This is the fifth in a series related to Forisk’s Q2 2018 forest industry analysis and timber price forecasts for the United States and Canada. The post includes an excerpt from the Forest Operations chapter.
I had the opportunity to attend the recent Forest Resources Association Annual Meeting and the subsequent Wood Supply Research Institute meeting in New Orleans. Not surprisingly, topics on trucking challenges featured in many of the sessions. While discussing how higher insurance costs could eliminate any profit margin for independent trucking contractors, someone pointed out this was true only if drivers were constrained by the legal maximum weight. Though the comment alluded to the propensity of some contractors to run overweight in an effort to make money, it hints at an important topic. We spend time every quarter evaluating the role of future diesel prices on hauling costs, but it can be difficult to envision the sensitivity of haul costs to an array of factors, including variable payload.
Median log truck driver wages in the U.S. increased 14% between 2012 and 2017. Mercifully, diesel prices dropped 33% over the same timeframe (though they are increasing in early 2018). Insurance costs, while difficult to ascertain, reportedly increased up to 50% (in many cases, much greater). New truck prices are up around 10%. If we start with basic assumptions about truck operating costs per ton for a 50-mile haul and examine the effect of increasing the cost of each of these components by 10%, labor and diesel have the greatest impact (Figure). Not surprisingly, increasing haul distance 10% raises per ton cost more than any individual cost component. If we put two more tons of payload on the truck, increasing the gross vehicle weight from 84,000 lbs. to 88,000 lbs., operating costs for our sample truck drop by $0.45 per ton. The extra payload more than compensates for a 10% increase in other truck costs and even covers the cost of increasing from a 50-mile to a 55-mile haul distance.
This type of sensitivity analysis clarifies the scale of the incentive higher payloads offer at all levels of the industry. With operating costs trending upwards, hauling more weight widens razor thin margins for truck owners. Increasing the legal payload at the state level can immediately lower wood costs. With truck driver shortages across the country, higher payloads also move more wood with fewer drivers. While it is far from a silver bullet, it is easy to see why so many people exposed to risk from the trucking sector (i.e. all of us) focus on payload as a key issue.