A​ ​Bad​ ​Storm:​ ​2017​ ​Hurricanes​ ​&​ ​The​ ​Trucking​ ​Industry

Hurricane Harvey and Hurricane Irma are the only Category 4 Atlantic storms to ever hit the United States in the same year—let alone in the same two weeks. Their landfalls have turned those weeks into an emotional whirlwind of alarm, displacement, property damage and climate change conversation. While the full impact of these two storms is still being weighed, there is no question that these storms have negatively impacted many industries- namely the transportation and energy industries.

Over the next two weeks, over 7% of U.S trucking is anticipated to be affected by the disaster. Property damage and flooding caused by the storms will certainly impact the transportation industry. In Houston, many of the main roads and interstates are flooded and have become impassable. The trucking industry already operates in a very compact environment. It is highly likely that many loads are still sitting on docks, if they haven’t been destroyed completely by either the storm or flooding.

There are at least 4 principal ripple effects that the Hurricanes will have on the trucking industry:

  1. Many idling trucks that will wait for the flood waters to recede from roads and loading docks.
  2. Prioritization of shipment of relief and emergency construction supplies over regular freight will affect the normal industry cycle.
  3. Reduction of productivity combined with extra shipment demand- due to the industry’s normal supply chain cycle being affected.
  4. Slowing overall operations due to heavy traffic congestion on roadways and backed-up loading docks.

In addition, since Harvey made landfall, numerous oil refineries have stopped production causing a surge in oil prices. That piece alone will hit many companies the hardest and put a greater strain on the prices of food and other necessities due to increased fuel costs. In most natural disasters, especially of this caliber, the most efficient way to get supplies to the people affected is by truck. It​ ​is​ ​interesting​ ​to​ ​note​ ​that​ ​along​ ​with​ ​being​ ​hurt​ ​by​ ​natural disasters,​ ​the​ ​trucking​ ​industry​ ​immediately​ ​becomes​ ​the​ ​most​ ​valuable​ ​player​ ​in​ ​relief efforts.​ In the case of Hurricane Harvey, both Texas and Louisiana have declared a state of emergency. These declarations automatically waive select FMCSRs, including Hours-of-Service regulations, for motor carriers hauling supplies and resources to aid in relief efforts. The declarations exempt these FMCSR regulations, in every state, along the motor carrier’s route, as long as the destination is within the declared disaster areas in Texas or Louisiana.

In most instances, trucks are the only way to get supplies quickly to people who need them. It is during these instances where local, state, and federal government work in close conjunction with the transportation industry, to provide assistance to people when it matters most. The days to come in the wake of the two Hurricanes will, undoubtedly, put the transportation industry to the test. Managing to operate routes with closed roadways, combined with increased fuel prices and demand for relief supplies is an interesting scenario that trucking has not faced in some time.

In Florida, the hurricane will certainly affect the industry at the state level but may not affect the national industry. This is because most freight goes inbound from other states. However, the effects of Hurricane Harvey can already be seen in Texas and felt nationally. There are many national distribution centers as well as oil refining business in that state. Post Harvey resulted in an increase of 5.5% in rates nationally and shortage of trucks after Texas and its distribution centers were struck. In addition, after a hurricane many of the vehicles and freight will need to be replaced which would leave an increase of demand but a shortage of vehicles.

The storm also could leave a rise in long-term trucking contract prices in its wake, according to a report by analysts at FTR Transportation Intelligence.

After a month, the storm’s impact on trucking will have lessened considerably nationally, however, the damage it leaves still is projected to hamper operations at about a quarter of the trucking operations in the affected Gulf Coast region.

Indiana-based FTR has studied the impact of severe weather on trucking since Hurricane Katrina wreaked havoc throughout the Gulf States in 2005. In addition to delaying shipments and damaging equipment, impacts include “significant pricing effects” according to the report, which FTR classed as a preliminary assessment. These impacts included an average 7 percentage points hike in annualized pricing nationally for the five months following Katrina, and a 22 percent year-over-year increase in spot pricing following the severe winter storms of 2014.

Because Texas is home to about 30 percent of U.S. oil refining capacity – much of it centered around Houston – production of diesel fuel and other petroleum products is expected to be especially hard hit, according to the FTR analysis.

“We are talking about impacts to fuel and energy,” said Larry Goss, an analyst for FTR. The combination of regional and fuel effects from Harvey, coupled with the federal Electronic Logging Device mandate that takes effect on December 18, 2017, “could be the catalyst to a pricing spiral” for trucking contracts, he said.

“Its impact could extend up the Eastern Seaboard. The one-two punch of both hurricanes back to back is something the industry has to sort out quickly.”

It may take several weeks to sort out, but the aftermath – fewer trucks available to carry freight and regional bottlenecks – could last through January, 2018.

Truckload prices increased post-Harvey as the number of trucks available to carry loads shrank, according to DAT Solutions. Spot rates went up 5.5 percent nationwide, even as the number of loads fell by 10 percent due to the loss of about 72 percent of outbound loads from Houston. This included secondary impacts on routes around the country as the market adjusted. Rates from Chicago to Denver jumped to $2.71 a mile from $2.50 a mile. Even the areas from Columbus, Ohio, to Allentown, Pa., saw a 31-cent-per-mile increase, to more than $3 a mile.

Capacity is “likely to be constrained for a significant period of time,” said Dan Ryan, vice president of North American surface transportation for C.H. Robinson.

At the same time, “fuel surges and cost increases continue to be seen and are impacting transportation costs” as the oil-refining industry in and around Houston continues to come back fully online, Ryan said.

In response to the storms, the Department of Transportation (DOT) issued a Regional Emergency Declaration for Florida, Georgia, South Carolina, North Carolina, Tennessee, Alabama and Mississippi, Puerto Rico and the U.S. Virgin Islands. The declaration suspends hours-of-service regulations for drivers and carriers in the states above providing “direct assistance” to the affected areas, even if the states are not involved in the emergency. The declaration does not exempt drivers from CDL, drug and alcohol, hazmat, size and weight or registration and tax requirements, according to the DOT.

Also, the Federal Motor Carrier Safety Administration will not enforce the Temporary Operating Authority Registration fee for carriers requesting temporary operating authority. Normally, a $300 fee is required. The agency will end the fee waiver when the Regional Emergency Declaration expires.

If you are planning on providing relief efforts or supplies to those impacted by the Hurricanes, you may wish to check out some of the following information:

The​ ​American​ ​Logistics​ ​Aid​ ​Network​ ​(ALAN)​ h​as posted transportation and warehouse needs to their needs map. Review the map to see if there are needs that you can assist with. They are seeking pro bono, donated and/or volunteer offers only.

Waivers and Declarations:

Konexial