Tollers Keep Eyes on the Road in 2018
Toll processors' fates tied to new trucking regulations, location, automotive lightweighting
By Jonathan Samples
on Feb 1, 2018
If there’s one thing toll processors know, it’s logistics. With so much material entering and leaving their facilities daily, any changes or disruptions to supply chains can have effects that are felt throughout the industry.
That’s why implementation of the long-awaited electronic logging requirements by commercial trucking companies is quickly becoming a major concern of toll processors. Not only will the ELD requirements mean higher rates for shippers in the short term, but expected changes to long-established supply chains could mean that winners or losers will be determined simply by geographic location. Add in the changing material landscape in the automotive sector, and it’s easy to see why a lot of tollers are eyeing the roads in 2018.
Overall, the past year was a mixed bag for toll processors. Factors such as shifting supply chains, a down automotive market and rising freight costs in the second half of the year tempered gains for most processors. Many saw revenues hovering right around 2016 totals, with either gains or losses leveling out in the low-single digit range.
“2017 was a pretty good year for us,” says Tim Bilkey, managing director at Voss Clark, Jeffersonville, Ind. “It was down slightly from last year, but it was pretty steady.”
Like most toll processing companies, a large percentage of Voss Clark’s business is from the automotive sector. Industry research firm Autodata reported total light vehicle sales were down 1.8 percent in 2017 – the first year-over-year decline since 2010. With fewer cars being sold, it’s no surprise that the amount of material moving through toll processing facilities also declined, albeit slightly.
The cost to move that material was another factor toll processors had to contend with in the third and fourth quarters. Implementation of the ELD mandate put strains on a trucking industry that was already running at tight capacity, pushing up rates and adding volatility to traditional supply chains. The short- and long-term effects of the new ELD requirements are among executives’ top concerns in 2018.
“How is that going to change my supply chains, other supply chains?” Bilkey asks. “Maybe I benefit from the changes, maybe I lose business from them; that is a factor that we have to keep an eye on.”
The ELD rule, which took effect Dec. 18, requires commercial truck drivers to install electronic logging devices that record and monitor driving hours. Eric Starks, chairman and CEO of industry analyst FTR, says the new rule applies to roughly 80 percent of trucks in the marketplace and will result in an estimated 3-5 percent decline in productivity.
“That doesn’t sound like a huge drop, but the problem is that we’re seeing tight capacity in the marketplace already,” he explains. “As you see capacity tighten, that’s pushing rates higher, so the cost that the shipper has to pay to move their goods goes up. That tight capacity is really what is driving the marketplace right now.”
According to Starks, productivity began to decline about midway through 2017 and is expected to be a factor into at least the second quarter of this year. With productivity down, the cost of shipping freight has gone up. Spot truck rates were up more than 20 percent year over year at the start of 2018, and they’re expected to remain above last year’s cost for some time. Similarly, contract truck rates are up about 6-8 percent from last year and projected to increase.
“Things are definitely moving higher,” Starks says. “Anybody who expects to be paying the same or less in the near term is deceiving themselves.”
Even though most freight moving in and out of toll processing facilities is transported on the customer’s dime, higher rates can still weigh heavily on a toll processor’s bottom line.
Dan Kendall, president of ABC Metals, Logansport, Ind., says high logistics costs will make location much more important over the next six to 12 months. “It’s not necessarily your physical location, but it’s the position of how equipment is moving,” he explains, noting that tollers located near either the Mexican or Canadian borders, for example, might be an expensive option for customers looking to minimize their freight costs. “Folks that are in the path of material flow will do much better. With logistics going up, that becomes an opportunity near term for those that are in the path of this material movement.”
How close a processor is to the customer is another important consideration, according to Bilkey. “That is going to affect our business because, whether we achieve business or not, it really comes down to the overall pricing; not just my pricing, but freight in and freight out,” he explains. “It’s going to depend on the geographic location of my facility, compared to those who are consuming the material. Am I close enough to where it’s going to be a freight advantage?”
Starks agrees, adding that location is an important consideration for drivers as well. “What we’re finding is there are desirable shippers out there that can help keep that productivity increased for the driver. So now your job as a shipper is to keep that driver moving and keep them going, and that’s the broader issue.”
