Posted on Tue, Aug 17, 2010 @ 09:57 AM
The Department of Transportation (DOT) sent its proposed Hours of Service (HOS) changes to the Office of Management and Budget (OMB) Monday (7/26) to settle yet another challenge to the rules drivers and trucking companies must follow.
Meanwhile, Transport Topics reported this week that 20% of truckload fleets increased driver pay in the second quarter of 2010 citing Gordon Klemp, principal of the National Transportation Institute in Kansas City, MO.
Continuing difficulties in attracting new drivers, a situation that will only be exacerbated by expected reductions in work and driving hours contained in the proposed HOS regulations, are contributing to this perfect storm.
Any reduction in driver working and/or driving hours will further reduce already strained capacity and require more drivers and trucks to move the same amount of freight.
Flatbed carriers led trucking with more than 30% of such companies raising driver pay, while 20% of refrigerated carriers and 11% of dry van operators did so in the second quarter according to Klemp. He also predicted significant increases in the third quarter.
With carrier margins already depressed as a result of market pressures during the recession, shippers can expect sizeable rate increases to fund these long overdue pay increases.
In a related story, transportation and logistics professionals predicted major changes and increased costs associated with any reductions in driver HOS. Shippers claim they’ve already adjusted their operations as much as possible and any HOS changes would require them to reevaluate their supply chain.
Reduced HOS = reduced capacity = increased need for drivers = increased pay rates = increased freight rates = increased end user costs.
As the economy rebounds and freight levels increase the pressures on the supply chain will increase as well. Shippers would be well advised to truly partner with shippers to tweak their operations and maximize driver/truck utilization. The alternatives are even more expensive than rate increases.
The perfect storm is churning on the horizon.
Written by Kevin Mullen, Directory: Safety
Posted on Wed, May 26, 2010 @ 10:22 AM
Consider for a moment you have $150,000 sitting around and want to invest it. You can put it into a CD and get a 5% guaranteed return or you can buy a tractor and trailer.
With the CD you get compounded daily interest of $25 with no risk and no effort.
With a tractor-trailer you get:
- A shipper requesting your truck at 8:00 AM for a 500 mile run for $750. If all goes well, after equipment payments, driver wages, insurance premiums, fuel, repairs and maintenance you should clear $75. The customer expects the load to be delivered today. (They request Just-in-Time service to keep their costs down.)
- A call from your driver at 8:30 AM that the load will not be ready for 2 hours.
- A call from your driver at 12:00 that he’s finally loaded and on the way.
- Keep in mind the DOT says your driver can not work more than 14 hours and he came on duty at 6:00 AM to pre-trip the vehicle and drive to the shipper.
- A call from your driver at 8:00 PM that his 14 hours are up and he’s still an hour from his destination. He must take a 10-hour break before he can continue. [His truck will now consume 10 gallons of additional fuel at $4.00/gallon to heat his sleeper while he gets his DOT-mandated rest without moving a mile.]
- Did I mention your customer expects the load today?
- A call from your driver at 6:00 AM that he’s on his way and will be at the customer at 7:00 AM.
- A call from your driver at 9:00 AM that he’s empty and available for another dispatch.
Your $150,000 truck has been tied up for 27 hours for $35 profit. The load should have been off the same day had it been ready. You didn’t quote the rate based on 27 hours. The driver now has only 11 hours left that he can work before his next mandated rest break. He will need to drive to his next shipper and wait to get loaded thereby further reducing the hours he’ll be able to drive.
During the 27 hours you’ve been exposed to potential Physical Damage (Comprehensive), Liability, Cargo and Workers Compensation claims any one of which (with current deductible levels) would wipe out the profit from a hundred loads.
What are you going to do with your money?
Rate increases and, perhaps more importantly, more trucker-friendly policies and procedures must occur in order to ensure an adequate supply (capacity) of safe, qualified trucks and drivers to keep freight moving and the fragile economic recovery on course.
Posted by Kevin Mullen- Director: Safety, ADS Logistics
Posted on Mon, May 10, 2010 @ 10:47 AM
There may have been no more challenging a period in trucking than what we face in 2010 and beyond. As previously discussed, a great deal of capacity has been eliminated over the past 18 months. Much of it is not coming back. The regulatory pressures of CSA 2010 promise to further exacerbate this problem by contributing to an already burgeoning driver shortage.
Rates (and along with them driver wages) have been driven down by seemingly savvy shippers during the economic downturn which will only serve to stoke the perfect storm forming on the horizon.
Self-serving carriers have undercut their competition in the misguided assumption that any rate is better than no freight at all. Carriers need to get a moderate return on their investment. Those who under-priced their services are not long for this world.
Shippers now face the reality of steep rate increases in order to ensure sufficient capacity to move their product. The second-tier carriers who were willing to cut their rates in order to obtain their freight will be unable to supply trucks. Worse still, the trucks and drivers they do supply will be substandard. Carriers who accept less-than-market rates have to cut somewhere… maintenance and safety are usually the first casualties.
Regulations restrict the hours a truck can operate. Shippers will need to stop “talking” about being carrier-friendly and become carrier-friendly. No more can trucks afford to sit for hours at the shippers’ dock or their vendors’ dock. Trucks will be diverted to shippers who can get them loaded in a timely manner and ensure the carrier (and driver) can maximize their available hours thus providing a return on investment.
