Symposium 2004: Carriers slip into the driver’s seat

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“My optimism grows every day,” ATA’s Bob Costello told Symposium attendees.

How quickly things have changed. Just a few years ago, a glut of trucking capacity and an economic recession had many carriers scrambling to keep idled equipment moving. Today, strong freight volumes, the consolidation or failure of thousands of carriers, a renewed driver shortage and external constraints on capacity such as the new hours-of-service regulations have put carriers in the driver’s seat of their shipper relationships.

While cost control remains critical, the best prospects for improvement today may lie on the revenue side – the top line. With greater leverage, carriers have the opportunity to reshape their relationships with shippers in the near and long terms. That can mean more than getting a higher rate per mile. It can mean a transformation from a vendor/customer relationship to one in which both parties collaborate to achieve common objectives.

This was the lay of the land as several hundred trucking executives convened May 24-26 in Tuscaloosa, Ala., for the 15th Annual Randall Trucking Spring Symposium, organized by Commercial Carrier Journal.

Symposium attendance is by invitation only, but in the next several pages you can glean some of the key observations and insights of the expert presenters. In addition, presentation materials are available at www.ccjmagazine.com under “CCJ Special Info.”

The Randall Trucking Spring Symposium is sponsored by Caterpillar, Comdata, Goodyear Tire & Rubber, International Truck and Engine Corp., PeopleNet, Roadranger, Shell Lubricants, TravelCenters of America and TripPak Services.


TRUCKING IN DEMAND
Costs rise along with freight volumes and revenues

After a “false start” rebound in 2003, trucking can expect a stronger and more sustained recovery this year and beyond, forecasts Bob Costello, chief economist and vice president of the American Trucking Associations. “This industry’s definitely back,” Costello told the Randall Trucking Spring Symposium. “My optimism grows every day.”

Costello said manufacturing productivity should grow as much as 5.5 percent this year and up to 6 percent next year. Factory orders for durable goods are up 17.5 percent from a year ago.

One clear sign that manufacturing needs to increase – and will do so on a longer basis than last year – is that inventories are depleted. The ratio of manufacturing inventory to sales is virtually flat, “the lowest it’s ever been in history,” Costello said, adding that manufacturers have just recently begun the inventory rebuild.

Truck tonnage in the first quarter of this year is 7 percent higher than a year ago. “The talk of so many carriers is it’s only getting stronger,” Costello said. “Truck tonnage is definitely going to be over 6 percent growth this year.”

Large carriers were the first to bounce back after a downturn that saw thousands of carriers go out of business. But now there are signs that small carriers, too, are getting more business. Trucking lost freight to the railroads during the downturn – reflected in the drop in the number of long-haul truckload loads – but there are signs of freight shifting back to trucking. Costello predicted continued recovery of freight from rail because of shipper concerns over speed and schedule dependability.

Costello cautioned that continually rising costs would offset many of the benefits of the strong demand for trucking services. All carriers will have to deal with the rising costs of insurance, driver wages, fuel and equipment, as well as lost productivity due to the new hours of service.

The rising price of oil is mostly because of a terrorism risk premium on the price of crude oil. Although inventories of crude oil are 4 percent higher than a year ago, OPEC is concerned about the impact that a terrorist attack might have on oil production, Costello said.

Not only are fuel prices at record highs, but the price volatility of recent years also appears to be here to stay. It is further compounded by the difference between the average national price and recent prices on the West Coast and the lack of a single, national fuel standard. “We need a good energy policy coming out of Washington,” Costello said.

The capacity shortage appears to be here for a while. Compliance with the new hours regulations has hurt productivity about 3 percent, based on fleet reports, he said. If that’s true, the industry needs to add 60,000 trucks just to meet current freight demand.

“Capacity is tightening day by day,” Costello said. Given the rising costs and the difficulty of a carrier with no experience record getting insurance, the “barriers to entry are higher than they’ve been in years.”


ONLINE COMMERCE HERE TO STAY
Carriers can view online bidding as either threat or opportunity

Shippers’ solicitation of rate bids through online auctions can seem impersonal – even disloyal – when it’s a longtime business partner, but the practice is efficient and here to stay, panelists told attendees of the Randall Trucking Spring Symposium.

Jet Express President Kevin Burch said he had a rude awakening 18 months ago when online auctions resulted in the loss of two accounts worth $3 million in one week. Even a long-term loyal customer that has given its carrier service awards – as was the case with one of Jet Express’ lost accounts – will end the relationship if an auction produces a better deal.

Burch said the experience taught him a valuable lesson about the need to embrace new business practices.

