THE RECESSION HAS CHANGED THE INDUSTRY FOREVER, BUT TRUCKING MAY EMERGE ALL THE BETTER FOR IT
After wearing itself out battering businesses and citizens around the globe, the recession seems to be abating and fleets everywhere are taking stock of the new industry landscape left in its wake. Carriers still have a great many concerns, including the pending driver shortage, the as-yet-unknown effects of CSA, another possible change to hours-of-service regulations, the costs associated with the new healthcare plan, and the rising price of diesel. There is also, however, a shared spirit of hopefulness and a belief that things can be rebuilt, perhaps stronger and better than before.
Fleet Owner spoke with fleet executives about how the recession has altered their own companies and about their expectations and plans for the future.
Barry Pottle is the president & CEO of Pottle's Transportation Inc., based in Maine. The fleet operates 115 company trucks and works with about 30 owner-operators hauling for the paper industry and other dry freight customers. Five refrigerated trailers also haul organic milk, a newer niche market for the company.
“I feel things will turn around,” says Pottle. “I certainly hope so. Some carriers did not react fast enough to the recession. Thankfully, we did and our profits are up over last year. We were actually losing money then and we are making money again now. I really, really believe that going through times like what we've just been through makes us all better business people. We've learned a lot and we are not going to allow ourselves to get into situations like we did before.”
One of the post-recession changes Pottle has made is to be cautious when ordering equipment. “We bought 65 new trailers and we have an order for 40 new tractors,” he says, “but we are taking delivery of only ten tractors per quarter in case we have to cut back again.”
According to Pottle, much of the fleet's success will depend upon how quickly its customers recover from the recession themselves. “We are based in Maine,” he notes, “so we watch the paper mills. We're worried that they aren't making much money either. We are hoping to be able to get our rates back in line; however, manufacturers have to pay transportation costs out of their profits and that is hard for them to do. We did well in June, but things have slowed up again.
“Some shippers are now trying to partner up with their preferred carriers,” Pottle adds. “Those who don't may end up having to pay more to move freight.”
U.S. XPRESS ENTERPRISES
Patrick Quinn is president & co-chairman of U.S. Xpress Enterprises Inc., a large and diversified company that provides freight services from long-haul truckload to dedicated carriage, demand-critical, intermodal, specialized LTL, logistics and brokerage.
Quinn says that business has “stabilized” thanks to a number of measures the company took to become more efficient. “We have been trying to get more work on what we call our ‘power lanes,#8217;” he says. “We have also done more slip-seating and relays to hold costs down and keep trucks working. Your return on investment in a truck depends upon how well you utilize it.”
According to Quinn, the days of across-the-board rate increases are probably gone forever, replaced with customized service and pricing based upon real data. Still, he hopes that carriers will be able to bring rates back up to more acceptable, sustainable levels. “The feeling is that with capacity tightening, carriers may be able to recover some of the rate territory [lost during the recession]. Even with the economy growing just 2 to 2 ½%, that puts a lot more freight out there. We certainly saw it in May and June,” Quinn notes.
Until rates improve, however, U.S. Xpress is among those fleets sticking to replacement-only equipment purchases. “We are replacing trucks, but not adding trucks,” he said. “Nobody is adding trucks. To add a new tractor and three new trailers would cost about $195,000. Carriers just can't do that because the rate of return isn't there right now. The downside is that holding trucks longer starts driving maintenance costs through the roof.”
Uncertainty about what the future holds is also stifling equipment buying plans, says Quinn. “There are so many unknowns,” he says. “We don't know what the impact of CSA will really be on carriers over time. We don't know what hours of service will look like yet. Changes to hours of service will have a chilling effect, even if there is a lawsuit.”
Taxes and healthcare costs are two more unknowns putting downward pressure on equipment purchasing plans. “We have 8,500 employees and we don't have a good sense for what the government-mandated healthcare programs will cost us,” he says. “We don't even know what taxes will look like yet.”
