“Enjoy the good times,” Bob Costello, American Trucking Associations vice president and chief economist, told Randall Trucking Fall Symposium attendees. But rather than focusing on growth, carriers also should “watch those costs” to take advantage of the strong business climate, he said.
The mood was nothing but upbeat at the first Randall Trucking Fall Symposium, held Nov. 8-10, 2004, in Phoenix. A burgeoning economy fueled by a strong manufacturing base has made freight plentiful. Tight capacity, brought on by carrier failures and the new hours-of-service rule’s impact on productivity, have put carrier attendees in the enviable position of having more business than they can handle. This environment has helped carriers form collaborative relationships with their customers to achieve common goals such as improved productivity. And, they’ve been able to negotiate better rates, fuel surcharges and accessorial charges.
The only somber notes were record high diesel fuel prices and a severe driver shortage.
Inability to get drivers is constraining growth for virtually all carriers. Cost containment will be key to carriers’ continued success.
More than 200 attendees gathered for this by-invitation-only event, modeled after the successful Symposiums that Randall Publishing has held in Tuscaloosa, Ala., for more than 15 years. In the following pages you’ll find highlights from presentations made by industry experts. In addition, presentation materials are available at www.ccjmagazine.com under “CCJ Special Info.”
Organized by Commercial Carrier Journal, the Randall Trucking Fall Symposium is sponsored by C.H. Robinson/T-Chek; Cummins Inc.; Freightliner Trucks; Goodyear Tire & Rubber; Parker Hannifin Corp., Racor Division; Pegasus TransTech; Qualcomm; Roadranger; Shell Lubricants and TravelCenters of America.
ATA economist predicts continued tight capacity, strong demand
“It’s a good time to be a survivor,” Bob Costello, American Trucking Associations vice president and chief economist, told attendees at the Randall Trucking Fall Symposium. Strong manufacturing production and increased consumer spending are driving robust freight volumes, yet truck capacity remains tight, Costello said.
Through September, truck tonnage is up 7 percent, Costello said. Freight increases are “across the board,” he said, with even small carriers – which ATA defines as less than $30 million in revenue – seeing an increase in demand for their services. “This year small carriers are booming,” he said. And demand is driving higher revenues. Costello predicts revenue per mile for long-haul truckload carriers will increase about 8 percent over last year.
Despite press reports to the contrary, “the manufacturing base in the U.S. is strong,” Costello said. He predicted that manufacturing production would remain high into 2005 and beyond. “There’s a lot of demand in the pipeline for manufacturers,” he said. And while manufacturers have been building up inventories lately, inventories remain low relative to sales.
Retail sales, which make up about two-thirds of the economy, were up 8 percent in September compared to September 2003. Retail sales through the upcoming holiday season are projected to be up about 4.5 percent, which is average, Costello said. One quarter of all retail sales take place between the day after Thanksgiving and Christmas Eve.
While freight volume will remain strong, capacity will continue to be tight, Costello said. Class 8 sales in 2005 and 2006 “will only climb from 2004,” he said, but these sales will not translate to increased capacity because “we’re taking out about the same amount of trucks as we’re putting in.” He called any increases in capacity “marginal,” with most purchases going for replacement, not growth. The industry has not seen a corresponding boom in trailer sales, which would indicate growth, he said.
On the cost side, trucking spent $8 billion more on diesel in 2004 than in 2003, and diesel fuel prices will remain very high, Costello said. The Department of Energy is forecasting $2.04 per gallon average diesel price for the fourth quarter, but with the current price of diesel fuel at $2.13 per gallon, Costello called DOE’s outlook – which also showed lower prices for 2005 – “too optimistic.” He cited meteorologists’ predictions of a cold winter on the East Coast, which would put additional pressure on diesel fuel prices because heating oil is made from the same distillates as diesel fuel.