“Don’t put your head in the sand and think, ‘This can’t happen to me,'” Burch told the Symposium. “If I had done that, I wouldn’t be here today.”

Because the process is quite involved and smart bidding requires lots of research, carriers should resist the urge to ignore an online bid request or go into the bidding ill prepared, Burch said.

From his experience in using online bidding in the automotive sector, Burch said you must know your costs for each lane and settle on a bottom price before the bidding begins. Start off with a high rate to test the market, but never go below your costs. And remember that the lowest bid does not always end up getting the business, Burch said, since the shipper may determine that the carrier with the lowest bid may not have the capacity to honor its commitments.

John Gentle, global leader of carrier relations at Owens Corning, said his company has tried various methods of electronically gathering bids since the late 1990s and will continue to do so. Since Owens Corning generates 400,000 annual shipments of its building and industrial materials from 70 U.S. plants, requiring dry vans, flatbeds and tankers, its complex needs hold great potential for shipping efficiencies.

Gentle said shippers should fully detail their special needs and their expectations from carriers. “It’s critical that shippers provide carriers with their history,” such as if certain days of the week have higher load frequencies from certain points, he said.

Gentle advised incumbent carriers not to view a bid as a personal attack or as a loss of relationship. “Have a clear understanding as to how the final decisions will be made and bid accordingly,” he said. “Ask your shipper to help you bid some of your services and supplies.”

Burch encouraged carriers to pay attention to details such as what mileage system is being used for the rate basis, whether drivers can complete designated runs legally, stop requirements, special equipment needs, frequency of loads and route-related costs such as tolls and fuel tax.

In the past, shippers often discouraged carriers from choosing to bid only on profitable lanes, Burch said. “The customer now wants you to cherry-pick.” That’s because shippers expect the auction process to match each lane with the best-suited carriers at the lowest cost.

In addition to allowing a carrier to more fully utilize its favored lanes, online freight bidding offers carriers new business opportunities, is convenient, provides quick results and reduces sales expenses, Burch said. Jet Express regained a $2 million account a year later, and in the meantime it figured out how to use online freight bidding to get new business.


NETWORKED PROFITS
The extra loads make all the difference

Managing load profitability is more difficult for truckload carriers than managing costs, but managing both well separates superior performers from mediocre carriers, David Goodson, a management consultant with KPMG LLC, told the Randall Trucking Spring Symposium.

The fundamental difficulty of being a profitable truckload carrier, Goodson said, lies not in watching costs but in understanding where you make money. Cost accounting systems, for example, are helpful, but accounting systems based on historical data do not take into account the backhaul impact, driver satisfaction and – most of all – the value of finding an incremental load.

Goodson said that determining a break-even point for the month is the best place to start to determine where you make money – by getting incremental loads, that is. For most, the break-even point happens in the 27th or 28th day of the month. Companies begin to tumble when the break-even point goes out to the 29th and 30th of the month, he said. Likewise, drivers also have a break-even point. By getting them extra miles, you can make a difference in their quality of life.

To find incremental loads, operations must improve scheduling – the day of the week, time of day – and develop a plan of attack for each area. Focusing on deadheads is not a good way to run operations, Goodson said, adding that Heartland Express, one of the most profitable carriers, has one of the highest deadhead percentages in the industry.

The key to profitability for carriers that have networked operations is to follow the “rule of three,” which says the sum of any three consecutive loads must be profitable. If not in a win-win-lose situation, for example, the shipper that sends you into a certain area is not making you money, Goodson said.

Goodson suggested that carriers calculate their average profitability in and out of an area. Columbus, Ohio, for example, is one of the most profitable areas for outbound freight, whereas New York City, with its high toll costs, and Kansas City, because of high trucking capacity, are at the bottom of profitable areas, he said.

Advanced cost accounting systems are critical to determine the profitability of a certain shipper, but “you have to understand that you’re not in a market where you can get a fair rate,” Goodson said. By analyzing your key shipping lanes in terms of rates, deadhead and margin-per-day, you can apply the “rule of three” to determine profitability and look for opportunities to get incremental revenue, he said.


Terrorism analyst General Barry McCaffrey told Symposium attendees the war on terror will get harder as we approach the November election.

THE WAR ON TERROR
General says America is more safe, but still at high risk

In his keynote address to the Randall Trucking Spring Symposium, retired General Barry McCaffrey, a widely noted terrorism analyst, said the war on terrorism is going to get more difficult, especially between now and the November election.

The United States is doing a good job on two major fronts – cooperation among law enforcement and intelligence agencies and the readiness of our armed forces, McCaffrey said. The nation is more secure than before 9-11, but “we are still at great risk.” When it comes to our enemies, “some have been thwarted