Carriers who cut rates to ensure cash flow (or for whatever reason) will now need to pay the piper. We’ve “trained” West Coast shippers by taking $1.00/mile freight for years. Why would the rates ever go up if we continue to haul their freight for less than it costs to run a truck? Is any rate really better than no freight (deadheading) in the short or long term? We’ve hurt ourselves in the past. It’s time to stop this self-destructive behavior.
The FMCSA is tasked with getting unsafe carriers off the roads. CSA 2010 is their latest and greatest tool to do so. So why are all these fly-by-night and renegade carriers still out there undercutting rates? I suspect the number of carriers who have gone out of business (failed) in the past eighteen months is a hundred times the number the FMCSA has put out of business. Is market economics the real regulator of our industry? If so the market it poised to act.
In order to ensure our industry is running safe, compliant trucks driven by safe, compliant drivers, it must get reasonable rates and be able to maximize the utilization of both. Anything that does not support that premise (second-tier carriers, shippers or enforcement) does the entire supply chain a disservice.
Written by Kevin Mullen: Director- Safety, ADS Logistics
Posted on Tue, Mar 16, 2010 @ 03:13 PM
It’s hard to believe that a year ago we were practically begging for shipments and moving freight at a rate that barely covered our costs. We were not alone, as evidenced by the lack of trucks available for freight right now. As rates and freight decreased more and more truck owners found they could not make a decent living so had to give up their life on the road. Now, just one year later (albeit a very long year) we have seen an increase in freight, but not in available trucks to haul the freight. The laws of supply and demand will tell you this type of market will see rising prices.
How does a customer hold down costs? If that customer has ongoing business and volume either inbound or outbound they can contract with a carrier. At Area Transportation, our contract customers can count on our services all the time, regardless of the market and at a set price. When using a carrier that has their own tractor and trailers, a contracted customer can have peace of mind knowing that their loads will be covered regardless of rates or truck shortages. As a carrier, this is the benefit to having company-owned trucks. As a customer, this is the benefit of using a carrier that owns their own equipment!
Pricing for customers that need one truck for one move can be a bit more difficult and the rate will be reflective of the current market conditions. Whenever possible any buyer of a transportation services should look into contract transportation purchasing and select a carrier with company-owned equipment. This will ensure their loads will be covered and their costs will always be the same no matter what the market.
Article submitted by Marie Studniarz.
Posted on Tue, Mar 02, 2010 @ 08:55 AM
Trucking, more specifically over the road (OTR) trucking is a unique business unlike any other. Since “deregulation” we have seen a pricing/rate pendulum swing back and forth repeatedly favoring shippers in times of over-capacity (too many trucks in the industry) and truckers in times of under-capacity. That said, rates today remain substantially unchanged from where they were 20 years ago. This despite dramatic increases in trucks, fuel, insurance and every other associated cost.
What does this mean for the industry? What does this portend? As the economy rebounds however slowly from the most recent recession (depression?) we will enter another period of under-capacity. This will most certainly drive rates up as shippers vie for available trucks to move their freight. In previous cycles truckers would put more trucks into service and this would mitigate pressure on rates. This time that scenario is doubtful at best. Why?
The quickest way for most carriers to increase capacity has always been to sign on owner operators or independent contractors. That may not be so easy this time. Many owner operators have lost their trucks due to repossession or sold them and simply walked away from the industry. Getting that capacity back in the credit reality of this post-recession period is therefore dubious at best.
The other downside of the virtual zero-growth rates of the past two decades is the effect on recruiting new drivers for company-owned trucks. OTR trucking invariably pays drivers by the mile or a percentage of the load. Both amounts obviously are tied to the rate. No rate growth equates to no pay growth. OTR truckers are, for all intents and purposes, the last true commission employees in our economy. No guarantees. No minimums and generally no draw. Worse still, is that they can’t set their own hours or control their income.
Why? Because the deregulation we’ve all heard about is somewhat of a misnomer. While rates have been deregulated, federal and state regulation of trucking equipment and maintenance, driving hours and driver minimum qualifications, hiring and training has actually expanded every year. Drivers are limited in the hours they can drive, and for good reason, effectively capping their earning ability. The result is a lack of new entrants at a time when aging baby boomers are retiring at an alarming rate.
Like them or hate them, America needs trucks. Everything you touch today, everything, moved at some time in the supply chain by truck. Every item in every grocery, department, and convenience store got there by truck. Everything in your office even your car moved by truck. From raw material to finished product, even if it moved by plane, train or ship part way it ultimately came by truck. An expanding population will require even more trucks at a time when drivers have walked away from the industry or are retiring and new entrants are scarce. Without trucks, America grinds to a halt.
Think that’s hyperbole? You only need look back at shortages we have experienced in grocery stores, gas stations, etc. around the country after natural disasters. Empty store shelves after Katrina… gas stations without fuel after Rita… and to a lesser extent elsewhere after blizzards, etc. While these shortages were due to infrastructure problems (trucks couldn’t get through to the stores) trucks without drivers will not be able to deliver goods either. Significant driver shortages, such as those forecast by the Department of Labor over the next 10 – 20 years will result in product shortages and empty shelves. Shippers simply will not be able to get their raw materials or get their finished product to stores.
There is only one solution… but it’s expensive. Driving jobs need to be desirable and to be desirable they need to pay good wages. Driver pay needs to rise and rise significantly. The only way for that to happen is for shipping rates to rise significantly also… 30 – 40%. Shippers don’t want to hear it and ultimately the costs will be passed along to consumers but the alternative, the status quo, is much less palatable.
Written by Kevin Mullen, Director-Safety ADS Logistics Co, LLC