There's a shortage of truck drivers, and that shortage will send prices higher. That could also create a situation in which the rich get richer, because larger companies will have the ability to claim available resources -- including drivers and trucks -- ahead of smaller players.
Companies that maintain their own supply chain will have an advantage. These large companies can also automate non-driving parts of their supply chain to push more people into driving.
Nick Sciple and Dan Kline tackle the topic in this segment of Industry Focus. A full transcript follows the video.
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This video was recorded on Oct. 18, 2018.
Nick Sciple: Let's swing into retail, which is probably the place that our listeners are going to interact with trucking the most, as I said to lead off the show. I used to work at a grocery store when I was in college. I worked at Publix down in Florida. You may be familiar with that.
Dan Kline: [laughs] Yes, there's only about 300 of them within two miles of my house.
Sciple: Every morning, we'd have that truck come in, and we'd put those goods out on the shelf, and people would come in and buy it. That's happening in every retail store across the country, which is why this trucking shortage is going to affect retail shoppers. The short version of what we're going to talk about here is, get ready to open your wallets.
Kline: Trucking becomes a commodity. For a while, I worked in my family business. We brought in container loads of steel scaffolding from China. And when China was still a novel place for companies to source stuff from, it was a relatively fixed price and somewhat inexpensive to do that. As the demand increased, the amount of ships and containers did not. You might say, "I can get that delivered for $2,200 and it'll take six weeks. Or, I could pay $8,000 and have it in two weeks." It's a very fluid demand. Publix has a lot of buying power, your local store does not. So, you may find the big chains having an advantage, especially the ones like Walmart and Amazon (NASDAQ: AMZN) that maintain their own trucking fleet, over the smaller group that's relying on FedEx, UPS (NYSE: UPS), private truckers to bring their goods in. They're not going to be the priority, or they're just going to have to pay more, which is obviously going to cost you more.
Sciple: Right. From your perspective, Dan, what do you think? The trucking shortage, as well as all of the other strains that are being put on international logistics -- dealing with these situations, the advantage is going to go to the company that has the most scale, the ability to manage their logistical infrastructure in a way that they have more control over.
Kline: And the ability to take labor out elsewhere. One of the things UPS has talked about is that they don't have a trucking shortage because they have a pipeline of workers. You go from the floor to a small truck to a big truck, they train you along the way. If they need 20,000, more truckers, they can put robots into the warehouse. They might not be able to automate driving the truck, but they can automate other parts of their workflow. I think that's something you're seeing in Amazon and their warehouses, and you'll see that more and more with Walmart. The picking of the orders, whether it's for individual delivery or mass distribution, is going to be automated. You're going to take workers out of the chain and force them into trucks if that's the only job available.
Sciple: Right. Talking about Amazon and their warehouse infrastructure, it really amazed me, a stat that I saw. Currently, Amazon requires one minute of human labor to get a package on a truck. The people who are loading up the boxes, the actual humans, a robot comes to them, brings them the products that they need. The human just takes it, places it on the conveyor belt, and then that conveyor belt boxes everything up and puts it on a truck. All these companies that can really squeeze all that fat or wasted time out of their logistics are really going to put themselves in a position to succeed.
Kline: Yeah, and it becomes about efficiency. You talked about UPS, how you never put your keys in your pocket. A big company can map out every efficiency, can literally do things like build a bathroom in a location that makes it more convenient to make bathroom breaks faster for workers. A small company can't do that. They can copy it a little bit. So, this is going to be another thing that puts the squeeze on small business and really forces small business to differentiate on something other than price. The cost of goods is going to comparatively go down for big business and up for small business.
Sciple: Right. For these third-party providers, you talked a little bit about UPS, how they've been able to handle the trucking shortage. Another thing that they can provide, and they call out, is that they can provide a different lifestyle for their truckers than maybe someone who operates with another independent provider. UPS, their spokesman, Dan McMackin, called out and said that the average UPS trucker is out and back in the same day. They're sleeping in their own bed, they're not staying in a hotel or on the road. That's an advantage that some of these larger companies can offer to their employees that maybe an independent company just doesn't have the flexibility to do.
Kline: Again, that's going to become a question of technology. I think you're going to see more of your trains try to limit overnight trips. And, we talked a little bit about this, we might see infrastructure move more toward comfort. We've seen a death of truck stops. They're not as prevalent, the days where there were shower facilities and even gyms and decent food. We don't have a lot of that. You might see, in some places where overnight trucking is necessary, a rebirth of these trucking stops. Places you can park easily, places where you can pay for just the six hours you're sleeping in the motel, as opposed to a full night -- everything we can to improve quality of life from, you're gone for six nights and you're sleeping over your truck bed for three of them. That's not going to work when UPS or Amazon or whoever is offering you one overnight a month, sleep in your own bed most nights.
Sciple: We may have touched on this a little bit, but to really pull the thread on it, let's talk about how omnichannel retail is affecting trucking demand. We talked about having the trucks having to go to all kinds of different places, all those sorts of things. How does trucking fit in with that? How is it going to adapt? All those sorts of things.
Kline: We're in the very early days of logistics for omnichannel. Let's say you order something from Walmart for pick up in store. I think sometimes, if you knew where that had come from, it'd be preposterous how much money they lost getting you your box of gluten-free pasta or whatever it is they weren't stocking. It maybe was handled by six people, was on three different trucks, was on a shelf, was in a warehouse. It's just like we talked about the other day, where you get the Amazon item at home and it's not in the right size box for what you ordered. That's happening less and less. We're going to start seeing companies behind the scenes using AI, predictive technology. Amazon has talked a lot about, they know you're going to order razors before you do, and it's already packaged in the correct warehouse to send it to you. You're going to see a lot more technology going in to making sure we eliminate as many inefficiencies as possible.
Sciple: Right. Along those same lines, another Amazon example that that I was talking about earlier. In the past, things would be organized in a way that best fit what people could understand. If I'm a person working in a warehouse and I want to go find the good that we need to put in this shipment, maybe everything's in alphabetical order, or grouped by different genres, sports stuff over here and dry goods over here. What we're seeing now with these AI capabilities is that the way these things are organized would make absolutely no sense to you and me, but it's the most efficient way to do it based on the way these analytics has been done. It might sound like, save 10 seconds here by this different organizational structure. But when you think about a company like Amazon that's doing millions and millions of transactions, or Walmart, those little fractions of a penny saved at each step down the line become millions and millions of dollars.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. Nick Sciple has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.
