The Transport Dive Outlook on 2021

The new year is a time to start planning budgets and setting financial targets.

Many fleets responding to a Morgan Stanley survey expect continued tight capacity, high demand and elevated rates this year. Carriers are betting on widespread vaccine distribution to give way to a stronger 2021, particularly for the transport sectors sluggish in 2020, such as food service and industrial.

While many market factors are outside of fleets' control, firms can monitor and benchmark operational costs against industry averages.

Each year, the American Transportation Research Institute collects cost data from TL, LTL and specialized fleets and compiles the finding into a report — the most recent of which was published in Q4 2020.

The charts below illustrate trends in operational costs for fleets, according to ATRI's data.

The trend

Trucking's average operational costs per mile vary year to year, based on several line items, including driver wages, equipment costs, tolls and fuel.

Costs fell 9% for TL carriers and 3.5% for LTL carriers from 2018 to 2019, according to ATRI. Reduced costs in several line items contributed to the drop after the freight boom in 2018, as outlined in many of the charts below.

The outlook

ATRI noted the decrease in operational costs did not apply evenly across all sectors — namely private truck costs, which increased from $2.73 in 2018 to $2.80 in 2019.

"The growing cost differential between for-hire and private fleets may move more private fleet trips to for-hire carriers in the future," ATRI wrote in its report.

The trend toward private fleets converting to dedicated carriage is beginning to appear. The COVID-19 pandemic created a volatile market that made contract a more viable option than private carriage for many fleets. J.B. Hunt said in November 2020 that it is targeting private fleet conversion as one of its largest growth opportunities.

The trend

Driver wages consistently make up the largest percentage of operational costs for fleets, and they were at one of their highest levels since ATRI began collecting data, despite a slight decrease from 2018 to 2019.

The ongoing driver shortage has prompted fleets to raise pay for drivers, in hopes of enticing new talent to the workforce and retaining truckers already on the payrolls.

Carriers also use driver benefits to recruit and retain drivers. More than 90% of respondents in ATRI's research said they offer health insurance, and nearly 90% provide paid vacation. But less than half of fleets said they give drivers paid sick leave.

Max Farrell, co-founder and CEO of WorkHound, said fleets are offering more premium insurance packages as a draw for drivers, such as 100% preventable coverage, plus vision, dental and life insurance.

"The 'innovative' response has been to offer healthcare at the same price while carriers 'absorb' the difference," Farrell said in an email.

Driver bonuses are not part of the wages or benefits calculation, but ATRI's data does indicate all types of bonuses (safety, starting and retention) increased from 2018 to 2019, with retention bonus values up more than 80%.

"Higher starting bonuses are likely to become more commonplace," ATRI wrote.

The outlook

Trucking wages often follow trends on the spot market, which has surged in 2020 alongside the demand for e-commerce. If the spot market continues to thrive in 2021, so will wages.

ATRI expects the driver shortage "to worsen in the coming decade," with estimates of a shortage reaching 160,000 drivers by 2028. The continuing trend will keep wages competitive and have fleets seeking ways to make the job of truck driving more attractive.

"Motor carriers are redesigning how they’re distributing work so that drivers can have consistent miles, but also have the ability to be home in bed every night," Farrell said, pointing to trends in more regional routes versus over-the-road and more drop-and-hook locations — all part of "creating a more desirable job experience."

Fleets are also adding flexible policies, such as allowing pets or family members on the road, Farrell said.

And the leading carriers are incorporating driver feedback into decision-making, according to Farrell. "This is only going to continue to expand across the industry, because it works well in so many other industries," he wrote.

The trend

Fleets' lease and purchase costs declined 2.3% in 2019 after a strong year of truck purchases in 2018. Still, costs are up significantly over the last decade, ATRI said in its report.

Data from 2020 will likely show increases in truck and trailer purchases costs per mile, as fleets accelerated their equipment buying from April through the end of the year. Volvo reported in October that fleets were resuming their pre-pandemic replacement cycles, resulting in truck orders increasing more than 60% YoY.

The outlook

"Truck lease and purchase costs are expected to remain constant over the coming year," ATRI said, noting a "tumultuous" buying period in the latter part of 2020.

Fleets have already locked in 2021 build slots for trucks and trailers, according to FTR, as carriers anticipate continued freight demand this year.

The used-truck market may also see increased activity. A flourishing spot market lured smaller carriers and owner operators into the industry, and these fleets often buy used equipment.

The trend

Fuel was fleets' second highest line-item cost in 2019, after driver wages.

Costs are down with lower diesel prices mostly contributing to the drop, ATRI said. Lower diesel prices continued through 2020, which will likely reflect in fleets' fuel costs in ATRI's next operational costs report.

