Market’s in Balance, But for How Long?
Metals distributors dealt with tight availability of trucks and railcars in 2014, but a slowing industrial economy has created a little more slack in the transportation market.
By Dan Markham, Senior Editor
The metals supply chain experienced some slowness in the first quarter—bad news for sales, but good news for logistics, as it helped ease the strain on the nation’s shipping capacity. Experts say the condition is likely to be temporary, however, and shippers like service centers and fabricators can expect the availability of trucks and rail cars to tighten up again later this year.
Domestic steel shipments through the first quarter were off 7.9 percent compared to the same quarter in 2014, reports the American Iron and Steel Institute. Shipments of aluminum products showed modest gains, according to data from the Metals Service Center Institute, but not enough to offset the larger decline in steel.
That slowdown has provided much-needed relief to the capacity-constrained truck and rail provider networks. Metal haulers continue to recover from the effects of the snowy winter, which severely limited commerce, especially in the eastern U.S.
“Freight levels were strong in 2014,” says Bill Rohde, a regional sales manager for Little Rock, Ark.-based Maverick Transportation, one of the leading metals haulers in North America. “Things got backed up and didn’t get corrected until June. It was a tight supply chain.”
The big decline in the oil and gas market, and the industries that support it, has loosened capacity considerably.
“It’s more balanced than it has been in the last year and a half,” says Eric Starks, CV equipment expert at FTR Associates, Bloomington, Ind.
That balance encompasses all modes of transportation. “What we’re seeing across the board is that demand for truck services, rail services and barge services is down,” says Jacque Morrow, senior director of national account solutions for PLS, a third-party logistics provider based in Cranberry Township, Pa. “Shippers should be able to find trucks more readily available than they have in the past, and the same goes for rail car and barge.”
Shippers, including steel and aluminum producers and distributors, should also be able to get better rates, though there’s no guarantee, he says. Shippers typically have better luck negotiating favorable rates with the more fragmented trucking industry than with rail providers, whose pricing power is shared by just four primary railroads.
“There are only so many railroads, and certain shippers are tied to certain railroads, so whether demand is up or down doesn’t leave a whole lot of room for rate negotiations,” Morrow says.
Of course, rather than haggle over pennies, service centers might be wise to take advantage of the current conditions to forge stronger relationships with the trucking companies, experts say, so they get preferential treatment when the market tightens again.
Whether a service center operates its own fleet or uses third-party carriers, it is affected by the persistent shortage of qualified drivers. The American Trucking Associations, the Washington-based trade group, estimates the industry needs an additional 35,000 to 40,000 drivers to fully meet the demand for trucks.
“The situation, at least for us and many of our competitors, is that the problem is getting worse by some magnitude on a daily basis,” said Gregg Troian, president of PGT Trucking, Monaca, Pa., during the Platts Steel Markets North America Conference this spring. “It may be a small magnitude, but it’s not getting better and it’s not staying the same.”
The causes of the shortage are numerous and not easy to fix. New Hours of Service regulations passed in the last decade have significantly restricted how many hours drivers can spend behind the wheel in a given day or week, curtailing their time on the road to prevent fatigue-related accidents. The trucking industry is campaigning for a change to the Hours of Service rules that would suspend the provision requiring two consecutive off-duty nighttime periods, among other elements, contending they are unnecessary and too costly, says Susan Jaske, president and chief operating officer of Fairway Transit, Pewaukee, Wis., Drivers with poor safety records have been removed from the hiring pool under new Compliance, Safety, Accountability standards, compounding the shortage. Annual driver turnover, estimated by some at over 90 percent, adds to the strain on the industry.
Driver pay is part of the problem. “The gap separating driver pay and the average U.S. wage has grown from 1 percent to about 11 percent,” says Yvonne Meurkson, general manager of Burnham Trucking Co., East Chicago, Ind. “Other jobs out there are more attractive.”
“A lot of people in the industry believe that until we get driver pay into that $65,000-$75,000 per year range, so we can compete with steel mills, automakers and oil rigs, we’re not going to solve the problem,” says Rohde.
Other impediments to driver recruitment include the intimidation of driving a large rig, the job’s lack of status, working conditions that take drivers away from home for long stretches, and age restrictions.
Individuals must be over 21 to drive a truck on the interstate, choking off a potential pipeline of recent high school graduates.
It will only get worse before it gets better, say the experts. Beyond the current shortage, the demographics of the existing driver pool tell a scary story. The average truck driver is in his or her early 50s, with retirement looming not too far up the road.
An older employee pool is even more worrisome for metals haulers. Hauling steel and other metal products is physically demanding, with tarping and chaining in all sorts of weather a core requirement. As drivers age, they become less interested, or less able, to handle those tasks.
Trucking companies are hoping to reverse the hiring issues by tapping into underserved demographics, including women and immigrant drivers. Trucking companies have made efforts to attract individuals who have left military service, but that pipeline is beginning to dry up.