This productivity at the dock is becoming a bigger factor now that ELDs are in play. Tollers who can load or unload a truck quickly can save their customers time and money.
Peter Adamski, general sales manager at Taylor Coil Processing, notes that there is some additional pressure on shipping and receiving personnel to get drivers through the process in as little time as possible. “I think the more critical piece for us is to just make sure we get people what they need and get them out onto their next assignment quickly, maximizing their road time and not burning up too many of their hours loading or unloading material,” he says.
The other major factor affecting tollers this year will be the automotive sector and aluminum’s continued push into the marketplace. Automotive is the largest end market for toll processors, and many are hoping 2018 will be a return to record growth.
In 2017, domestic new vehicle sales dropped to 17.2 million cars and light trucks. Despite being the auto industry’s first down year since the financial crisis, there was still enough volume in the automotive sector to keep tollers busy.
“There’s been some incremental growth over the last several years, but 2016 and 2017 were fairly equal in terms of volume,” says Laura Anderson, president and CEO of Pontiac, Mich.-based Aluminum Blanking Co. “We did see an uptick on the automotive side in 2017, and we expect quite a large uptick in 2018.”
Kendall says ABC Metals’ automotive business was solid in 2017 as well, but he doesn’t share Anderson’s optimism for the upcoming year. “I’m pleased with automotive, but I don’t see any major growth coming from the automotive market,” he says. “Sales in the U.S. will be even.”
The National Automobile Dealers Association is projecting 16.7 million new car and light truck sales in 2018, corresponding to a 2.9 percent drop in total sales. However, the differing outlooks among tollers have a lot to do with the manufacturers they serve and the type of material they process.
Because of aluminum’s growing strength in the auto industry, Anderson sees plenty of opportunity in the years ahead. “We see more positives due to the lightweighting requirements,” she says. “We are seeing consistent and even increased quote activity on such programs, and I do believe over the next two to three years that we’re going to see more larger programs being launched.”
Adamski, who also chairs the Fabricators & Manufacturers Association’s Toll Processors Council, says the continued growth of aluminum in automotive is something a lot of tollers are paying attention to. So much so, that the council is planning presentations on aluminum products during FMA’s upcoming Toll Processors Conference, scheduled March 7-9 in Scottsdale, Ariz.
Additionally, more and more toll processors are adding aluminum services or upgrading machinery to process new high-strength steels. “Many of the participants in our group offer services for processing aluminum, which is somewhat new for this organization,” he explains.
The conference has held numerous presentations on advanced high-strength steels over the past several years, according to Adamski. These discussions, he says, are increasingly important as toll processors look to offer more than the traditional carbon flat-roll product and add or upgrade equipment to be able to do so.
“I think that both aluminum and [advanced high-strength steels] are probably the most immediate opportunities that toll processors have right now, as far as products in the marketplace and what can be done with them,” Adamski says.
For companies such as McEver Metal Processing, which mostly serves the metal distribution and building products industries, success in 2018 is tied to the overall economy, as well as potential infrastructure spending on the part of the federal government.
“We are very optimistic for a larger increase in business this year, especially if the government’s push for infrastructure updates and repair come to fruition,” says Jeff Raimonde, vice president of marketing at the Acworth, Ga.-based toll processor. “Those markets alone would be a boon for metals distributors of all sizes. And it appears the economy is going to thrive again, which is also impacting growth in the metals industry.”
Regardless of material or end markets served, the general mood among toll processors is one of optimism. “I think things are going to be better than 2017,” says Adamski. “I think we’re going to see some growth in the important sectors.
“I do, however, think it’s going to be somewhat tempered early on,” he adds.
Uncertainty related to the price of steel, the pending Section 232 ruling, processing overcapacity and supply chains are just some of the factors keeping tollers concerned, despite a mostly positive outlook for the year ahead.
“You just have to keep a closer eye on where things are moving to be able to position yourself the right way,” Adamski explains. “I think what we see with these types of markets is the necessity for turnaround times becomes greater. There’s not as much material in the pipeline, so what comes in has to go out relatively quickly, and that changes how we schedule and how we’re able to service customers.”