Fleet size plays a big role in fuel costs. Larger fleets have more bargaining power with fuel suppliers than smaller fleets. Large carriers also tend to operate newer trucks with better fuel efficiency, thus contributing to lower fuel costs.

The outlook

The U.S. Energy Information Administration expects petroleum demand to remain low through 2021, which will keep diesel prices and fuel costs low for carriers.

As carriers adopt more fuel efficient vehicles and even hybrid, battery-electric or hydrogen trucks, average fuel costs will continue to decline — although that cost may show up in other line items, such as equipment.

The trend

Tire costs have largely trended downward over the last decade, though the decrease is less than 1 cent per mile, or about 25 cents per hour, since 2011.

These costs often operate in tandem with fuel costs, as the tires are derived from petroleum.

The outlook

At the time of ATRI's report release in November, the research organization began to observe demand for replacement tires as freight activity picked up.

"Tire demand will reflect economic activity," ATRI stated, adding that tire costs are expected to rise over the next year.

The trend

"The cost of trucking insurance has increased drastically over the past 5-10 years," Jennifer Nuest, transportation marketing coordinator for HUB International Transportation Insurance Services, said in an email. She attributed the rise to inflation and rising incidences of nuclear verdicts, which are legal awards of more than $10 million.

Despite the insurance cost trend, ATRI's data shows a drop in insurance costs from 2018 to 2019, which the institute described as "the most surprising cost center decrease."

ATRI consulted with insurance experts on the cost decline and concluded that the industry is maxed out in its ability to pay high insurance premiums. As a result, fleets have increased deductibles and reduced excess coverage.

"While these short-term approaches to manage cost increases appear to be stabilizing insurance costs, the long-term result is a potentially catastrophic increase in accrued carrier risk," ATRI wrote.

Rising insurance premium have put the issue on the trucking industry's radar once again. For the first time in 15 years, insurance availability and cost ranked in the top five industry issues.

Coronavirus-related safety measures didn't impact insurance premiums much, Nuest said. But fleets changing what commodities they hauled, when demand grew in some categories and fell in others, may have increased insurance premiums due to perceived risk of hauling an unfamiliar product, she said.

The outlook

ATRI and Nuest said insurance premiums will continue to rise. Primary auto coverages are expected to increase between 5% and 15% in 2021, Nuest said.

Implementation of safety tech will help to moderate the insurance increases, according to ATRI and Nuest. Nuest gave examples of cameras for coaching drivers, along with strong safety culture at trucking firms.

Changes to tort reform at the state level could also help level out insurance costs.

"Once insurance carriers are realizing profits again, they will be able to stabilize rates," Nuest said.

Knowing which relatively new companies working in and for the trucking industry to keep an eye on in 2021 is a bit like separating the wheat from the chaff. So many exist in a wide variety of categories.

New services range from safety technology and driver retention, to operational efficiency and the continued goal to go paperless, said Brian Fielkow, CEO of Jetco Delivery. The total funding for logistics startups in 2019 ran around $6.3 billion worldwide, according to a McKinsey analysis.

When fleet managers read news about startups and consider partnering with them, they should look for words that inspire confidence in an investment, said John Esparza, president and CEO of the Texas Trucking Association.

"Have a conversation with them. Learn about their product and their company culture," Esparza said. "Research the founder’s background to see what successes and failures they’ve had along the way."

Once managers find a startup they think they'd like to partner with, Locomation CEO and co-founder Cetin Mericli recommended making sure firms see the benefit of their product or service.

"Try out the technology. See it, feel it and mingle with it," Mericli said.

Because there isn’t a universal definition of a "startup," Transport Dive set a few parameters of its own for startups to watch in 2021. The startup had to be located in North America, be less than 6 years old and have under $1 billion in funding, according to Crunchbase data.

Transport Dive asked trucking experts which innovative transport businesses they thought would make a mark. Couple the experts’ opinions with lots of research, and the results follow in no particular order.

Locomation

Funding: $23 million | Launched: 2018

This company focuses on autonomous trucking solutions. Mericli said commercialization of its product — human-guided autonomous convoys — is right around the corner.

Locomation received its first purchase order from Wilson Logistics for about 1,100 autonomous technology kits, and Mericli reports those will be delivered and installed in the second half of 2022.

Autonomous trucks are expected to help alleviate the driver shortage, reduce downtime and improve fuel economy.

"We are able to optimize and reduce operating costs by 30% and at the same time increase a fleet’s overall safety," said Mericli.

TuSimple

Funding: $648.1 million | Launched: 2015

In July 2020, this autonomous trucking technology startup launched what it said is the world's first Autonomous Freight Network, making it possible for freight to move safely and reliably from point-to-point using self-driving trucks. The company will continue to expand the AFN in 2021 by adding new autonomous lanes and shipping partners.