Carriers’ biggest cost, labor, also is on the rise, Costello said. Truck driver wages have not increased as fast as other blue collar wages in the past few years. Turnover among large carriers is at 116 percent. Given simple supply and demand, “I just don’t see how wages are not going up,” he said.
Although business is booming right now, Costello cautioned carriers not to “just focus on growth this time around.” He advised carriers to “enjoy the good times,” but reminded them that they “still have to watch those costs.”
Carrier productivity and revenue moving up
With abundant freight and tight capacity, carriers are able to demand higher rates and to carefully select the freight they want to haul, a panel of trucking executives told the Randall Trucking Fall Symposium.
“We’re evaluating our customers,” said Larry Miller, president of L.W. Miller, Inc., Logan, Utah. “We’ve weeded out customers who don’t want to work with us.” Tight capacity also has helped Miller command higher rates and other charges. “If I’d gone to a cattle buyer one year ago and asked for a fuel surcharge, he’d have thought I was crazy,” he said.
Costing software has helped Dart Transit Co. get selective rate increases in many lanes, said Joyce Jordan, COO and vice president of sales and marketing at Dart’s Dallas Operations Center. Dart’s sales team has an end-of-year deadline to implement across-the-board rate increases. “We’re taking a tough stance and if necessary are walking away from business,” she said. Carriers must capitalize on these opportunities while they can, she said. “Five years from now, if everything changes, [shippers] won’t be embarrassed to ask for a rate cut.”
Revenue at Wooster, Ohio-based Wooster Motor Ways is up 18 percent, said President Paul Williams. He attributes much of this growth to improvements in efficiency at shippers and receivers. In fact, the company has increased the number of loads handled per month from 2,200 to 3,400, while remaining at 160 power units.
“We have a costing model that we take to the customer and show if there will be waiting or other inefficiencies,” Williams said. Customers usually are willing to work with the regional truckload fleet, but in some cases, “we’ve had to walk away,” he said.
One of the factors contributing to improved shipper cooperation were the new hours-of-service rules that went into effect in January, panelists said. “We were very concerned about hours of service, but it didn’t hurt us a lot and even helped a little with detention time,” Miller said. “Most of our customers have been receptive, and we’ve seen considerable improvement.”
“As an industry we did a very good job of explaining to customers our requirements,” Williams said, adding that he did have to purchase 30 or 40 more trailers.
But despite such positives, a shortage of qualified drivers is limiting growth, panelists said. L.W. Miller has had some success in hiring drivers from Romania who are U.S. citizens, Miller said. “Three of them have become owner-operators.”
Dart, which is 100 percent owner-operator, has added regional, dedicated and city routes. “We have options for owner-operators who otherwise might leave the company,” Jordan said, adding that transfers between divisions have increased in the last year. The downside? “We’re seeing our over-the-road fleet decreasing,” she said.
Wooster Motor Ways is developing a program wherein 15 drivers will mentor other drivers through regular phone calls, lunches and even dinners that include spouses. “Often, drivers are embarrassed to asked questions,” Williams said. “We think this will help.” Mentors receive $500 savings bonds and four additional vacation days each year.
The biggest factor in the driver shortage is that 18-year-olds cannot graduate high school and become truck drivers, Williams said. “Some of our drivers started at 16 years old and have been with the company for 30 years,” he said. He suggested an apprenticeship program, much like the pilot program the Truckload Carriers Association proposed several years ago.
Creative recruitment efforts will not be enough without increased wages, the panelists said. Wages will need to increase “at least as much” as the $65,000 mark proposed at a recent industry meeting in Atlanta, Jordan said.
The panel was unanimously opposed to the Federal Motor Carrier Safety Administration requiring electronic onboard recorders to ensure hours-of-service compliance, a possibility the agency is exploring in its rewrite of the rule. “They give government too much of a hand in our business,” Miller said, of the recorders.
But the panelists agreed that “black boxes” probably are inevitable. If that’s the case, “they should be in every vehicle,” including cars, Williams said.
