Truckload execs discuss myriad industry challenges at NASSTRAC

While trucking represents more than 80 percent of all freight transportation revenue, according to American Trucking Associations (data), the lion’s share of that comes from the truckload segment. But having such a large piece of the freight transportation revenue pie by no means equates to a problem-free environment; in fact, it can often be quite the opposite.

That was made clear at the recently concluded NASSTRAC Logistics Conference & Expo held in Orlando, Fla. At a truckload panel at the event, two top truckload executives provided a frank and candid assessment of the sector’s travails, and the regulatory and pricing environment, among other topics.

On the regulatory front, CSA and HOS received plenty of attention.

“We live and breathe these things each and every day,” said John White, president of U.S. Xpress, the second-largest privately-owned truckload carrier. “With CSA, we have a program in place to measure the accuracy of the safety of truckload motor carriers, yet today there are tens of thousands of motor carriers that don’t even have ratings. With the challenges we all feel we have with the program, the FMCSA is talking about looking at sleep apnea, body mass index testing and have even started talking about detention and driver pay and how pay affects the performance of the driver and how safely he operates the vehicle. Those are very concerning things.”

Regarding HOS, White said that the pending changes set to take effect in mid-2013 could have significant impacts on utility for irregular route carriers, even with the 11th hour remaining intact.

The pending HOS changes could eventually result in a 3-to-5 percent utility drop or even more, said White. This has much to do with the 34-hour re-start requirements of the HOS rule, which require two consecutive 1:00 a.m.-5:00 a.m. rest periods, which prevent drivers from starting a re-start at 8 p.m. or later and results in lost time well beyond 34 hours that cannot be regained.

“This impacts the utility on our equipment and forces us to spread fixed costs over fewer miles and drives rates up,” said White.

Derek Leathers, president and chief operating officer of Werner Enterprises, said that the current environment is a challenging time for the industry when it comes to regulations the trucking sector is facing.

Leathers explained that government intervention playing the role of telling drivers when to sleep and how long to sleep is not wise, especially at a time when rest area closures are at an all-time high.

“We are going to have more drivers stopping more often whether or not they are tired, looking for more places to park with less available parking to be had,” said Leathers. “This leads to problematic issues. Let professional drivers be professional drivers. Let us manage our people, and let the safety data, which is getting better every year, manage the next steps.”

Current capacity: With an ongoing driver shortage, high diesel prices, coupled with regulation, Leathers explained that capacity remains tight and is likely to remain that way as 20 percent of all truckload capacity—or 1 in 5 trucks—from 2007 has since left the market.

This data, he said, is based on publicly available data and does not take into account carrier companies that are merging or acquiring other companies and then openly admitting it is doing so to acquire more drivers and sell off equipment which is too old or under-maintained.

“Along with a 20 percent demand in total capacity was demand going down about the same at 17 percent at its trough,” said Leathers. “And now that the economy is showing small signs of life, things are getting very tight. Capacity we have lost is not coming back online anytime soon, and the hurdles to bring it back have never been greater.”

New trucks needed to replace old capacity are 30 percent-to-45 percent more expensive, while capital remains constrained and difficult to obtain, noted Leathers. Another major factor is that the U.S. trucking fleet is aging.

In the next few years, he said carriers will be required to make significantly more investments to keep truck replacement levels at their current levels and an even larger number of purchases to bring fleets back to their average age.

“In our industry, to get from 7.0 years of equipment [per truck] to 5.5 years would require a $68 billion infusion of fresh capital into the truckload industry to bring that average down to 5.5,” said Leathers. “I don’t know where that $68 billion is coming from in an industry whose returns are terrible, margins are thin, and has just come through the worst economic time of its industry’s life.”

Rates, rates, rates: Given the increasing costs of doing business, Leathers and White were asked when shippers could expect rate increases to off-set these increases over the next two years.

Leathers explained there is a cost pressure and a subsequent wave of costs in the truckload sector that is unprecedented.

“We have not seen a convergence of costs like this,” he said. “The number one cost is salaries. For the 11 publicly-traded truckload drivers from the third quarter of last year to the fourth quarter, carriers reduced the size of their fleets even though it was one of the best freight quarters in recent history. The driver shortage situation is real, and wage inflation is going to happen. Our job is to create a better environment for drivers and get them home as frequently as we can. It is hard to do in an irregular route environment, but we do the best we can.”

What’s more, he said it is very uncommon today that a truckload is picked up and delivered by the same driver, because that is one of the ways carriers can offset that cost. And driver, equipment, and tire costs, as well as fuel, are the biggest expenses for Werner, he said. This means that rates are going to continue to increase, but at the same time he said that does not mean shippers’ freight spend has to rise.

Instead, he said shippers and carriers can work collectively to eliminate loads, modal shifts where it makes sense, and find a way to do things more efficiently. But in the meantime, Leathers said shippers can likely expect rates to go up 3-to-5 percent or higher depending on driver wages in the coming years.

White stated that U.S. Xpress needs 5-to-7 percent increases in its lanes.

“The era of managing costs down on the truckload side is almost a tsunami relative to the costs we are faced with,” he said. “In the last 1.5 years, we have dropped idle by about 40 percent and on top of that have dropped dead-head by about 15 percent. But yet on a 500-mile move because of fuel costs, the cost to move a load is up by about $5 per load, despite these significant idle and deadhead reductions.”