Plenty of Trucking Capacity...For Now
Shipment declines early in the year put the metals hauling market in better balance, but new Hours of Service regulations have trucking companies worried.
By Dan Markham, Senior Editor
One small upside to the relatively sluggish first half for service centers is the relative ease with which they have been able to find trucks and drivers to get product to customers. Supply and demand is fairly well balanced in the trucking sector these days, say the experts.
“If you’re a shipper you’re happy about that, though that does mean business is not very strong,” says Eric Starks, president of Bloomington, Ind.-based FTR Associates, a freight transportation analysis firm.
While the transport sector has enough capacity to meet current demand, at relatively favorable shipping rates, that could change in the second half, even if volumes remain the same.
On July 1, barring a successful court challenge from the American Trucking Association, the latest revision to the Department of Transportation’s Hours of Service regulations will take effect. The primary issue in the regulations is an adjustment to the mandatory reset period for truck drivers, designed to curtail accidents caused by driver fatigue.
Once a driver’s work week is completed, he must take a 34-hour rest period before beginning another week. Under the new rules, the rest period holds firm at 34 hours, but it must include at least two overnight periods, from 1 a.m. to 5 p.m. For many drivers, this will result in more than a 34-hour break before the truck can get back on the road. Additionally, drivers must now get at least one half-hour break after eight hours of driving.
The Washington-based ATA has sued the transportation department to prevent the new regulations from taking effect. The trade group, which serves the trucking industry, hopes the U.S. Court of Appeals in Washington rules on its suit before the new regulations take hold, though the court has no deadline.
“There is a debate over whether the new rule will really improve safety, or whether it’s just another monkey wrench thrown into the system that makes things more challenging,” says DeWitt Weldon, the general manager of M/K Trucking, the trucking subsidiary owned by Butler, Pa.-based Marmon/Keystone.
If enacted, the Hours of Service restrictions will result in a need for more drivers and trucks to pull the same amount of freight. Long-haul shippers will be more directly affected than short-haulers like service centers whose drivers are generally home at night and on weekends. But shippers of all types may feel a tightening of capacity, experts say, especially if the economy picks up in the second half.
Starks believes overall shipments will increase at a rate slightly better than the 2 percent GDP growth forecast this year. “We don’t see the flatbed guys having much of an issue [with the driver reset and rest rules], but even though one sector may not be hurt from a productivity standpoint, it’s going to ripple through the entire market,” he says.
He estimates the new rules will create a 3 percent drag on the trucking industry. Others believe the regulations could have as much as a 10 percent effect.
Not all expectations are bleak. The rules would bring the United States more in line with Canada, says Alain Armstrong, general manager of logistics services for Kim-Tam Truck Leasing Ltd., the Mississauga, Ontario-based trucking arm of Samuel, Son & Co., Ltd. “Canada’s been on this type of a program for a while and we don’t have any major issues,” he says. In fact, for his company, “it will be easier for drivers to plan ahead when they do cross-border shipments.”
Kyle Young, a business analyst with Red Dog Logistics Inc., Willowdale, Ill., says history suggests the industry may be overstating the effects of the new regulations. “Every time one of these new regulation changes is introduced, we always hear doom and gloom. CSA 2010 was supposed to drive rates up, knock people out of the pool of drivers and limit supply, but not much has changed since it was implemented.”
“From my side, I’d love to see the rates go up,” he adds. “But even if the rates go up, it doesn’t mean we’re making any more money.”
Flat rates for flatbed trucking remain a sore spot for haulers, particularly as other segments have been able to pass some freight hikes.
Armstrong believes a couple of factors have worked against the metals-hauling industry when it comes to passing along cost increases. It starts at the mill level, where the producers have not worked to incorporate higher costs for moving metal into their pricing framework.
“At the beginning of the supply chain, if they don’t say transportation has increased by 2 percent, the rest of the industry doesn’t follow. In retail, Wal-Mart says they’re giving a 1 percent increase to all of their transportation suppliers, and that goes straight through America,” says Armstrong.
Haulers themselves also share some of the blame, Armstrong concedes. With up and down demand over the last 6-7 years, some trucking companies have been afraid to seek price hikes for fear of losing loads. That lack of discipline makes it hard for the entire industry.
“You always have companies that are willing to make less on their margins to keep their volumes,” he says. “Companies aren’t comfortable going back to their customer base and asking for a 2 percent increase without worrying they’ll lose 20 percent of their volume.”
