Becoming a Better Trucking Customer
Put yourself in your motor carriers’ place for a moment. This past year brought more than a few bumps in the road. Union battles, driver shortages, rising insurance premiums, fluctuating fuel prices and surcharges, and increased safety and security costs have deflated profits and forced shippers, carriers, and supply chain partners to plug expectation gaps and choke operating costs.
If you think those concerns aren’t aren’t your problem, think again. The costs—both monetary and in terms of customer service—of meeting those challenges often are passed on to you.
The trucking industry is heading in a new direction. Many regional owner-operators—throwbacks to the post-war automobile boon—have been decimated by the economy and Sept. 11 fallout. Larger, more financially stable and diversified carriers, with national networks and strategic interests in targeting new markets, have grabbed the wheel away from smaller operators.
But even large carriers are not immune from the stresses of the market; look no further than the recent demise of Consolidated Freightways. This latest cycle is no doubt a reflection of the times. But is it an omen for the future? Not necessarily.
The trucking industry thrives and dives with the flux of economic conditions. And there’s little doubt as to why there is such an intrinsic relationship between the two. Motor carriers are the heart of the U.S. transportation matrix, keeping product flow moving from ports and railheads to distribution facilities, from manufacturers to consumers, across the country and worldwide.
“There will always be a need for motor freight service,” says Kristie Keen, a pricing assistant for Cannon Express. “But buyers need to be aware that rate increases will occur due to rising insurance costs, the optimization of better security measurements, as well as fewer carriers in the market.”
In an effort to uncover the challenges and pressures faced by the U.S. trucking industry, Inbound Logistics invited a number of motor carriers—small and large—to comment on some of the bumps they have met in the course of the last year, and what steps they are taking to smooth over these concerns without compromising price and service.
IL also asked carriers to offer some advice to transportation buyers on what to look for when exploring and negotiating contracts with potential carriers.
Our goal was to help you see the industry through your carriers’ perspective. Maybe you’ll become a better trucking customer, and find ways to work together for the greater good.
It’s Dollars and Sense: Cost is not the only factor to consider when choosing a carrier.
Be prepared to pay decent rates and accessorial charges for decent service. ‘You get what you pay for’ has never been truer in the TL sector, and I suspect it will be more so in the coming year.
— Robert L. Browning, Traffic Manager, Mercer Transportation Co.
Companies looking to buy LTL or TL services need to go directly to the carriers, and not be fooled into believing cost-cutting measures of 3PL companies. —Kristie Keen, Pricing Assistant, Cannon Express
The lowest price is not necessarily the lowest cost. Consistency of transit times, error-free deliveries, and other value-added aspects must also be factored into the purchasing decision.
— Jim Van Zoeren , President and CEO, Alvan Motor Freight
It appears to me like anything else in life, in most cases you get what you pay for. —David Vanderpol, President, Oak Harbor
Go for the Low: Carefully consider a carrier’s claims ratio.
When reviewing your bottom line transportation expense, be sure to consider both the direct and indirect cost of any cargo losses or damages. You will find that the few carriers with low cargo claims ratios provide a much higher transportation value. In addition to competitive and consistent transit times, broad geographic coverage, low loss/damage ratios, and financial stability, you should look for a carrier that is willing to mold its operation to your unique needs. Very few carriers offer this type of flexibility, but it is a key element in supply chain optimization. —Jennifer Boyd, Manager—Tariff Development & Publication, ABF Freight System
You’ve Got a Friend: Build partnerships with your carriers. Learn their internal processes.
There are significant cost factors affecting the motor carrier industry. 4,000 carriers have exited the business in 2001. Capacity has greatly diminished. Buyers need to form meaningful alliances with carriers that regard both their needs. Long-term commitments are important on both sides. —Bill Fobert, President, Epes Carriers
Motor freight buyers should continue to improve operating efficiencies and reduce overall transportation costs by evaluating the entire supply chain and transportation providers. Specifically, look at streamlining your freight transportation by focusing on strategic partnerships and reducing the overall number of carriers you deal with. —Phil Pierce, Executive Vice President, Sales and Marketing, Averitt Express
Pay your carriers well and lock them into long-term agreements because capacity will be an issue in the next few years.
— Carmen Fernandez, Marketing Coordinator, Concord Transportation
Reconsider the value of the relationships with your carriers. The relationship between the shipper and carrier is the key to success for both entities. Success can be achieved through the investment of time and effort in that relationship. Both shipper and carrier can develop synergies that will provide better services and total cost savings. Decisions based on price alone will not produce the long-term savings across the entire supply chain. Once shipper and carrier understand each other’s business, initiatives that are jointly drafted have an advantage over one-sided efforts.