TuSimple has partnered with Navistar to develop L4 autonomous trucks. The vehicles are expected to be available for the North American market in 2024, according to Jason Wallace, marketing director for TuSimple.

Kodiak Robotics

Funding: $40 million | Launched: 2018

Kodiak delivers freight daily between Dallas and Houston, autonomously on the middle-mile portion of the route.

"Kodiak’s experienced team has developed the industry’s most advanced technology stack, purpose-built especially for long-haul trucks," said Daniel Goff, head of policy at the company. "We are partnering with Fortune 100 shippers, carriers, fleets and freight brokers to build the future of freight."

Convoy

Funding: $665.5 million | Launched: 2015

With a goal of fostering a more efficient and sustainable trucking industry for shippers and carriers, Convoy created Guaranteed Primary in 2020, which replaces traditional requests for proposal.

The company has accelerated programs that automate inefficient practices. These include automated lumper payments, dedicated freight offers in an app, an expanded digital freight network that includes cross-border freight with Canada, and a discount program.

Its TruckYeah Savings program gives carriers savings of up to $35,000.

Shipwell

Funding: $47 million | Launched: 2016

Founders Greg Price and Jason Traff knew there had to be a better way to strategize shipments than what was currently in use. So, they created an ecosystem that combines transportation management, visibility, and a partner network for mid-market and enterprise shippers in a cloud-based platform.

Through artificial intelligence and machine learning, Shipwell offers freight tracking and analytics that aim to improve efficiency and save companies and their customers millions of dollars in shipping costs.

"Since the pandemic began, companies' supply chains have become top of mind. They now realize that logistics operations are mission-critical rather than back-office drudgery," said Traff in an email.

Trucker Path

Funding: $51.5 million | Launched: 2013

The Trucker Path app solves many inefficiencies and problems for drivers, including where to find a truck stop and available truck parking, and updating the status of routes.

Another product offering, Truckloads, helps brokers and carriers connect within their own private network.

Idelic

Funding: $11 million | Launched: 2016

The founders, all Carnegie Mellon graduates, plan to make trucking safer.

This software-as-a-service company collects information on a company’s drivers so they can predict potential traffic accidents before they happen and avoid nuclear verdicts. The software also reduces insurance costs and decreases driver turnover.

Wildcard: Ten5

Funding: blood, sweat and tears | To launch: 2021

Co-founder Susan Fall described Ten5 as an app-based interactive voice experience designed to create a closer connection between drivers and their employers.

"Drivers want more meaningful communication particularly during the first 90 days of employment, when they are most vulnerable to isolation and inclined to leave for another company," said Fall. "We’re providing a simple and effective way for them to stay connected and be less susceptible to leaving."

Each Ten5 ivex, a word coined by the founders, comes with clips that include everything from safety and health tips on the road to highway hero stories, she said.

Drivers also can get instant answers to job-related questions, and they can use the app to review and rank shipping and receiving facilities.

The first carriers are set to roll out with this app in the first quarter of 2021.

Though a new presidential administration signifies the next era of policymaking, it can take time for pieces in the agencies and subagencies to come together.

"What does not happen on Jan. 20, is that the new administration does not get full effective control of the executive branch. It takes quite a while to get senior positions filled, particularly those positions that require Senate confirmation, and there are about a dozen of those at the Department of Transportation," said Jim Burnley, partner at consulting firm Venable, during a webinar in early December.

During President Barack Obama's first term, the last instance of an administration switching from Republican to Democrat, Ray LaHood was confirmed as DOT secretary two days after inauguration in 2009, Burnley said, but the FMCSA administrator wasn't confirmed until early November. The FMCSA has a recent history of functioning without an appointed permanent boss. All departments continue their day-to-day operations in the meantime.

Safety and compliance to-dos

Several regulatory initiatives from 2020 will carry over, forming a long to-do list in 2021 for the FMCSA.

"I believe FMCSA will have a full plate of projects that were placed on the back burner the past 4 years," former agency official Rose McMurray said via email in November. She specifically pointed to underride protection, the rule on sleep-disorder testing and speed-limiting equipment.

Just before the new year, the FMCSA made a move toward checking the first item off the list. On Dec. 29, the agency released a notice of proposed rulemaking to include rear-impact guards in required annual inspections. The public-comment window closes March 1.

The final HOS rule came out last year, but some loose ends remain. Former agency official and HOS expert Tom Yager said in November that he calls the regulation "the continuing saga, because it is constantly in federal court."

Safety and labor groups, no strangers to court battles over HOS, petitioned the court in September. It is unknown what impact that might have, or action that case might see, this year.

