Call it a convention in miniature. Several thoughtful, opinionated executives get together for a discussion and, because their opinions matter, others gather around to listen and sometimes join the conversation. The Truckload Carriers Association has capped its annual meeting with just such an event for each of the past several years.
Participants this time around were Dan England, chief executive officer of C R England Inc in Salt Lake City, Utah; Jerry Moyes, president and CEO of Swift Transportation in Phoenix, Arizona; and Fred Burns, president of Burns Motor Freight in Marlinton, West Virginia. C R England, as ranked by the 2003 Gross Revenue Report in Refrigerated Transporter, is the second largest truckload carrier of refrigerated freight in North America. Swift Transportation is one of the largest truckload carriers in the country with a network of 36 terminals and a fleet of more than 17,000 trucks. Most of Swift's operations are dry van, but the company operates a large number of refrigerated trailers, particularly in its Merit Distribution division and in dedicated distribution operations for Wal-Mart. Burns is a relatively small flatbed operator whose president is also chairman of the board of the American Trucking Associations for the current year. The discussion was conducted during the annual meeting of the Truckload Carriers Association held on the Kona coast of Hawaii, March 14 to 17, 2004.
Dealing with brokers and third party logistics providers as a source of freight has both positive and negative impact on truckload carriers, Dan England said. On the positive side, taking loads from brokers allows small carriers to operate without the expense of a large sales staff. On the other side, individual brokers enter and leave the business on a regular basis. The problem occurs when they go out of business without paying carriers for the loads they have tendered. This loss of revenue is particularly harmful to small carriers that rely on brokers for substantial amounts of freight.
Shippers come first
In dealing with brokers, truckload carriers must always remember that their first allegiance is to their shippers, England said. The broker may provide the point of contact with a shipper, but once freight has been accepted, the carrier is responsible to the shipper to deliver as promised and with the load in the proper condition.
Non-asset based logistics providers seem to rely on contract carriers to carry much of the cost burden in truckload carriage. “I would love to operate on the margins that C H Robinson has,” England said.
Trucking has been under significant pressure from increasing insurance rates for several years, Fred Burns said. An insurance task force set up by the American Trucking Associations has concluded that the only way out of this insurance crisis is meaningful tort reform. In 2001, the ATA insurance task force set a goal of achieving national tort reform by 2005. So far, 25 states have passed some sort of tort reform legislation. Reform is on the calendar for consideration in 14 more states during 2004, he said.
Insurance remains a problem for many carriers, Burns insisted. The rate of increase for insurance premiums seems to be slowing, but the level of coverage at any given price is dropping at the same time. The result of these two factors is that total cost of insurance continues to go up, he said.
Reform equals fairness
In working for tort reform, the trucking industry is not seeking a handout from government, Burns said. Instead, carriers simply are asking for fairness that will allow them to run their businesses without threat from unwarranted lawsuits.
C R England has been making a strong campaign for the last two years to limit its insurance liability, England said. The company has made good gains in getting a large number of contract accounts to agree to lower insurance limits.
The new hours of service rules will have a great impact on the capacity and productivity of truckload carriers, Jerry Moyes said. Still to be determined is how much the new rules will cause carriers to change driver compensation plans. Certainly, the rules will help to improve highway safety.
Swift doesn't foresee a big change with respect to scheduling or receiving. “We met with our customers early and tried to explain the impact of the new rules to them,” Moyes said. “We let them know that we need their cooperation if we are to continue to provide the same level of service that they received prior to implementation of the new rules.”
Drivers paid for detention
At Swift, driver turnover began to fall in December 2003. Perhaps part of that change was the approach the company took with drivers, Moyes said. Swift explained to drivers that the company wants driving to be a good job. In line with that, the company began to pay drivers an additional $4 for every 15 minutes of unloading time after two hours.
Swift has been able to convince receivers that increased motor carrier productivity will help improve their operations. In line with that, detention is not a real issue. “We bill about $200 million in any given month,” Moyes said. “We only bill about $2 million a month for detention. Most of that goes straight to the drivers. Detention is revenue neutral for Swift.”
Trailer pools are the biggest productivity tool available as far as Swift is concerned, Moyes said. They are especially helpful with customers where hand loading or unloading is required.
The consulting firm A G Edwards has said that trucking is the winner in the battle over hours of service, England said. That is true only if trucking companies use the new rules to improve their productivity. That requires measuring everything a company does. For instance, C R England audited the performance of every trip following the effective date of the hours of service rules. One striking bit of information from those audits showed that the average miles per hour per trip dropped 3.4% in the months following implementation of the new rules, he said.
Track utilization
The hours of service regulations send a powerful message to truckload carriers that they need to improve fleet utilization, England said. “We need to track the number of loadings we perform per week so that we can get a better handle on the cost for handling each load,” he said.
If carriers cannot keep equipment moving as a result of the new regulations, they must charge for the lost time. At C R England, revenue from detention increased 65% in January and February 2004 compared to detention revenue in the same two months of 2003, England said. However, a charge for detention can't just drop onto a receiver with no prior discussion. “We have agreements in place with 90 of our 100 largest accounts that define what constitutes detention,” he said.
