Rising demand and rising fuel surcharges will support revenue growth, but profit may weaken
Los Angeles, CA (PRWEB) January 21, 2013
The Local Freight Trucking industry has not fared well in the five years to 2013; slow manufacturing production and retail spending reduced demand and hurt revenue for the industry during the economic downturn. Declining demand caused greater price competition among operators, which limited profit. Additionally, soaring diesel costs dramatically reduced profitability in 2008, even though many industry operators implemented fuel surcharges. These surcharges increase revenue, but are not sustainable in the long term because customers will seek alternative modes of transportation, says IBISWorld industry analyst Lauren Setar. The industry performed miserably in 2009 when revenue plummeted 20.5%. Weak operating conditions pushed operators into record losses in 2008 and 2009, forcing some companies out of the industry completely. Furthermore, a drastic reduction in diesel prices in 2009 caused revenue from fuel surcharges, which are tacked on when diesel prices are high, to decrease during the year. Consequently, revenue is expected to fall at an average annual rate of 2.7% to $33.4 billion during the five years to 2013. In 2013, IBISWorld expects recovering demand and increased shipping volumes will cause industry revenue to lift by 1.4%.
The Local Freight Trucking industry has a low market share concentration due to the industry's relative ease of entry and exit, which allows for large number of small companies and sole proprietors, continues Setar. The four largest players are YRC Worldwide Inc., J.B. Hunt Transport Services Inc., Con-way Inc. and Swift Transportation. Industry concentration has increased over the past five years due to the falling number of industry operators. Many large companies have purchased smaller operators over the past decade to increase their geographic reach and selection of service offerings. Another factor that contributes to this industry's low concentration is the large number of nonemployers. In general, small companies make up the bulk of industry enterprises. Large operators often contract these companies to handle fluctuations in demand. Nonemployers comprise about 87.5% of companies in the Local Freight Trucking industry. Barriers to entry are low, allowing for many small operators to enter the industry and increase competition. These small operators, which generate 38.2% of industry revenue, were especially vulnerable to the decline in demand. In the five years to 2013, the number of companies is expected to decline an average of 0.9% annually to 195,111 enterprises. Similarly, reduced demand has also caused industry employment to fall an average of 0.9% annually during the same period.
Over the next five years, the industry's major players are expected to continue growing through acquisitions. In addition to increasing geographic spread, many operators have used acquisitions to provide more value-added services to clients. While the development of integrated logistic services does not necessarily determine industry concentration, it can influence a company's market power. Large companies are generally more capable of winning contracts with major retailers and manufacturers. Once a contract is secured, it is often outsourced or subcontracted to companies with logistics services, enabling them to achieve higher profit than smaller industry players. Conditions are projected to improve slightly over the next five years. As the economy continues to recover, including improvements in manufacturing and retail spending, the industry is expected to grow because a greater number of goods will need to be shipped. Additionally, diesel prices will cause growth as companies heighten fuel surcharges to offset costs, although profit will eventually diminish. Over the next five years, IBISWorld projects that industry revenue will increase. For more information, visit IBISWorld’s Local Freight Trucking in the US industry report page.
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IBISWorld industry Report Key Topics
Operators in this industry provide general freight trucking over short distances. General freight companies handle a variety of commodities, which are generally palletized and transported in a container or van trailer. Local general freight trucking companies usually provide trucking within a metropolitan area that may cross state lines, and the trips are generally same-day return.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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