Other carryovers from 2020 topics for which the FMCSA solicited public comments. That includes broker transparency, pausing the 14-hour driving window and allowing drivers under the age of 21 to operate trucks across state lines. The agency could propose rules on these items, or it could spend the year gathering more data.

McMurray said the FMCSA is also likely to continue working on its Compliance, Safety, Accountability program this year. "FMCSA will want to get the system 'right and fair' and will work to get there," she said.

When examining safety, the FMCSA and DOT will continue looking at advanced driver-assistance systems, Ariel Wolf, a partner at Venable, said during the December webinar. ADAS will be examined alongside technology being developed for fully autonomous trucks.

The 5.9 GHz spectrum is also a question mark the agencies will need to address, Wolf said. The Federal Communications Commission recently repurposed more than half the spectrum for Wi-Fi, taking it away from trucks, "to the great chagrin of DOT and others," he said. There will "probably" be an effort to reverse that decision, Wolf said, which could involve legislation. By regaining the spectrum, the DOT could resume technology development on dedicated short range communication, which Wolf said has been sidelined.

Lawmaking to-dos

"If the Senate is won by a Democratic majority, expect regulatory revivals of Trump-era rule/policy rescissions," McMurray wrote last year.

President Donald Trump's administration has rolled back rules in environmental policy. Biden and Secretary of Transportation Pete Buttigieg have made it clear that climate would be an integral part of their agendas.

We will make sure that creating jobs, tackling the climate crisis, and centering equity are at the heart of our transportation and infrastructure vision. pic.twitter.com/B3IA5X9jk1

— Pete Buttigieg (@PeteButtigieg) December 21, 2020

A Democratic administration will be more favorable to unions and policies that concern wages and working conditions. Yager said although the FMCSA has no jurisdiction over driver wages, a Congress in which Democrats have the majority could take up some of those issues.

Worker classification regulations come from the Department of Labor, which released a final rule Jan. 6, codifying how to determine whether a worker is an employee or independent contractor.

Congress will also need to try to pass an infrastructure bill this year to keep programs going and feed the Highway Trust Fund. Lawmakers punted on doing so last year, instead opting to extend the existing law until Oct. 1, 2021.

Wolf said during the December webinar that a Republican-majority Senate would have been more likely to prioritize an infrastructure bill. Though, he added, infrastructure plays a crucial role in economic recovery from the pandemic, so it will still be a top priority for Congress.

"I think it's hard to see a scenario where it's not front and center," he said, referring to infrastructure, with a disclaimer that everything can change on a dime, as was the theme of 2020.

In the $1 trillion infrastructure plan Buttigieg unveiled in January 2020 as part of his presidential campaign, he outlined a goal of making the HTF solvent for the first time since 2008. An insolvent fund causes "uncertainty about whether states can complete critical projects," his year-old plan reads, showing his goal of being an ally to state and local governments — an objective borne out of his experience as mayor of South Bend, Indiana.

Buttigieg's plan for making the HTF solvent requires the DOT to propose a new user-fee-based system, such as vehicle miles traveled, which is generally unpopular with the trucking industry. The American Trucking Associations is opposed to VMT, while members of the Owner-Operator Independent Drivers Association are "skeptical" such a fee would be the solution.

A Democratic majority in the Senate gives Biden an avenue to push through tax plans, which, according to the New York Times, would hike taxes on corporations and people in the top tax brackets to fund road and bridge repairs, as well as carbon-free initiatives.

Analysts expect 2021 to be a big year for transport-related mergers and acquisitions. One term that keeps coming up is "pent-up" demand, heightened by idle capital looking to get to work.

"We feel there is momentum," said John Anderson, operating partner of Greenbriar Equity Group, whose investment portfolio includes companies such as LaserShip, Seko Logistics and Uber Freight. "We feel coming into 2021, we are riding a bit of a crest that 2020 ended with."

Anderson said M&A activity picked up after the coronavirus arrived in the United States and caused the first round of shutdowns. Times were particularly volatile in the spring, especially after panic buying dissipated. But as the summer wore on, depleted inventories needed restocking. Spot rates began to rise through the second half of the year.

"We proved M&A could be done in a travel-restricted environment," said Anderson. "The pent-up demand of capital wanting to be invested is real."

Indeed, a number of companies also proved it. TFI International had acquired nine firms in 2020 by the end of November, and analysts believe the firm would have bought more companies if not for the pandemic.

Other carriers are targeting specific sectors that the pandemic boosted demand for, such as last mile.

J.B. Hunt is seeking existing last-mile players to improve any company-wide learning curve of what is a tricky, customer-service-intensive sector. On Nov. 30, J.B. Hunt made its latest acquisition by buying Mass Movement, a delivery company that has delivered more than 2 million equipment pieces to 3,500 fitness centers since 1996.