If capacity does tighten, or the Hours of Service rules have a more profound effect than expected, there aren’t a lot of quick fixes. Adding drivers to the pool, even in a period of high unemployment, is difficult. “It just takes time to fill the seats,” Starks says. “When you have a one-time event and you need more drivers to fill the same amount of freight, it’s difficult for them to ramp up.”
In addition, one element of CSA 2010 required employers to take a tougher stance on driver safety records. As a result, companies had to dismiss some experienced drivers and could not hire some potential replacements.
Still, many efforts to crack down on unsafe drivers and unsafe driving practices are welcomed by the industry. ATA has embraced one federal proposal to create a clearinghouse for drug and alcohol testing results, allowing all industry participants “to make sure they are not hiring someone with a checkered past,” says Sean McNally, a spokesman for ATA. A proposal to create a similar database for pre-employment screening checks is also supported by the association.
Safety is particularly important when the product is as heavy as a steel coil or beam. “Steel is a very condensed product, with all the weight in one place compared to a van hauler,” says Buzz Brown, traffic customer service manager for Heidtman Steel, Toledo, Ohio. “They may have a whole trailer load of packages that weighs 10,000 pounds, while we have one coil that weighs 50,000 pounds. You need quality people who understand how to secure it.”
Heidtman, like other transportation companies serving the metals industry, requires drivers to have at least two years of experience before hiring them to haul its product. “There are guys out of truck driving school who don’t know anything but to shut a door on the back of a van and put a seal on it. Our guys understand what the steel can do and how dangerous it is,” he says.
All of these concerns, including an aging driving population, put pressure on the trucking industry to find enough drivers to handle future growth in freight demand. Other regulatory issues, such as the proposed requirement for electronic logbooks in all tractors, may further restrict capacity. “If that goes in, that will affect the whole country,” Brown says.
Starks’ firm estimates that all of the current regulatory changes, if implemented, will result in a cumulative shakeout of 800,000 drivers from 2011 to 2016. The industry will have to become more productive or come up with new ways to find more drivers, he says.
Industry watchers acknowledge there are several ways to make the steel hauling chain more efficient. It generally starts not on the road, but in the warehouse with the ordering process. More advanced notice on a given order, and a willingness to order larger quantities rather than small, last-minute orders, will not just make the system more efficient, but make the distributor a more attractive customer to the freight companies, Brown says.
With the new restricted Hours of Service, “shippers will need to open up their pick-up and delivery times or risk missing hours/days to ship or receive their products based on these new regulations from the government,” says Scott Monit, director of community and government relations for PGT Trucking Inc., Monaca, Pa. “Transportation companies will also have to become more efficient in working with their drivers to make sure they are where they need to be at all times and don’t run behind schedule.”
Starks says another way of maximizing driver and tractor time is by adding trailers to the fleet, so companies could load material onto trailers already on site, allowing drivers to “drop a load, pick up a full load and just go.”
ATA hopes a recent bill introduced in Congress also eases the steel industry’s capacity issues. Under the proposed law, which may get folded into a future highway bill, states would be given the opportunity to allow trucks to increase weight limits from 80,000 pounds on five axles to 97,000 pounds on six axles. Though it would remain optional for the states, haulers of heavy, short-run items such as steel could get more productivity out of each individual tractor/trailer—a move particularly helpful as coils get heavier.
To Red Dog Logistics, improved efficiency begins not with a specific plan, but an attitude often missing from customers. “The industry as a whole looks at transportation as a spend, not as an ability to increase customer service and satisfaction. Their idea of a solution is technology, but technology implemented poorly doesn’t matter,” says John Redeihs, company president.
Like regulatory issues, technology improvements make investments in equipment more difficult, Starks says. Costs of upgrades to both the power units and the trailers have spiked, including on-board diagnostics, and engine and trailer changes to meet stricter mileage standards and clean-air requirements. Even though the trucking company will benefit from better fuel economy as a byproduct, the return on the investment is long.
“You find a lot of big companies are not updating or purchasing new equipment because they don’t know what tomorrow holds,” says Rim Kaknevicius, director of business development in North America for Kim-Tam. “Companies used to turn trucks around in five years, but with the environmental regulations and higher fuel mileage requirements, guys are keeping the trucks a little longer.”
Eventually, trucks may convert from diesel to natural gas as a fuel source, though that technology has its own issues. Natural gas works well for short-haul truckers like service centers whose drivers begin and end each day in the same location. It remains problematic for the long haul, however, because trucks cannot go as far on each tank full, and the nationwide infrastructure is not yet developed enough to assure them a place to fill up. .
“This will change, but not in the near future,” Monit says.