— Joyce Jordan, Executive Vice President, Sales and Marketing, Dart Transit Company
Select firms that can listen to your needs, analyze the data, and develop unique solutions to help your company beat the competition. Don’t look for a company that will just ‘shoot you rates.’ Particularly for hazardous materials, select a carrier that has a superior safety program and has demonstrated a commitment to the Responsible Care program.
— Doug Place, Chief Administrative Officer, Dupre Transport
Become familiar with internal processes of potential carriers. With the constant change of owners and employee base in so many transportation companies, what was once a safe selection may not be any more. If there is evidence of solid processes within an organization, personnel and ownership changes do not make as large an impact on operations.
— Hal Miller, Vice President Sales and Marketing, Miller Transporters
Weigh the Balance Sheet: Choose financially stable carriers.
Use financially-sound carriers with a long-term record of excellent service. These invariably are the carriers with the best people, the best training programs, the best equipment and equipment maintenance programs, and the best claim prevention programs. When problems do occur, these carriers have the resources to recover, minimizing the harm to the shipper. It’s a prudent business practice to spend a few more dollars to work with the best.
— Pete Neydon, President, USF Holland and USFreightways Eastern Carrier Group
Select a carrier based on its financial strength and ability to provide a modern fleet of equipment. Attract and pay for quality drivers and safety and related insurance coverages.
— Keith McCoy, Director of Marketing, Prime Inc.
Choose a transportation provider that is a long-term player and one that will insulate you from financial or work stoppage interruptions. —Chip Overbey, Vice President of National Accounts and Marketing, Old Dominion Freight Line
Make sure you do business with a reputable company that will be around for the long term. Examine your pricing agreements carefully for release valuation clauses and minimum density and dim weight provisions that you may not have previously agreed to.
—Scott Riddle, Vice President Sales and Marketing, Daylight Transport
Anyone that purchases transportation services should review their current and/or potential carrier’s profile on the DOT Safestat Internet site. These comparisons give some insight into a carrier’s safety record and, ultimately, how well it operates.
— Trevor Jackson, Director of Sales, Total Logistic Control
When looking for a LTL carrier, select one that is accountable, provides you with a measurement of key service indicators, offers a family of expedited service, easy tracking and tracing capabilities, and consistent and superior customer service. Seek a carrier that is insured, competitive, responsible, and responsive to your needs.
— Rick O’Dell, President and CEO, Saia Motor Freight
Protect Your Freight: Make sure the carrier maintains adequate insurance levels.
With the high cost of insurance since Sept. 11, shippers and receivers need to make sure that the carriers they use maintain adequate insurance levels. In addition, carriers need to ensure that there is a chain of custody on all shipments due to security concerns. —William Bailey, Vice President of Logistics and Sales, Alterman Transport Lines
I would make certain any carrier I use has full insurance coverage—including an ‘excess coverage’ policy—and above average safety and claim’s performances. I also want my carrier to own its equipment and terminals.
— Jon Shevell, Vice Chairman and Executive V.P., NEMF
Validate the insurance coverage of all carriers and make sure they have cash reserves to support the higher deductibles imposed by their insurance carriers. Especially validate the cross-border services of all carriers offering transportation to and from Mexico.
—Gary Nichols, Director of Business Development, CFI
The Driving Force: Retaining good drivers keeps costs down.
Recognize that there are fewer trucks available today because of higher operating costs. The driver shortage is about to return and will impact available capacity at many carriers in the next six months. —Robert Rader, Executive Vice President, Roehl Transport
Shippers should keep in mind that carriers are currently incurring dramatic cost increases in security, insurance, fuel, and recruiting, hiring, and paying drivers. Retention of good drivers is one key to controlling costs and shippers can help by structuring their shipping and receiving operations to be as driver friendly as possible.
— Mark Haley, Marketing Director, KLLM Transport Services
Freight Rail: A Solution To Traffic Problems?
Deliveries delayed while truck drivers fight traffic frustrates both carriers and transport buyers. Wendell Cox, a transportation veteran who has studied traffic and gridlock issues for 25 years, believes freight rail is the solution for reducing traffic congestion. Here are his thoughts.
Throughout the country, drivers are spending more and more time in their trucks fighting traffic. Proposed solutions to the problem, such as building new roads, are expensive and politically contentious. But there is another solution—freight rail.