Jim O'Neal is president of Missouri-based O&S Trucking, an employee-owned, full-service refrigerated truckload carrier serving the U.S. and Canada. The company operates about 300 trucks and 500 trailers as well as a brokerage business.
O'Neal sees a very bright future ahead for the trucking industry. “In the next two to three years, we will see the best years we have ever seen in trucking, especially for truckload,” he says. “We have had a revolution. Capacity has dropped so dramatically and freight has quit falling. This will allow trucking to quit being treated as a commodity and begin being treated like a utility, operating on a cost-plus basis.
“Regulations like CSA, the pending hours-of-service rule and mandatory EOBRs have created and will continue to create more downward pressure on capacity,” O'Neal adds. “Lots of companies have gone out of business and there will be more. Fleets have to hold on until the good times.”
When O'Neal says “good times,” he does not mean just another upturn either. “I believe that this will not be just another good period for trucking,” he says. “There have been some fundamental shifts that will make this time [of prosperity] more lasting. The bar has been raised. Now it is simply a matter of reaching a new equilibrium.”
Jeff Davis is vice president of safety for Jet Express, an Ohio-based truckload carrier that handles about 500 loads per day across the U.S., mostly for the automotive industry, using both owner-operators and company drivers. Davis says the company is seeing “moderate to average growth” now, although the ability to get drivers is the new limiting factor.
“About 70% of our freight is moved by owner-operators,” Davis says, “and another 30% by company drivers. We are having no problem getting company drivers, but we are having some problems finding owner-operators with qualified equipment. I think the economy is the real reason the industry has lost drivers. With pay cuts, layoffs and not enough miles to make a good living, they are dropping out.”
Jet Express has been keeping new-truck purchases to a minimum and plans to continue to focus on just replacing older equipment for now. “We have made some replacements,” he says, “but we run our trucks longer anyway because we are a regional operation. We've also experimented with putting glider kits on a couple of pre-2008 chassis to see how that works for us.”
Larry Ahlers is vice president of transportation for Oldcastle Architectural Inc., a manufacturer of concrete masonry and paving products, clay brick and other building materials. It has over 206 locations and more than 7,000 employees, operating across 38 states and two Canadian provinces. Oldcastle also operates its own fleet, which currently includes 470 power units. The private fleet handles about 25 to 30% of the company's freight. The balance is hauled by for-hire carriers.
“Construction projects have increased slightly,” says Ahlers, “and that is a reason to be more optimistic these days. Still, things are pretty depressed and we expect them to stay that way for 2011. The construction business is tied so closely to the housing market.”
Ahlers says the company has adapted to the reduced demand for its products. “We have downsized our fleet and number of drivers,” he notes, “and made other cost reductions. We have also definitely pushed out trade cycles, but that has to change. We can't go on like this much longer. There is some sticker-shock, though, when it comes to buying new equipment, mostly related to the new emissions standards.
“We are doing some buying, but we are doing it very cautiously,” Ahlers continues. “We are being very selective about what we replace. Right now, it is just too risky to buy a large number of trucks [until the new emissions reduction systems and engines] have had some time on the road — until they are actually proven.”
According to Ahlers, the driver shortage has not been an issue for Oldcastle because of the downturn, but he expects it to become a very serious problem for its outside carriers in 2011. To help plan for that, Oldcastle is working with its carriers now to identify possible strategies. “Even with only a modest increase in freight volume, we will have an issue with capacity,” he says.
CON-WAY TRUCKLOAD SERVICES
Bruce Stockton was vice president of maintenance and asset management at Con-Way until Jan. 1 of this year, when he left to begin his own business called Stockton Solutions, of which he is now president & CEO. Stockton is proud of his time at Con-Way. Since the company's acquisition of Contract Freighters Inc. (CFI), the fleet has grown to over 2,600 tractors.