Finding – and keeping – the right people
The only thing that sets your company apart is your people and their attitudes, said Bill Webb, president of the Texas Motor Transportation Association, who led a panel discussion on leadership during good times at the Randall Trucking Fall Symposium. That’s why it’s important to focus not on why people leave, but why they stay. “Don’t focus on the negative,” Webb said. “When you focus on something, even if it’s something you don’t want, you’re going to get more of it.”
Panelists shared the challenges they face in recruiting and retaining employees. “A lot of the people we’ve cherished as some of our best employees who’ve moved up to a management position have failed,” said Tom Kretsinger Jr., executive vice president of American Central Transport. “It’s our fault because as a corporate value, training wasn’t at the top of the list.” Because of that, “training’s a big issue on our radar screen right now,” he said.
“In the past we looked for people who strictly had trucking experience, even if they weren’t the best fit for our company,” said Gary Salisbury, Fikes Truck Line COO. “Now five or six of our leadership team members interview candidates, and if they have the drive, we can teach them what they need to know.”
Motor Carrier Services had a similar experience, said President Keith Tuttle. “We’re having better success hiring people from other industries and training them in our industry,” he said. “A great attitude is of prime importance to us when people come to work for us.”
Webb encouraged carriers competing for key employees to model their companies after the best in the world, not just other trucking companies. “That’s our competition,” he said.
‘No wholesale changes’ to HOS
The revised hours-of-service rule due out next year must be able to “withstand any assault that might come from an outside party,” Rose McMurray, associate administrator, policy and program development for the Federal Motor Carrier Safety Administration, told Randall Trucking Fall Symposium attendees. FMCSA is counting on a 10-person team of experts, who will be virtually sequestered for one year, to ensure the agency considers all aspects of the rule, including driver general health, 11 hours of driving, the 34-hour restart and the sleeper berth exception, she said.
“When we promulgated the rule last year, we believed we had sufficient evidence to issue the rule the way it was, including years of fatigue research,” she said. “I think what we’ll see is more evidence that substantiates the rule. I wouldn’t expect to see wholesale changes.”
Interest groups that successfully filed suit to block the 2003 version of the rule included Public Citizen, Parents Against Tired Truckers (PATT) and Citizens for Reliable and Safe Highways (CRASH).
As FMCSA revamps the rule, it is looking at the feasibility of using electronic onboard recorders to monitor driver hours of service. The agency not only is mandated by Congress to consider the devices, but “there is a tremendous push on the safety side of this industry to look at whether recorders are the answer,” McMurray said. FMCSA will carefully consider comments on the proposal from the trucking industry. “We’re of course concerned, as you are, with balancing the benefits of this technology with privacy,” she said.
Driver compensation on the rise
By 2005, driver pay changes will be a component of some carrier-shipper contracts much like fuel surcharges are today, said Gordon Klemp, president of The National Transportation Institute. However, this practice will not give carriers “carte blanche to keep raising rates,” said Klemp, who publishes the National Survey of Driver Wages, which tracks driver pay and benefits nationwide. Rather, it would give them a mechanism to raise pay to hire more drivers when the market demands it.
At the same time, driver pay will continue to rise, with total income in the $60,000 range for top drivers. Klemp also sees a trend toward “pay banding” – establishing mileage rates to compensate drivers for short hauls, as well as targeted pay for certain areas of the country. For example, Heartland’s Green Miles program pays an additional 7 cents per mile for running in a specific area of the northeast. Klemp also has seen more pay increases targeted at certain types of trailers pulled and for specific types of drivers.
Klemp also sees more carriers adding regional and dedicated fleets to improve driver home time and the predictability of home time, approaches that he sees improving driver retention. “The over-the-road fleet is the one that’s under the most pressure,” he said. That’s where big pay increases come in. “It has to be a large reward job,” he said. “It’s too hard to find people willing to do it in a tight labor market.”