Think before you grow

Chances are, you will have the opportunity to haul lots more freight this year. If you are smart, you won’t do it.

It’s clear that freight demand will be strong this year, even if volumes don’t grow dramatically. The American Trucking Associations’ seasonally adjusted tonnage index hit a record in December after trending upward for about a year. In addition, a CCJ reader survey conducted last month found 64 percent reporting higher freight volumes than a year earlier. And there are fewer competitors chasing this business. About 12,000 carriers with five or more power units have failed since January 2000, according to A.G. Edwards’ estimates.

The upturn brought in brisk heavy-duty truck sales in December and January. The CCJ survey found that 56 percent expect their fleets to grow in 2004. Many fleets may try to restrain future purchases in a bid to maintain or increase equipment utilization, but this won’t be easy under the new hours-of-service regulations if freight remains strong. Carriers already are reporting some productivity loss, a challenge that may grow larger when the 60-day soft enforcement ends this month.

So we will see more trucks, and more trucks means more drivers. But driver availability is already a concern. ATA reports that the turnover among linehaul drivers at large truckload carriers hit 119 percent in the third quarter of last year, a jump of 13 points over the third quarter of 2002. The CCJ survey highlighted a related worry. More than 43 percent said that drivers applying for jobs are less experienced than last year’s applicants.

How you will respond to these problems? Will you relax hiring standards, even informally, to fill trucks? Or will you forego some growth and freight opportunities if you can’t find enough quality drivers?

When the industry last faced a similar strong freight market, driver standards deteriorated. In early 1999, we asked carriers how they select drivers. “The No. 1 quality we look for is if they are breathing,” said one owner of a small trucking company. “They have to be able to breathe – that and be at least 21 years old.”

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Once again, carriers may be tempted to cut some corners to land new business or serve their good customers. But there’s one huge difference between 2004 and 1999. In 1999, insurance carriers were chomping at the bit for trucking premium dollars so they could sink the cash into the booming stock market. Liability coverage was cheap, relatively speaking, and deductibles were low or nonexistent.

A year later, the stock market tanked, and insurers began demanding dramatically higher premiums. Trying just to keep premiums from bankrupting their companies, carriers raised deductibles and lowered coverage levels substantially. Freight also slowed. The silver lining of that dark cloud was that fleets could be choosier with drivers.

Today, the growth in insurance premiums may be moderating, but carriers remain far more exposed financially to crashes than they were five years ago. And don’t expect lawsuits and multi-million-dollar jury verdicts to go away. In fact, trucking may become an even bigger target as the industry gets healthier and more profitable. As you face the decision whether to loosen your standards just a little to fill that empty truck, stop first to consider the consequences.

If you survived the last four years of slow freight, diesel price volatility, escalating insurance premiums and a drought of financing, you have learned to operate profitably without growth. Don’t risk it all now by putting a few bad drivers behind the wheel.