The highway reauthorization bill that is still bottled up in Congress was under discussion at the TCA meeting. At the time, carriers were quick to voice concern about a provision in the bill that would allow the imposition of tolls on federal interstate highways. The industry cannot tolerate paying tolls for highways that it already funds through federal and state fuel taxes, Burns said. In addition to the cost, adding tolls would put a stamp of approval on the practice. “We can't trust toll road administrators, because we have no assurance that tolls would be spent to maintain the highways instead of simply contributing to the general treasury,” he said. “Once tolls are approved for one section of an Interstate, we'll begin to see tolls charged on roads everywhere. That would be patently unfair, because highways are our workplace. With respect to another part of the highway bill, it is ATA policy to oppose any new fuel taxes.”
Wal-Mart requires capacity
As Wal-Mart has grown to be the world's largest retailer, it also has become one of the largest consumers of freight services in the country. Commenting on the economic clout of such a large shipper and receiver, Moyes noted that Wal-Mart is Swift's single largest customer. Swift performs both as an inbound carrier to Wal-Mart distribution centers and as a dedicated fleet operator for several Wal-Mart warehouses. “We like dealing with Wal-Mart,” he said. “They are a fair company. Their main demand is for timely service at a fair price. It is not so much a matter of truckload carriers changing operating strategies in order to deal with Wal-Mart. More to the point, it is a matter of having the capacity to meet its needs. Only a few companies are large enough to handle the volume of freight that serving Wal-Mart demands.”
Taking an opposing tack, England said that his company doesn't do any work for Wal-Mart. “We always bid on their requests, but we never seem to get any of the freight,” he said.
Moyes seems content to allow capacity in the truckload sector continue to drop. “No one will increase capacity to any great extent until the profit margins for truckload carriers increase,” he said.
Shippers pay deadhead
Capacity reduction does seem to be having an effect on shippers. In January and February, quite a few customers began to pay for deadhead mileage, Moyes said. In addition, Central Refrigerated Service has been able to raise rates by one cent per mile every month for the past 12 months, he said. Central Refrigerated is the truckload carrier that Moyes formed from the assets of bankrupt Dick Simon Trucking.
Swift does not anticipate purchasing any replacement trailers for its dry van operations for the next two to three years, Moyes said. He also said that Swift expects the transition to the next generation of engine emission regulations to be smoother than the last experience in October 2002. “In anticipation of the new engine emission rules, we plan to test the new engines much sooner and much more thoroughly than we were able to test the 2002 engines,” he said. “We also plan to enter 2007 with a very young fleet.”
As the economy continues to improve, truckload carriers will see the driver shortage becoming critical again, England said. Although most carriers do not plan to add much capacity, some workers who have been driving trucks will find jobs that allow them to remain at home resulting in a net outflow of drivers from truckload operations. These workers may not necessarily be lost to trucking as they find jobs with distribution companies, but their moving to local jobs will cause labor shortages for truckload carriers. Retaining drivers and independent contractors is probably one of the most serious problems for truckload carriers, he said.
Conventional wisdom seems to suggest that higher pay is the best way to recruit and retain drivers. “However, steep increases in driver pay may be a premature action,” England said. “We still have a lot of trucks parked. When J B Hunt raised pay a few years ago, they thought the increase would help retain drivers. As we have all seen, that may not have been the case.”
Expand margins first
Truckload carriers need to give serious thought to pay scales, before raising driver pay without considering all the possible outcomes, England said. Carriers have a lot of other costs that compete with the need to increase driver pay. “Until profit margins can be expanded, I don't see any long-term solution to the problem of driver recruiting and retention,” he said.
Although carriers have become more conscious of security in recent years, theft has not been as big a problem as it could be, Moyes said. In 2003, Swift experienced 14 thefts and recovered eight of those trailers, losing the other six. The good news is that the eight recovered trailers were the ones with high-value loads. “We monitor our high-value loads very closely,” he said. “We watch to make sure that our high-value loads do not go out-of-route or stop when they should not. One of our best security programs is a policy that prohibits dropping a trailer anywhere but in one of our secure yards.”
Security regulations need a lot more discussion between carriers and government than is currently the case, Burns said. “Who knows what the regulators will do next,” he said. “About all we really know about the people who write the rules we have to operate under is that they simply do not know the meaning of the word ‘practical.’ Part of that may be the fault of the trucking industry. We spend too much time trying to reach a consensus among ourselves. Instead of trying to agree all the time, truckload carriers should propose some solutions to perceived problems before regulators get into the act.”
No carrier executive panel can be complete without an attempt to predict the future. Moyes said that the next six to seven years look positive as long as no major legislative changes are forced on the industry.
“I can't say with any certainty how things will be,” England said, “but I can say what I would like to see. I would like to see a day come about when we send out bid packages to our shippers for them to fill out so that we could decide if we would be willing to take their freight.
“We know that won't happen, so we have to work harder at the things that we can control. We have to learn the hard lessons from our past, specifically that the best strategy is based on slow internal growth. We cannot fall prey to the temptation to expand rapidly until we have operations under control and have found a way to increase profit margins,” he said.