A strong start to 2021

The trend continued in 2021's first week. On Jan. 5, James Richardson & Sons and Wescan Capital said they acquired 100% of the shares of Bison Transport, one of Canada's largest carriers. Bison, of Manitoba, said it has more than 3,700 employees and contractors, with a fleet of 2,100 tractors and 6,000 trailers in North America. Terms were not disclosed, and the deal was done on Jan. 1.

Nikhil Sathe, managing director of Logisyn Advisors, said M&A activity will be strong in 2021 as the economy slowly shakes off COVID-19 effects and retailers continue to restock shelves.

"We are still not out of the woods," said Sathe. "The vaccines are on the way. We will limp back to normalcy in 2021."

But 2021 will be a good year for M&A, Sathe said. For one, the U.S. election is over, although that could bring some tax ramifications in 2022, Sathe said. To avoid new taxes in 2022, "owners and founders will likely be opportunistic about paying lower capital gains" in 2021, he said.

Rajeev Dhawan, director of the Economic Forecasting Center at the College of Business at Georgia State University, said if vaccinations are successful, and create wide-scale immunity among the U.S. population, there is a chance the macroeconomy gets back to normal by late 2021.

Even if consumers continue to stay home, it won't affect M&A too much, said Dhawan. In tough times, M&A activity tends to pick up, Dhawan said, as buyers look for opportunities and bigger market shares. Additionally, interest rates are low, making debt easy to service while chasing strong returns, he said.

There are plenty of transport and logistics-related properties to eye, making M&A more attractive. The transport market is very fragmented, especially the 3PL segment, Sathe said.

"The fragmentation brings opportunities for consolidation," said Sathe.

And Sathe agreed with Anderson on the pent-up demand for acquisitions. "There's a lot of buyers; there's a lot of capital," said Sathe.

'Year from hell' is over

2020 started off poorly for M&A, according to PwC. M&A volume and value declined during the first half of 2020 compared to the peak in the second half of 2019, but average deal size increased 9% to $377 million, compared to the first half of 2019, according to PwC. The firm said in August it expected deal activity to pick up in the second half of the year.

Now Anderson said the "year from hell," is over. Anderson said he was "surprised by the robustness" of the transport and logistics sectors during the second half of 2020. Indeed, for the week ending Jan. 10, DAT reported average spot TL rates were $2.27 per mile, 65 cents higher than for the same week in 2020, according to Dean Croke, DAT principal analyst.

During 2020, Greenbriar Equity Group did some buying and selling, Anderson said. The kicking of tires, so to speak, continues. In Anderson's opinion, many trucking and logistics companies came through 2020 in good shape.

One criteria that Greenbriar Equity Group now evaluates when buying a company is how it fared during the COVID-19 crisis. If the equity firm sees issues, it studies if the problem was a "blip" caused by coronavirus-related problems. If the issues are what Anderson calls a blip, Greenbriar Equity Group may proceed with a purchase.

And even if a transport or logistics company did not come through the year in good condition, Anderson said there is an extra element of bad luck that could be no fault of the company. For example, some transport and logistics companies may have specialized in servicing restaurants and schools, two business sectors hit especially hard by shutdown and coronavirus policies. Greenbriar Equity Group will not necessarily rule out a purchase of a carrier if COVID-19 caused havoc with the company's business.

Anderson sees those bad-luck factors for most carriers lifting in 2021, and fiscal health returning to most firms in the transport and 3PL sectors. He sees vaccinations picking up, travel increasing and more face-to-face businesses resuming.

"I am bullish on the economy and bullish on M&A," said Anderson.

Electric trucks will accelerate on delivery, research and absorption into fleets in 2021, even though experts doubt more than a few Class 8 trucks will be delivered to carriers.

The electric truck is a crucial part of government and fleet plans to help decrease emissions. But implementation in the United States has been slow. In August, Wood Mackenzie estimated just over 2,000 electric trucks were in service at the end of 2019. The research firm said by 2025, the electric truck fleet will grow to 54,000.

The political winds and consumer tastes favor a change in how trucks are fueled. The new administration seems eager to help make the transition, and President Joe Biden campaigned on a promise of net-zero emissions in the U.S. no later than 2050.

Analysts said they don't believe 2021 will be the year a notable percentage — say, 5% or 10% — of Class 8 trucks become electric, but some predict this will be the year the change begins.

"I think 2020, last year, was the year of commitments," said Mike Roeth, executive director of the North American Council for Freight Efficiency. "If everybody says they will do what they say will do, this will happen pretty fast."

Roeth noted the pipeline for new electric trucks is slow in providing what fleets may want. That means what 2021 sees in the implementation of commercial electric vehicles won't be a flood — more like a trickle. But that will allow fleets to begin gaining experience with electric trucks: How to charge them, and learning the logistics of charging and range limits.