By shifting 25 percent of freight from road to rail over the next 20 years, we can take many trucks out of traffic. In an urban area such as Phoenix, Ariz., for example, transferring 25 percent of freight from trucks and putting it on freight trains could reduce drivers’ commutes by 86 hours a year by 2020.
Large trucks transporting consumer goods is one factor that contributes to the increase in traffic delays. One large truck takes up the same amount of highway space as almost four cars. And, the average truck is becoming longer, with an increased use of double and triple trailers. Truck volumes are expected to double over the next 20 years, according to the Federal Highway Administration. With little chance of sufficiently increasing urban road capacity, this traffic growth will continue to add to our congestion problems.
The situation is already alarming. From 1990 to 2000, traffic delays for drivers increased 70 percent in major urban areas. Over that time, drivers lost 23 hours in traffic. U.S. Census population projections and Federal Highway Administration traffic volume projections suggest that traffic will increase nearly 50 percent in the next 20 years, resulting in more traffic delays.
Freight rail can help. One freight train can carry the equivalent of 500 trucks, and one intermodal train can carry 280 containers or truck trailers. Truck carriers and railroads are already forming partnerships that enable the trucking industry to take advantage of the efficiency of railroads.
Shifting freight from road to rail has a positive environmental impact as well. Freight rail is more fuel efficient per ton-mile than trucks and reduces fuel consumption by decreasing the time drivers spend idling in traffic.
Shippers can expand the use of freight rail if government plays its part by providing tax incentives for investment in railroad infrastructure and intermodal transportation. These policy changes would enable freight railroads to continue to provide convenient, on-time, quality service to shippers and boost their share of freight transport. It is hard to imagine a less costly strategy for reducing future traffic congestion.
Wendell Cox is president and CEO of Demographia, a market research and urban policy consultancy. For information, email: [email protected]
Why Motor Carriers Need a General Rate Increase
The stringent security requirements for transporting hazardous materials carry cost consequences that shippers don’t always recognize, says Jack E. Middleton, president and CEO of SMC3. He advocates a general rate increase to help carriers survive.
Few dispute the additional expenditures and security practices that have been and are being implemented to safeguard our country and citizens from terrorist attacks. What is sometimes not recognized are the cost consequences those required measures have for motor carriers.
Recently, the Research and Special Programs Administration of the U.S. Department of Transportation (DOT) proposed new and more stringent security requirements for the shippers and transporters of hazardous materials. Part of that proposal involves the requirement that shippers and carriers of hazardous materials assure that employee training includes a security component. Recognizing the vast array of commodities identified by the DOT as hazardous, that requirement will affect many motor carriers.
It is also provides that, in the case of certain highly hazardous materials, a security plan would have to be developed and implemented by both the shippers and the carriers. The added costs for the carriers meeting those requirements require no exposition.
Increased security measures are being encountered in transporting traffic to and from government installations. The private sector supplying goods to government facilities is also taking steps to heighten the security surrounding those shipments. Because of the volume of government freight handled by motor carriers, considerable delays have been encountered in the making of pickups and deliveries of those shipments, resulting in expenses incurred by the carriers for drivers’ wages and the equipment detention.
Fuel for Thought
Unrest in the Middle East has a direct impact on the price of petroleum-related products, a major component of the non-labor expenses incurred by motor carriers in providing transportation services to their customers. The U.S. Department of Energy projected that fuel prices would rise an average of 15 percent this past summer.
While carriers can recover a portion of those increased expenses through their fuel surcharge programs, fuel price volatility impacts carriers in other ways. Carriers confront increased prices in their purchases of lubricants, tires, tubes, and other petroleum-related products when the cost of fuel rises. Those unanticipated and unprecedented increases are not immediately recovered and diminish carrier profitability.
Insurance at a Premium
Another indicator of the impact of terrorist threats on the trucking industry is the sudden and substantial increase in insurance premiums imposed on motor carriers.
Many are aware that the American Trucking Associations’ survey of insurance costs to motor carriers shows that general liability insurance rates increased last year by an average of 32 percent for carriers renewing before Sept. 11, 2001, and 37 percent for those renewing after Sept. 11. Renewal rates for excess (umbrella) insurance coverage increased even more—an average of 74 percent before and 120 percent for renewals after Sept. 11, with some carriers experiencing individual increases of up to 1,000 percent.
It is forecasted that insurance costs will continue to rise an average of 15 percent a year. A recent survey of SM3 member carriers shows that changes in insurance coverage arising from security concerns alone have already increased expenditures collectively by more than $2.2 million. It is also projected that our member carriers will encounter increased insurance expenses in 2002 in the neighborhood of 47 percent above those incurred in 2001.