On the equipment side, converting fleets to automatic transmissions is ongoing at many companies, and Maverick has already completed the transition. “That used to be one of the most intimidating aspects of the job, shifting that big rig,” Rohde says. Efforts to upgrade the cab to include more amenities, such as refrigerators and double bunks, also can help.
“The best way to recruit drivers is not to lose them in the first place,” says Troian at PGT Trucking. “We need to find creative ways to keep drivers, and it’s not always pay.”
Advancements to ease the loading and unloading process would certainly help. “Down the road, this driver issue is going to force us to find different ways of doing things. Today, we have a 45- to 50-year-old man who jumps on a trailer and ties down a strap or tarp. We are going to have to tap into a different demographic, and they may not be able to do what we do today,” says Dan Van Alstine, president of dedicated contract carriage for Ruan Transportation Management Systems, Des Moines, Iowa.
The trucking industry is not the only one facing shortages. The railroads have committed to finding more talent to run their networks. CSX hired more than 1,900 new employees in 2014 and is planning further employment growth this year, says Melanie Cost, a spokeswoman for the Jacksonville, Fla.-based railroad.
Some areas of the country are finding it more difficult to fill jobs than in the past,” said KEL LLC President John Schmitter during the Platts event. One railroad embarked on a hiring campaign last year in the Midwest, but struggled to find candidates.
Moreover, the learning curve is longer than for other industrial-type jobs. “It takes a new railroad trainee a year before he’s not only qualified in what he has to do, but to understand the geographic territory he operates over,” Schmitter said.
Both forms of shipping have other issues to contend with. Insurance rates have skyrocketed, a major problem especially for smaller trucking companies. The EPA also has toughened emission standards. New truck engines with more emissions-control technology are more expensive, executives say, and often fall short of their performance metrics.
The one area where the industry would like to see greater government involvement is in addressing the nation’s infrastructure issues. “A top priority for the ATA is securing passage of a long-term, well-funded highway bill. Congestion and poorly maintained highways cost the industry more than $9.2 billion annually.
Getting Congress to pass a bill that increases funding for roads and bridges, and directs those funds to key freight projects, is very important to ATA,” says Sean McNally, a spokesman for the association.
There are signs that some levels of government are finally getting the message. Eight states have already approved gas tax hikes to fund infrastructure projects.
“More and more states are doing that because they can’t rely on the federal government for support,” says Van Alstine. McNally says the ATA is encouraged by this trend. “States taking up the
infrastructure issue is a good thing, but it’s no substitute for a strong federal program.”
Though there’s little service center companies can do about most aspects of the driver shortage, crumbling roads or higher insurance costs, there are practices they can follow to ensure a smoother system of moving metal, experts say.
With trucking, it begins in the loading dock. Quickly turning around the trucks that come in, whether unloading or loading, is imperative to becoming a shipper of choice. The wait times have taken on increased importance in the Hours of Service era, as time spent waiting still counts against a driver’s day behind the wheel.
Treating drivers with respect and offering reasonable amenities helps build a service center’s reputation among carriers. Good signage alerting drivers where to go is another easy fix.
Service centers should also be aware of not just what goes on at their facility, but at the product’s destination. A customer who is routinely forcing a trucking company into long waits reflects badly on the distributor.
Companies hauling metal in the Midwest can also take advantage of the increased weight limits available in states such as Michigan, Ohio, Indiana, and into Ontario. Using six-axle trailers, metals companies can nearly double the material weight a single driver can haul. Efforts to expand these increased weight limits into other states are ongoing, but not terribly promising at the moment, say industry executives.
On the rail side, loading is also crucial, though speed is only part of the equation. Loading material into a rail car is the responsibility of the distributor. The shipper must position it properly to avoid damage or shifting. “If you’re not familiar with the American Association of Railroads loading guidelines, you run the risk of damage to your product, or having your product sidetracked in the middle of nowhere because it’s gone by some sensor that says it’s unbalanced,” says Jerry Hack, president of Michigan-based Dearborn Distribution Services, which operates Dearborn Steel Express. Packaging, he says, is another consideration for rail travel.
Morrow adds that rail shippers should also gain access to programs that allow them to closely monitor the location of their product on the rails, either through the purchase of a software program or the use of a third-party logistics provider such as PLS. “If you know about delayed rail cars en route to your customer, you can divert other cargo to that customer via rail or truck to meet customer expectations. You can manage the situation as much as possible.” It’s all part of the need to have the most up-to-date technology possible.
“If you’re managing logistics today via phone, fax, email or spreadsheet, you’re way behind the times,” he says.
Hack says the secret to a successful logistics program is flexibility. “You can’t have one transportation strategy. You need different strategies for different supply chains. Whether its rail, truck, or rail to truck, you don’t want to miss out on opportunities to customers.”