"What we will see is a lot of learning," said Roeth.

Electric in the lead over hydrogen

The speculation about how far electric trucks will advance in 2021 comes at a time when there is significant competition between two types of zero-emission vehicles.

On one hand, there are electric trucks. They have major boosters in Elon Musk, CEO of Tesla, who will deliver Tesla's first Semi trucks this year. Roger Nielsen, the CEO of Daimler Trucks North America, said in April 2019, at the Advanced Clean Technology Expo in Long Beach, California, that electric trucks were the future.

The other track is fuel-cell electric vehicles — or FCEVs. Hydrogen has better range than electric trucks, which are seen best used for drayage or short runs. Hyundai, Toyota, Navistar and Nikola are developing FCEVs.

Toyota and Hino Motors partnered last year to get fuel-cell-powered prototypes on the streets of Japan. Cummins and Navistar announced last November they would produce a Class 8 hydrogen truck that Werner would test for regional hauls in California.

But a national hydrogen strategy has problems, say critics, one similar to the problems that gasoline-powered cars had in the early days of development at the turn of the 20th century: Where does one get the fuel?

For electric cars and trucks, the answer is plug in. The electric infrastructure has long been built, and with some tweaks and expansions, will be able to accommodate electric trucks, which take between 1.7 megawatts and 1.8 megawatts to charge for an hour. That is a lot of juice.

"We still have real challenges," said Chris Nelder, the manager of Electric Vehicles-Grid Initiative of the Rocky Mountain Institute.

Nelder said it is easier to add power generation to the electricity grid, which is what he thinks will need to happen, than it is to add hydrogen fuel stations across the United States.

"There's no doubt in my mind that they will get there before the hydrogen infrastructure gets its shoes on," said Nelder.

The Rocky Mountain Institute released its report on how fleet managers can prepare for coming electrification, tellingly titled "A Steep Climb Ahead." But Nelder and other transport experts believe hydrogen trucks will have a steeper climb.

Speaking to analysts during Tesla's Q4 earnings call on Jan. 27, Musk said hydrogen had more drawbacks than electric trucks, even though Musk admitted battery production was keeping Tesla from going into full production of the Semi.

"People were saying that, somehow, hydrogen is going to be a better means of energy storage in a car than batteries. And it was like, this is just really not the case," Musk said.

Musk added that hydrogen "is not realistic" to keep in liquid form. And developing it into a fuel cell adds complications, he said.

"It's just crazy, basically," said Musk.

Other truck OEMs, such as Europe's Scania, have dipped their toes in the two energy pools. Scania researched FCEVs and put them on the roads, via customers. But Scania, in a Jan. 21 press release, said it is not betting on hydrogen in the long term.

"Going forward the use of hydrogen for such applications will be limited since three times as much renewable electricity is needed to power a hydrogen truck compared to a battery-electric truck," Scania officials said in the release. "A great deal of energy is namely lost in the production, distribution, and conversion back to electricity."

Blame immutable physical laws for the woes of hydrogen, Nelder said.

"When you convert energy from one form to another, you lose a little," said Nelder.

Producing hydrogen and getting it to fuel stations would be an intensive effort, in terms of labor, distribution and production, he said. And FCEVs are not efficient in getting power from the engine to the wheels.

For those reasons, electric trucks will take more market share than hydrogen, said Nelder.

The fleet attraction of electric

Right now, it's not very competitive between electric and hydrogen. Excluding research vehicles, there are few, if any, hydrogen-fueled trucks on the roads in North America, said Tim Denoyer, ACT Research vice president and senior analyst.

There were 2,000 heavy-duty electric vehicles on the road at the end of 2019. Denoyer believes the total number of heavy-duty electric trucks and buses on North American roads will rise to 4,000 units by the end of 2021.

And in other classes, many electric units are ready to go. "You can go buy an all-electric Class 6 garbage truck right now," said Nelder.

The infrastructure-ready aspect of electric trucks is attractive to fleet managers. So is efficiency, according to Denoyer.

Electric trucks are more efficient than FCEVs in terms of power transferred from the battery to the wheels, he said. Further, there are maintenance benefits to electric trucks. A new technology can come with higher maintenance costs, as it is more complex, but Denoyer said electric trucks' complexity compares favorably to the complexities needed for diesel engines.

There are issues with electric trucks, though. Electric-truck batteries are heavy. And the purchase cost for a new electric truck is higher than a new diesel-powered truck, said Denoyer, by as much as 40% to 50%.

"Even with that, the total cost of ownership is lower," said Denoyer. "Because you are going to spend less on fuel and maintenance over the life of the vehicle."