All of these increased costs, coupled with a weakened economy, have given rise to a number of carrier bankruptcies and a general weakening in the financial health of the trucking industry. Only with a general rate increase can carriers produce the revenue necessary to provide the quantity and quality of transportation services required by the shipping public. As carriers struggle to survive the economic downturn, it is our hope that all will emerge from these difficult times as successful.
For more information about a rate increase, email: [email protected]
What is the Greatest Problem or Challenge Facing Motor Carriers Today?
Rising insurance premiums and the pressure to cut costs head the list of motor carrier concerns. Insurance is currently the greatest problem, followed closely by fuel surcharges and unfair shipper contracts. —Robert L Browning, Traffic Manager, Mercer Transportation Co.
The rise in insurance costs, as well as the continuing trend of customers driving transportation costs down. Most carriers were forced to raise rates to offset the insurance costs, and to improve service to justify the rate increases.
— Kristie Keen, Pricing Assistant, Cannon Express
Health care and insurance costs have risen dramatically this past year. —David Vanderpol, President, Oak Harbor
You can recite a litany of concerns such as availability of competent drivers to add to the driver board or replace retirees, the cost and potential effectiveness of security measures, as well as many others. These all pale in comparison with the impact of the ongoing economic weakness. We are a derived-demand industry. We cannot create demand; we can only compete for market share. In this environment, competition for market share becomes destructive of yield, particularly given pricing actions that we consider irrational by marginal carriers desperately trying to bolster the top line.
Additionally, the pressure on the shipper to cut costs has a twofold effect on regional LTL carriers: (1) a persistent demand for lower prices; and (2) a concurrent need for unfailing service to support production when inventory essentially is on our trucks. It truly is an unforgiving environment. This combination of carrier and shipper actions places pressure on cost that can only be alleviated by an economic upturn and attendant market growth.
— Pete Neydon, President, USF Holland and USFreightways Eastern Carrier Group
10 Ways to Improve Safety and Security
Tank truck safety and security has never been more critical. But it is more than just the carrier’s concern. John Conley, vice president of the National Tank Truck Carriers Inc., urges shippers and carriers to work together. Here are 10 suggestions on ways to collaborate.
1. Expand pickup and delivery windows. Service windows are so critical to a company’s ability to retain business that drivers are tempted to do whatever is necessary to meet those service requirements. 8 a.m. is prime rush hour time and is the worst time for a driver to take chances to meet a time requirement, especially if he has been driving all night.
Also, it is very frustrating to a driver to arrive on time for a pickup, then have to wait for loading and sampling, or worse, to do whatever is necessary to make a delivery time only to be told there was no rush for the product. To improve security, stagger shipping and receiving times to avoid long waits outside shipper or consignee facilities.
2. Allow adequate time to transit a load. Understand that delays in loading and sampling cannot be made up on the highway without taking risks or violating regulations. A delay in delivery will be at least the same as a delay in departure from the plant.
3. Never introduce nitrogen into a tank without tagging outlets and communicating the use of nitrogen via verbal and written means.
4. Visit consignees and conduct safety surveys to ensure that delivery areas are safe and secure. In addition, realize that drivers are trained to recognize unsafe situations. Do not punish the driver for exercising caution, including not making the delivery until a potentially dangerous situation is remedied.
5. Provide safety information to the driver entering the plant and encourage consignees to do the same. Include evacuation information, emergency signals, location of showers and first aid equipment, and plant-specific safety regulations. Provide detailed directions to loading or unloading points or to safe parking areas. Information placed on a laminated card can be returned when a driver leaves the plant. Also provide a safety orientation for a driver visiting a plant or facility for the first time.
6. Constantly review and manage procedures to ensure that the delivery is made to the right tank. Focus engineering on vehicle movement within the plant. Do not rely on the driver to know the customer’s plant, tank location, or tank capacities. Have plant personnel escort the driver to the delivery point and sign delivery instructions. Provide assistance to drivers who must pump into tanks that are not visible from the driver’s unloading position to further reduce chance of spill or tank overflow.
7. Offer accurate delivery equipment requirements, including product transfer and hose length requirements. If vapor recovery will be required, detail what type of trailer equipment or configuration is needed. Not having the proper equipment can result in delays or, worse, jury-rigging that can cause a release.
8. Seal the trailer and record seal numbers and locations.
9. Incorporate regularly used carriers into production facility safety committees.
10. Do not ask or allow carriers to exceed weight limits.
For more information email John Conley at: [email protected]