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Potholes Abound for Steel Haulers By Dan Markham, Senior Editor The driver shortage and burdensome regulatory environment have caused a tight transportation market and higher freight costs for service centers. Whether moving material into a facility or shipping it back out, the challenges of metals logistics continue to grow. From driver shortages to the winter weather hangover to an onerous regulatory environment, service center operators are dealing with a transportation market that is not easy to navigate. And the improving economic climate, while welcome, may make trucking even more troublesome. "With trucks, capacity is tight and productivity is down. It's a struggle right now," says Mike Moss, vice president of multimodal operations for PLS Logistics, Cranberry Township, Pa. "And we're heading into produce and building seasons in parts of the country, which is constraining the amount of equipment we need to move metal products." The lack of trucks, or the drivers to pilot them, is the primary issue facing the industry now, and for the foreseeable future. "It's really about the carriers and our ability and willingness to find equipment, which is about finding drivers. People don't want to drive trucks," says Jerry Hack, president of Dearborn Distribution Services, which operates Dearborn Steel Express. "There are good drivers for good jobs with good equipment and good lanes who get good treatment. There are not drivers for bad lanes, bad equipment and cheap freight," says Bill Ritter, president of Chesterton, Ind.-based ADS Logistics. Moreover, even though many of the nation's unemployed might be willing to drive trucks, most are not qualified. The Federal Motor Carrier Safety Administration's sharper focus on driver qualifications, habits and histories has disqualified a lot of drivers, at least for hiring by more respectable carriers. Coupled with the new Hours of Service safety standards that restrict the number of hours drivers can be behind the wheel, shippers are left scrambling. The problem will only get worse as unemployment declines, shrinking the pool of potential driver trainees. Another threat on the labor side is competition from construction. "It's a tradition, especially in the flatbed markets, where drivers bail out of the trucks to work construction, and come back into the trucks when construction season ends," says Moss. Additional competition for trucks is coming from the booming oil shale fields in the Dakotas and Pennsylvania, which are eating up a significant share of the total freight capacity. If energy, construction and other key segments of the economy pick up steam, the trucking industry will become a bottleneck, says Eric Starks, president of FTR Associates, Nashville, Ind. "The biggest risk factor right now is if the economy heats up. The market is kind of on the edge." The driver shortage, combined with increasing seasonal demand, has squeezed capacity and increased freight rates. "We're starting to see rates pick up for all the markets because companies can't get access to power units and drivers," says Starks. Adding to the rate pressure is the effort by carriers to recoup their rising costs for fuel, equipment, insurance, and the like. The cost of tires, for example, has nearly doubled, a particular problem given the deplorable highway conditions exiting the brutal winter. "The roads are terrible, they are destroying the trucks, and nobody pays us for that," says Scott Cordin, president of Steel Express Logistics, Burr Ridge, Ill. "I've been doing this since 1975 and I don't remember it ever being so bad." But it isn't just the actual potholes that trucking companies must avoid. There is no steering around the metaphorical potholes posed by overregulation, they complain. "Fines for truck operators have become a major source of revenue for municipalities, state and local governments," says Hack. "I've been doing this for 30 years, and the regulations are at an all-time high," says Ritter. "It's an environment where states are trying to collect revenues, and trucks in particular have a target on their back. Some of it is for good reason, because there are a lot of bad actors out there in trucking. But there are a whole lot more good men." Executives point to several ways regulations are changing the market. CSA (Compliance, Safety, Accountability) scores limit driver availability and influence insurance rates. Stricter Hours of Service rules make scheduling far more challenging than in the past. Inconsistent applications of various Department of Transportation rules from state to state make it hard to stay in compliance for even the most conscientious company. And even minor, unavoidable single-vehicle incidents, such as pothole-created equipment damage, become a part of a carrier's record. "We've never had an accident, but if you look at my DOT record it looks like we're Charles Manson with trucks," says Cordin. Starks says even more regulations are on the horizon, with as many as 30 new rules either proposed or set to take effect. These regulatory-related costs are a constant, but not always recognized by customers, say trucking execs. When the metals market gets tight, shippers generally look for areas to reduce expenses, and the logistics side of the business is an easy target. "The constituency has tried to use transportation as an area of cost savings," says Hack. But whatever is going on in the metals world has little direct bearing on the transportation market. "When the benchmark steel price goes down, I know I'm going to