is a seemingly short-term (in the moment) concern that probably won’t bother long-established haulage firms very much.

The Economic Demand of Each Country

The GDP (Gross Domestic Product) of a country will have a big impact on how well a freight trucking company does. The two biggest trucking economies in the world, the USA and China are great places for haulage companies for very different reasons. In the USA, there is the infrastructure and plenty of profit to be made. In China, the pay rates are terrible, but the amount of work available is so high that some companies never experience a lull in trade.

Trucking Demand Cycles

Let’s pretend there is a country that only deals with farmed food. They don’t run it through their factories. They don’t even prepare it, they just farm it and ship it out. In that case, the trucking demand cycle sees most of the year where trucks were not needed, with short bursts of high demand as fields are planted and harvested.

Now consider a country that only produces oil. The oil wells have to keep producing oil even if nobody wants to buy it. They can’t just switch off the oil wells. As a result, this country would see a permanent and constant demand for trucking services.

Driver and Truck Capacity

This is another factor in the area of supply. Let’s say that the UK imposed a new law where lorry drivers needed to take a new and more difficult driving test. At that moment, the demand for trucking would far outweigh the supply. On a similar note, if there were a shortage of drivers due to union rules making driver pensions too expensive, then this would create a short supply that would affect the freight trucking economy.

A similar thing happens if there is a shortness of trucks, wagons or suitable equipment. These sorts of things sometimes happen when there are strikes, pandemics, fuel restrictions, or when a large project is being undertaken. For example, trucks were in very short supply after the 9/11 Islamic terrorist attacks on the USA because so many were dealing with cleanup and rebuilding. The number of available trucks went down temporarily as they were tied up with these issues, and this affected the freight haulage industry economy for a short while.

Durable and Non-Durable Goods

If an area has lots of non-durable goods it needs moving, then trucking companies can charge more, especially since they are taking bigger risks because there are plenty of things that can interrupt a delivery. Disruption in non-durable transit for things like fuel and clothing is not so bad, but perishable things like food can result in a complete write-off for the trucking company, which will have to make a claim with its insurance company to recoup its losses.

On the other hand, things like furniture, large appliances and cars are durable goods. If an area is awash with those and it needs them shipping, then trucking companies can charge less but have the added benefit of more optimised loading. Half-empty trucks are far rarer with durable goods, so there is plenty of money to be saved.

Consumer Spending

It is no surprise that the USA has the biggest trucking industry on the planet and that 70% of the GDP of the USA comes from consumer spending. We all know that when people are spending, then warehouses are being filled with goods and trucking companies are in high demand. Interest rates have an effect on how people are spending, but the market itself is the biggest determiner. Consumers may want something, they may have the money for it, but if the market says they can’t have it, then it isn’t going to get shipped.

Industrial Production and Inventories

This is related to the previous point. The funding may be there to create a certain product, but if something is holding up production (such as a missing component), then production slows down and far less gets shipped.

How much stock companies decide to hold, how they intend to release it, and how they manage it, will all affect the freight truck economy. There has always been companies that are so big that if they decide to stockpile or sell off it will directly affect the freight truck economy. However, the planet is now owned by Amazon and its product supplier China. If Amazon decides something is going to be popular, industrial production ramps up, inventories fill, and trucking companies see a lot of business.

Fuel Prices

Yes, we have to mention it, fuel prices do affect the haulage industry as a whole. Still, where fuel prices can push freight truck companies out of business, it is only a short-term problem. The cost of fuel price rises is always passed onto the consumer. The thing about fuel prices is that it is a national problem. When haulage company X has to raise its prices because of fuel costs, then haulage company Y and Z have to raise their prices by the same amount too. The merchants then raise their prices, and the consumer ends up being the only one out of pocket.

Events and Incidents

Fuel strikes, eco-policies affecting trucks, pandemics and global component shortages. Everything from earthquakes to nationwide lockdowns, there are plenty of events and incidents that affect the freight trucking economy. Yet, even though some incidents can have effects that last for years, under most circumstances, these events/incidents only have a temporary effect on the freight/haulage industry. Either things go back to how they were, or the industry adapts as a whole.

How Many Other Factors Exist?

There are too many to count, namely because they vary by company and by country. The factors change over time, they shift, and you have to remember that the haulage/shipping industry is also shifting and evolving over time too. Factors come and go, from technologically advanced trucks that use less fuel, to education systems making it more likely that people will take up a career in trucking. There are many factors that affect the freight trucking economy. The ones listed in this article should give you a fair idea of some factors that can have the biggest impact.