Denoyer said the savings show up later in, for example, school buses. Even if paying 50% more for an electric school bus, the fuel and maintenance — and the total cost of ownership — are 25% less than a diesel-powered bus. Medium-duty electric trucks also show a lower total cost.

But for now, only some Class 8 applications show a lower total cost of ownership, said Denoyer. They include spotters, drayage and short-haul applications. Diesel, he said, still rules the highways.

"Diesel is going to have a cost advantage for longer-haul highway freight for some time," said Denoyer.

Electric's ideal applications

Even with diesel's cost advantage, the winds of change are moving fleets to speed up electrification. Denoyer said he believes electric adoption is going to accelerate. Orders for electric heavy-duty trucks are increasing, as fleets accept that electric Class 8 trucks are ideal for short runs — less than 150 miles. But for now, electric adoption "is a lot easier in Class 4 through 7," Denoyer said.

An ideal application would be utility trucks, which never wander too far from base, and whose owners usually have access to electric chargers, said Denoyer.

And the utilities themselves see the growth in commercial trucks needing chargers and megawatts as a business opportunity, and will likely assist fleets in setting up charging stations, as they ensure there is enough power.

Daimler is helping fleets make the decision by prepping infrastructure. On Dec. 1, PG&E and Daimler announced the creation of "Electric Island," a charging site for medium-duty and heavy-duty electric trucks. Daimler officials said the island will have nine vehicle-charging stations.

Roeth points to other adoptions that indicate greater plans are in place. In Modesto, California, Frito-Lay is working on converting a 500,000-square-foot facility into a zero-emissions freight hub this year. The transition will cost $30.8 million. Part of Frito-Lay's investment will go to infrastructure, renewable energy generation and power storage capabilities on-site.

"They took that whole site and turned it into zero-emission," said Roeth.

The success of trucking in 2021 is contingent upon the health of the economy. When the pandemic was first reported in the United States, trucking benefited from the panic buying. But then came the full effect the pandemic-related shutdowns and slowdowns had on business and households, and truckload spot prices plummeted.

The economy moved toward the depths seen in the Great Recession of 2007-2009, projecting a miserable year for trucking. The industry began counting on economic recovery to occur at the end of 2020 and into the new year.

So, will 2021 fulfill those hopes? On Jan. 14, FTR officials came together for a forecast, and the outlook for trucking was positive, as it was for the economy as a whole.

Consumers kept buying throughout last summer and trucking began to rebound. That caused spot prices to steadily rise through 2020, and that attracted carriers. From July through the end of November, almost 31,000 firms registered, or obtained motor-carrier authority, with the FMCSA, according to Avery Vise, FTR vice president of trucking. That upward trajectory has continued.

The 2021 transport economy is improving — even industrial production appears to be catching up after last year's shutdowns. That was one of the conclusions that Vise and other FTR officials came to, as highlighted in its 2021 forecast during their webinar.

Industrial production, usually a driver of the dry van sector, took a deep drop during the pandemic's initial onset. Inventories in manufacturing are still higher as they relate to sales, according to Avery Vise, FTR vice president of trucking, and that's been aggravated by labor availability, supply chain disruptions and a weak energy sector.

An increase in orders for core capital goods is a sign those market forces are taking a turn for the better, said Vise. Core capital goods, which exclude defense and aircraft products, are at all all-time high in terms of nominal dollars.

"This business indicator is a pretty good proxy for business investment," said Vise. "And it's a very positive sign for the economy as we enter 2021."

Coronavirus concerns

Vise said his observations were backed up in real-time by other data, including the spot market. The year started with active truck utilization nearing 96%, he said, a rate it hasn't touched since the end of the 2017-2018 freight boom. During that freight boom, FTR estimated that active truck utilization, the use of seated Class 8 trucks, hit 100% and stayed there for a while.

Thus, FTR executives were generally positive about what they were seeing. But there was one metric that concerned them the most: growing case numbers of COVID-19.

Vise said he was "pretty optimistic" about industrial growth, but COVID-19 absenteeism could weigh down industrial recovery. Vise also said another weight on the trucking sector could be caused by the federal drug-and-alcohol database taking drivers off the road.

The drag on more robust growth, however, tends to be the stickiness of the pandemic. Jonathan Starks, FTR chief intelligence officer, said COVID-19's U.S. statistics — hospitalizations, positive cases and daily deaths — continue to climb, even as vaccinations begin. The vaccinations will take time to have effect, he said.

"It will probably be some time well into February, at a minimum, before we really see any sort of peaking out," said Jonathan Starks. "Hopefully not just stabilization but a reduction in a lot of these measurements."

In the case of laggardly recovery, the federal government is aiming to pass a new relief package. President Joe Biden, newly sworn in, wants Congress to pass a $1.9 trillion spending bill.

