Omnitracs' Road Ahead blog

Is 2018 going to be the year of last mile? Yes, 2018 and beyond

David Palle
Vice President, Product Management

2017 was challenging for the U.S. trucking industry, and that’s because of a date that’s just passed: the Dec. 18 ELD deadline that disrupted the industry. Fleet managers devoted a lot of time last year to implementing new technology, training drivers, and preparing for this unprecedented industry event. 

Undoubtedly, 2018 will lack the pressure created by the ELD Mandate, yet the new year will come with its own challenges. Most notably, the U.S. trucking industry will be challenged by the continuing shift of its centerline away from the traditional long haul segment and toward the short haul segment.

Doubt it?

The data is clear. Since 2000, the average length of haul for U.S. truckers has fallen by a third, to just 533 miles in 2016 from 796 miles in 2001. This isn’t because the really big rigs are being driven shorter distances, but rather, the demand for short haul delivery of goods and materials is growing. The biggest growth of demand we’re seeing in the last mile segment is on the 150 mile-or-less category. 

Economists and big thinkers in the world of logistics point out a number of factors that all tell us the growth in demand for last mile services is going to be a long-term trend. Here are eight of them:

  1. The Panama Canal expansion project
    The widening of the Panama Canal, which began commercial operation in mid-2016, is providing a significantly cheaper alternative for shipping goods between the east and west coasts of the U.S. One ship can carry what would require hundreds of big rigs to move, freeing some of those trucks to be redeployed on somewhat shorter partial trans-continental routes.
  2. Consumer demand 
    Exploding demand for faster delivery of products purchased through online retailers like Amazon, eBay, or the websites of conventional brick-and-mortar retailers, like Walmart has reshaped last mile delivery. 
  3. Economic growth
    A faster growing U.S. economy portends an increase in the sale — and delivery — of both consumer goods and heavier industry goods and materials. The stock market’s current record performance, the recent tax break being passed by Congress, and the ongoing rollback in government regulations to produce faster economic expansion in 2018, are all factors. 
  4. Rail growth
    Faster growth — about twice as fast — in the rail segment than the trucking segment of the transportation industry. That indicates that producers and retailers are increasingly relying on rail for long haul transportation. But inevitably, that means they will rely more heavily on short haul trucking to move goods from rail-fed warehouses to retail stores and consumers’ homes.
  5. More regional distribution centers
    Continued rapid development of huge regional distribution centers, both by big box retail chains to keep their shelves fully stocked at all times and by product manufacturers who increasingly see the need both to support their various retailing partners and their direct-to-consumer/digital sales channel. Such facilities typically receive half or more of their inventory by rail but depend almost 100 percent on trucks to haul merchandise the last 100 to 500 miles to stores or consumers’ homes.
  6. Alternative fuel
    Environmental and energy cost concerns that are slowly pushing mostly big, captive trucking operations to buy more and more alternative fuel trucks. Such trucks, whether they run on liquefied natural gas, blended or exotic fuels, or, now, electricity, tend to work best on “closed loop” networks where they can be returned to a central operations facility for refueling at the end of each day’s assignment.
  7. Driver preferences 
    Younger drivers clearly prefer short haul driving. Survey after survey, study after study, and hiring consultant after hiring consultant tell us that most younger drivers highly value the ability to be at home every night to not miss out on family life. That is a major contributor to the chronic shortage of drivers impacting the industry, especially the long haul segment. Consequently, large trucking firms are creating more and more regional driving divisions that can keep their equipment fully utilized and fully staffed with drivers who wish to be at home more while creating premium driving positions for those willing to take on the long haul work. Such segmentation within companies is expected to reduce driver turnover and, ultimately, attract more new drivers to the industry.
  8. Automated production 
    The new, notable growth in the automated production of finished goods is closing the manufacturing labor cost gap against offshore production facilities so much that more and more manufacturers are bringing their production back to the United States. But that means demand for the shipment of both finished goods and raw material within relatively compact regions will grow. That’s not a particularly good indicator for job growth in the manufacturing sector, but it should produce lots of new demand for truck drivers, especially those who want to work in the short haul segment.