6-2009 Transportation Outlook
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Trucking’s Travails: No Steel to Haul
With idled mills and moribund shipments throughout the supply chain, trucking companies serving the steel industry face an entirely new challenge.

By Dan Markham, Senior Editor

Two years ago, the steel hauling industry endured a debilitating driver shortage. Last year, the industry battled astronomical fuel hikes that sent thousands of trucking companies into bankruptcy. Today, the industry is facing a challenge every bit as daunting—an overriding shortage of steel to transport.

Dropped Coils Lead Alabama Officials
to Impose New Steel Hauling Regs


In June 2008, a 46,000-pound steel coil fell off the bed of a truck and rolled 400 feet down an interstate highway in Birmingham, Ala. It was the last of a rash of high-profile dropped coil incidents in the Birmingham area, and the state’s residents and their legislators had seen enough. New regulations for hauling steel through the state were a political certainty.

In March 2009, Alabama Governor Bob Riley signed the Steel Coil bill, legislation to improve safety for local drivers and increase penalties for those haulers who fail to comply with state and federal regulations.

The new law requires any driver moving a load that originates or terminates in Alabama to undergo training on how to properly secure metal coils. Drivers hauling material through the state are not required to receive the training due to interstate commerce laws, though the fines have been increased for all drivers failing to properly secure coils.

The Alabama Trucking Association assisted the state legislature with writing the new law, in part to protect against some of the more unworkable suggestions made in the wake of the highly publicized incidents.

“There was a public outcry for reconfiguring the way you haul a steel coil on the back of a flatbed,” says Ford Boswell, a spokesman for the association. “There was plenty of grandstanding and letters to the editor from people wanting things as secure as possible.”

Some called for coils to be transported flat on the bed with the “eye to the sky,” an impossibility from a material handling standpoint, Boswell says. “There was a lot of call for special containers, special trailers and different loading, and it really wasn’t feasible from the trucking industry’s standpoint.”

Research into the individual accidents showed that had drivers followed existing federal regulations for handling coils, the majority, if not all, of the incidents, would not have occurred. So the solution was in properly training the steel haulers, and increasing penalties for those drivers and their companies for failure to comply.

“We worked with the legislature to make sure the law was something that made sense and would actually help,” Boswell says.

The law went into effect June 1, with soft enforcement for the first 60 days before steel haulers will be expected to be in full compliance.

For drivers, obtaining the necessary training is rather simple. An online site, www.metaltraining.com, has been set up. For $15, drivers can register and take the online course. Upon successful completion, a certificate can be printed out that serves as proof of training.

That certificate must be in the truck each time the driver picks up or delivers a coil in Alabama. Boswell anticipates that state troopers will do some spot-checking for the certificates during the soft-enforcement period.

Most of the Alabama Trucking Association’s member companies have been accepting of the new regulations. “There has been some grumbling, but for the most part, the response has been positive. Especially if you’re aware of the drops in Birmingham,” Boswell says.
The recessionary conditions dragging down the North American steel market are having the same effect on the over-the-road transportation companies employed to move steel from mill to service center and from distributor to end user.

“The recession has been extremely hard on our industry,” says Clayton Boyce, vice president of public affairs for the American Trucking Association. The Washington, D.C.-based trade organization represents the nation’s trucking industry.

A freight recession started to take shape as far back as 2006, though it wasn’t until 2008 that the conditions began to take a serious toll on the industry. The rapidly increasing price of fuel, coupled with the overall economy’s slide into negative territory, was too much for the industry to absorb.

“It seemed to take about three quarters before we saw a fuel surcharge, and the fuel surcharge that companies were getting did not cover full expenses,” says Sandra Moore, director of business development for Toledo, Ohio-based Northern Steel Transport. “We were lucky if it covered a third.”

In 2008, more than 3,000 trucking companies with five or more trucks—the minimum-sized companies the industry tracks—went bankrupt. 2008 represented the second-worst year for trucking company failures in the past 20 years, exceeded only by 2001.

The bankruptcy numbers have slowed in 2009 despite the persistently dismal conditions, but capacity continues to dwindle as many of the remaining companies have parked trucks and laid off drivers.

“Capacity will continue to drop,” says Patrick Taylor, CEO of BestTransport, Columbus, Ohio. “Already a large number of companies have closed their doors, and to start things back up they’ll need an uptick in prices.”

“It’s not just the small carriers we see having issues,” says Moore, who also serves as president of the Toledo Trucking Association. “J.B. Hunt and Werner may not have closed, but they’ve pulled trucks off the road because it’s more economical to let them sit.”

The reduced competition in the marketplace doesn’t mean the companies still left standing are flourishing. Even with the diminished fleet capacity, the number of trucks in operation still exceeds the available freight. As a result, trucking companies are struggling to stay afloat while trying to scratch out the best return possible from customers equally interested in shaving costs. Service centers can often negotiate a pretty decent rate, particularly among companies that are willing to go to extreme measures to keep trucks moving.