Job losses still vex the recovery. The economy is still down 10 million jobs since the onset of the pandemic in spring 2020, Vise said, and it's all because of the pandemic. FTR officials agreed the latest wave of COVID-19 illnesses are hurting the economy anew.

Clay Slaughter, FTR chief strategy officer, said he expects a regional response to the outbreaks, and not a nationwide approach led by the Biden White House. The regional responses will decrease productivity, Slaughter said.

Looking ahead to H2 2021

Eric Starks, FTR CEO, said once people feel more comfortable going out, especially in the second half of 2021, all sectors, including hospitality and leisure services, will return to normal.

Slaughter noted that hospitality and leisure are consumers of goods, too, and their return to normalcy will cause a demand for their sectors' freight needs — such as food, beverages and linens.

Consumer cash was being saved at the beginning of the pandemic onset, Vise said, with the seasonally adjusted annual savings rate jumping above 30% in April. Recently, that has dropped to about 10%, FTR reported, as consumers open their wallets and spend more, likely causing more freight demand.

But Vise said the recent $600 stimulus checks may not be the boost that lawmakers assumed it would be, and it likely won't compare to the first round of federal coronavirus relief, when the government sent out $1,200 checks and expanded unemployment benefits.

"There is a lot of cash that has been saved," said Vise. "I think that raises questions about how impactful the $600 is going to be when it's really not a lack of cash ... I just don't think people should expect anything close to what we saw in May, June, July coming out of contraction."

Class 8 orders to OEMs set a record in December, but experts say a recovering economy is not the main reason.

Instead, dealers and fleets are lining up for orders because they are concerned about production backlogs, said Don Ake, FTR vice president for commercial vehicles, echoing a conclusion reached among other trucking experts.

That concern translated to 52,100 North American orders in December, which was the fourth-largest order in history, Ake said. November was the third-largest month on record, at 52,600 units.

OEMs are slowly coming back to full capacity, but they are still adjusting to absenteeism caused by COVID-19, as well as measures taken to space out their workers.

OEMs are also dependent upon other manufacturers, and Ake said there are indications that suppliers may be behind in the production of raw materials and input components. The two main issues that have the trucking industry concerned are employees and steel, Ake said, even as OEMs have secured their own workforce fairly well for the production of trucks.

And then there is the economy. Fleets and dealers are fairly confident that COVID-19 can be dealt with effectively, and that will assist the economy in growing as 2021 progresses, Ake said.

Signs of a strong economy

The consumer is still keeping the economy busy, said Dean Croke, DAT principal analyst, even as manufacturing and building will likely slow in the first three months of 2021, with its cold weather. Fleets are not ordering in record numbers to plan for these months, though. They likely expect a stronger economy in the final three quarters of 2021, and just in case, want to reserve production slots at OEMs for new trucks. 

"We will start to pull out of it as we start to get into the warmer months," said Croke.

Croke said more travel will stimulate the need for gasoline and other types of fuel, much of it moved by truck.

Ake agrees he sees a burgeoning economy as 2021 advances. And he sees a return to normalcy for manufacturing, which has been hobbled by COVID-19. If that happens, it would certainly stimulate the dry van sector, which heavily services manufacturing plants.

"The indication is manufacturing is starting to move," said Ake. "The first half looks solid. The year looks solid."

Still, given the volatile nature of 2020, Ake believes the initial months of 2021 will not necessarily indicate the boom about to come in the final three quarters of the new year.

"It could still be a bumpy ride for a couple of months," said Ake. "The economy is still in recovery mode ... The [trucking] industry is still attempting to catch up from the economy being shut down and restarted."

And even now, there is a lot to do in Q1, as retailers and warehouse restock. DAT reported in December such activity will stimulate the trucking sector in Q1.

The adjusted demands caused by the pandemic have already caused trucking rates to surge in ways not seen since the freight boom of 2017-2018, Croke said. He said current spot rates are 36 cents a mile higher than the peak week in 2018.

The strength of the market, for now, may cause nerves among dealers and fleets, who want to make sure their fleet is ready to meet capacity, said Steve Tam, ACT Research vice president.

Another issue perhaps unrelated to the economy: fleets like to update their trucks, to make sure they are modern and fuel-efficient and equipped with the bells and whistles that can improve safety and performance. The better fuel efficiency alone is attractive to fleets, Tam said. Fuel efficiency can help pay for the new trucks over time.

It isn't just trucks being ordered. Mid-January, FTR reported "fleet optimism" is pushing trailer orders up.

Tam said he forecasts 5.1% GDP growth in 2021, so economic expectations are likely the main motivation behind the trailer orders.

Combined with concern about factory slots, that creates record orders for trucks and trailers.

"They would not be ordering trucks for the sake of ordering trucks," said Tam.