Stockton expects a continued improvement month by month in 2011, but not any major changes. Like other for-hire carriers, he also sees a driver shortage as an issue for the industry going forward, but from his perspective, it will not be the biggest concern. “We have not seen a driver shortage at Con-Way,” he says. “Driver turnover is up a little — from about 35 to 40% before to 60 to 65% now, so there is definitely more churn. However, we are keeping our trucks full and our orientation classes full. I think drivers may just be feeling more comfortable about changing jobs again.”
For Stockton, changes in the very nature of the trucking business will present more challenges than the driver shortage. “When there was excess capacity, people were trying to diversify,” he notes. “Now companies are getting smarter about their strategic plans. They are looking at how dependent they are on one or two big shippers” and assessing the associated risks.
“We have more new business requiring specialized equipment to look at than we have had in 20 years, including heavy-haul, flatbed and cartage,” Stockton says. That represents a lot of potential opportunity, but you can't lose sight of your core business, either.
“Shippers are also coming out of the recession and seeing that they had better build some relationships with key carriers while they still can,” he says. “We are getting so many different types of requests from our current customers.”
Stockton also sees a concern for sustainability returning as the recovery continues. “The whole sustainability issue is starting to come back again; you see it on bids now,” he notes.
LOBLAW COMPANIES LTD
Robert Wiebe is senior vice president-supply chain for Loblaw Companies Ltd., Canada's largest food distributor and a leading provider of general merchandise products, drugstore and financial products and services. In addition to working with third-party carriers, the company operates its own fleet of some 300 power units and employs about 450 drivers. According to Wiebe, 2010 was an average year for the transportation side of Loblaw's business, and he expects 2011 to be much the same. “We will continue to see pressure from rising fuel prices, which we have to work to mitigate, mostly with longer combinations,” Wiebe says.
A driver shortage, on the other hand, has not been an issue for Loblaw. “We really have not had an issue with attracting or recruiting good drivers because most of them get home every night,” he notes. “We are looking at drop-and-switch operations and the use of relays in the Prairie Provinces to get even our longer-haul drivers home more often.
“I think these things will help to maintain our retention rate and our ability to get the best drivers,” he adds. “Quality of life has become a very important issue for all workers, not just drivers.”
Like many other companies, Loblaw is planning to buy new equipment, but not to grow the fleet, Wiebe notes. “We have not changed our trade cycles because the increased maintenance costs for older trucks outweigh the benefits of stretching out the trade cycles,” he says.
EARL L. HENDERSON TRUCKING
John Kaburick is president of Earl L. Henderson Trucking and the current chairman of the Truckload Carriers Assn., as well. His mostly long-haul fleet is based in Salem, IL, and specializes in hauling time-sensitive, temperature-controlled freight using more than 400 tractors and 550 trailers to get the job done.
“We think that the first quarter of 2011 will be pretty much like it is now,” Kaburick notes. “We expect to continue to see a slow day every week or two, but then by March or April, things should start picking up.”
Kaburick says the company is already starting to see a driver shortage, though. “Clearly, drivers are getting tougher to find,” he says, “but we are doing okay. We have 400 trucks and just four of them are empty; however, we do believe it will get worse with CSA [and when freight levels increase].
“We are predominately still a long-haul fleet,” Kaburick says. “We do guarantee our drivers will get home at least every other week. Now things are shifting toward more of a specialized, short-, medium- and long-haul business model, and we have to recruit drivers based on that.
“Shippers are also asking for different things than they were one-and-one-half to two years ago,” he adds. “Now they want to build long-term relationships with carriers. Before, it was all about rate reductions.”
Like every other fleet interviewed for this article, Henderson is not planning to add new equipment, just replace older units. “We are replacing trucks, but not growing,” Kaburick says. “We have also moved our trade cycle from three years to five years.”
When it comes to CSA, Kaburick says the fleet is ready to go. “There was a lot of heartburn with CSA initially,” he says, “but I think we will be a better respected and safer industry for it.”