“Shippers are taking advantage of extremely low rates,” says DeWitt Weldon, general manager of MK Express, the trucking company operated by Marmon/Keystone, Butler, Pa. “We understand where they’re coming from, but some of them are taking more advantage than others.”

Weldon says those shippers who aren’t simply interested in twisting arms to cut the best possible deal will leave themselves with more options when the inevitable recovery occurs, and the more balanced market that accompanies it. “If you give a little now, you’ll have more opportunities when things get tight.”

Eric Starks, senior consultant for FTR Associates, Nashville, Tenn., says metal shippers have found it much easier to negotiate for a favorable price with the trucking companies than they have with the railroads. The railroad industry has a more captive market and specializes in heavier material that is not economical to move by truck. Additionally, the overall decrease in freight moving on the nation’s rail lines has taken a lot of capacity out of the system and resulted in much faster average speeds for the freight that remains. The same cannot be said for trucking companies, which face congested highways even with fewer trucks on the road.

“Trucks are giving price decreases of 3 to 10 percent, but on the rail they’re still getting some increases of 3 to 5 percent,” Starks says, but notes that latter condition probably won’t last. “Our sense is the railroads will probably have to ease the rates.”

While the domestic steel industry’s decision to idle many of its steelmaking operations has obviously curbed the amount of steel available to be transported, it has also created some limited opportunity.

“If you happen to be serving one of the surviving facilities, all of a sudden you find all kinds of new lanes opening up,” says Gordon Gustafson, chief commercial officer for ADS Logistics, Homewood, Ill. “Typically, U.S. Steel’s Gary Works wouldn’t serve somebody that had been normally served by Great Lakes in Detroit, but now that Detroit is down, Gary Works has that opportunity. If you’re in the right place, and reasonably nimble, you can take that business.”

But otherwise, the market offers little in the way of silver linings for trucking companies. While the downward trend may have reached bottom during the second quarter, actual growth in freight is a long way off, Starks says. “We’re expecting to be down 12.5 percent year over year, which is pretty unheard of in this particular sector. The major bleeding has kind of stopped, but we won’t see any positive year-over-year growth until the second half of 2010.”

Starks says most markets revert to normal within three to four quarters, though he’s not sure this recovery will follow that trend. The steel market’s rate of recovery will impact future shipping rates and capacity issues.

If the market returns to strength quicker than anticipated, the current capacity excess could quickly turn into a shortage. Though it doesn’t take a lot of time to return idled trucks to the road, there can be some lag.

The chief concern will once again be drivers. “When the recession ends, the trucking companies will take trucks out of the lot. But capacity will also depend on whether drivers are available. The truck driving profession is kind of fluid,” says ATA’s Boyce.

Gustafson believes the driver shortage of the previous years remains an ongoing and serious issue. “The fact is we have an aging workforce. Even now, when people who have been drivers don’t have enough work to do to keep them busy, they’ll see what else they can do. It’s a perennial issue,” he says.

But the opposite is also true. As other industries have laid off employees, some of those displaced workers are looking into the trucking industry for potential opportunities. Weldon says he’s seen more inquiries about trucking positions recently than he has in several years.

Gustafson says there are other issues affecting the transportation industry that get lost in the concern about the overall economic downturn. The volatility of fuel prices, evidenced by a 40-cent hike over the course of two weeks in May, remains a concern. The state of the highway infrastructure, and future investment in roads and bridges, is also an issue for logistics providers. Finally, improving productivity with each haul is of paramount importance in the face of more strict regulations on other areas of operation.

“We have on-again, off-again discussions over weight limits of trucks and what they should be. You shouldn’t have to deal with the fact a truck going from Chicago to Detroit has to run at 80,000 pounds while one running from Portage, Ind., to Detroit can run at 134,000 pounds,” he says. “Instead of arguing over it, we’ve got talented engineers that can get this thing resolved.”

Boyce says his organization is keeping a close eye on any proposals from the Obama administration that may affect the industry. He anticipates some new regulations from OSHA, with the safety administration adding 20 new standard writers and 160 new law enforcement officers.

“The new OSHA head spent 20 years working for unions,” Boyce says. “We’re always interested in improved regulations that make drivers safer, but some of these regulations don’t do what they want them to do.”

But for most of the players in the transportation industry, these issues are all taking a backseat to the economy. “Within this industry, not many people have gone through this type of recessionary environment before,” Starks says.

Adept management is crucial to navigating these treacherous times. “This is a tough time, but well-managed companies manage through tough times,” Gustafson says. “You can come out of this as a strong organization and prepared to serve the market when it’s ready to go. That’s the philosophy we have here.”


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