get calls on reducing my rates," says Ritter. "Therein lies the problem, because they're not interdependent. My costs don't change because the hot-rolled price goes down $100." Rather than trying to nickel and dime the carriers, there is a better way forward for metals service centers and other shippers, say trucking company executives. They believe a more transparent and complementary relationship is in the best interest of all parties. "Carriers want to be partners with their customers, and service centers would do themselves a great deal of good to welcome that," says Hack. "The issues and elements aren't materially different than any other relationship the service center may have with their supply base." Carriers prefer the opportunity to do contract deals with their customers, which gives them greater certainty over their future and the confidence to make investments in their operations. "We like our capacity to go to financially stable players who are truly partners with us. When we get treated like a commodity, we'll do it to survive, but when we can move along, we will," Ritter says. Service centers can also make themselves more attractive shippers by doing a better job of accommodating and understanding the needs of the trucking companies, particularly as they relate to Hours of Service. Under CSA regulations, Hours of Service are counted not just when the truck is in motion, but also during the loading and unloading process. "A big issue we've had in the past is not getting loaded in a timely fashion," says Clayton Sikes, vice president of purchasing for AMSCO Steel, Fort Worth, Texas, which operates both a service center and a transportation company. "It becomes a problem when the driver has to sit down for a while because he's run out of time. That affects our deliveries for the next day." When that becomes routine, drivers will begin to balk at hitting certain locations. "You have to go into your own house and look at how you're cycling trucks through your system. And you have to look at how drivers are being treated," adds Moss. His PLS colleague Dan Mullins, senior vice president of supply chain, says companies can benefit from thinking creatively, whether that's using a drop-trailer operation instead of live loading, or reevaluating shipping hours to better accommodate drivers. "Companies that are just doing business as they always have are going to find it a really challenging market," he says. One other piece of advice Moss offers is "don't lock yourself into one mode. You have to be willing to exercise rail [see sidebar] or to look at transload or water opportunities," he says. "It gives you options, and options are what are needed nowadays." ["The biggest risk factor right now is if the economy heats up. The ]trucking[ market is kind of on the edge." Eric Starks, FTR Associates] Tight Trucking Leads Service Centers to Rail Tightness in the trucking market could provide an opening for more rail transport of metals. But railroads are facing some of the same problems plaguing truckers. The U.S. rail system has seen increases in grain shipments, tying up railcars. And like trucking, the rail industry continues to play catch up from the winter weather. Current pent-up demand has tightened availability and slowed deliveries. "The question is how long it takes to get from Point A to Point B, and that's gone up noticeably," says Eric Starks, president of FTR Associates, Nashville, Ind. That is the fundamental question a service center operator must ask when considering rail versus truck. Rail is the cheaper mode of transportation for the long haul, but the cost is a longer wait between purchase and possession. "The steel mill invoices the day it loads, but it can take another 14 days to get to us, and another day or two before it gets to the customer," says Damon Gunter of MoveTran, a Baltimore-based transloading facility. "That's three-quarters of a month where a guy can't touch his product, but he's paying for it already." In some cases, there is little choice. Trucks are not as interested in moving freight into the mid-Atlantic region, for example, because of the lack of a backhaul, demanding more use of rail to move steel, Gunter notes. While the short-term environment for rail shipping is challenged, Starks is more optimistic about the long-term prognosis. Shipments of coal have been decimated by changes in energy usage and greater use of natural gas, freeing up some capacity. Additionally, the railroads have been much better about investing in tracks and other infrastructure upgrades, compared to government spending on highways, even adding double or triple tracking in places to clear up congestion. "Rail has a decent story to tell, and we expect things like intermodal to pick up a little more freight from trucking," he says. Bill Ritter of ADS Logistics, Chesterton, Ind., says the key to using intermodal is having a high-value product and more miles to cover. "If you have over 1,400 miles to go, it makes sense." Utilizing rail requires a bit of legwork for a distributor. "You need to set up a routine and a rate prior to ordering rail cars. It's a challenge for someone who hasn't done it before, and some say it's too much hard work," says Gunter. Mike Moss of PLS Logistics, Cranberry Township, Pa., agrees that using rail can be intimidating to a first-timer, but argues it's worth the effort. "People who aren't rail served have to look for local transloaders, truck-rail or a truck on the other end. It's a daunting task to get started up, but once you've done it you've opened up another service option."