The Transformation of Truck Transportation
Join us for a look back at the history of trucking in the United States, lessons motor carriers have learned through the years, and what the road ahead looks like for shippers and carriers.
The business of getting material from manufacturer to customer—the process of shrinking the time and cost of moving goods between the manufacturer and the customer’s point of purchase—has forced all competitors in the transportation market to learn to move products faster and more efficiently, at lower cost, year in and year out,” notes Gary Petty, executive director of the National Private Truck Council, Alexandria, Va.
The heightened competition to excel at the supply chain game “has accelerated since the deregulation of trucking,” Petty says.
Despite challenges such as driver shortages, traffic congestion, increased regulation, rising costs and security issues, truckers continue to find ways to get product to market safely and more efficiently.
“Truck transportation has reached a heightened state of interest and priority for companies, and will continue to do so,” Petty says. “Truck transportation is the linchpin of America’s future economy.”
The trucking industry of the 21st century has its roots in two critical 20th-century developments: the building of the Interstate Highway System and transportation deregulation.
“We couldn’t have the kind of trucking industry we have today without interstate highways,” says Robert E. Gallamore, director of the Transportation Center at Northwestern University, located in Elmhurst, Ill. “The construction of the interstates changed the nature of trucking so dramatically that nothing was left the same.”
The interstates gave trucking companies the potential to expand beyond offering local or regional capacity to providing transcontinental service.
The Start of the Interstate Highway System
The Interstate Highway System got its start some 50 years ago, during the Eisenhower Administration. The highway system was to be graded and lane-separated, with at least four lanes and no traffic lights. Ninety percent of the cost of constructing the system was paid for by the federal government, with the states picking up the remainder. The highways are now owned by the states, who are also responsible for maintenance.
“The financing system was ‘pay as you go,’ which set up the Highway Trust Fund. Receipts from the federal diesel fuel tax went to the construction of the interstate highways,” Gallamore says, noting that the basic arrangements of the Fund have changed little over the years.
Today, the Interstate Highway System accounts for nearly one third of the National Highway System, which carries the majority of heavy truck traffic.
Trucking has gone through several cycles of regulation and deregulation. Excessive competition around the time of the Depression led to regulation in the 1930s.
“Everybody wanted to become a trucker,” Gallamore says. “At a time when jobs were scarce, gas prices were at rock bottom, and trucks were reliable enough not to break down all the time.” As a result of this excessive competition, it was difficult for trucking companies to make money.
Following the railroad model, the job of regulating the trucking industry fell to the Interstate Commerce Commission. “Regulators tried to turn trucks into railroads,” says Gallamore.
The ICC established operating authority that gave motor carriers the right to operate on particular routes, handling specified commodities. What Gallamore calls a “patchwork of legalistic, bureaucratic control of routes, rates, and commodities” lasted for roughly half a century.
Gerald L. (Jerry) Detter, president and CEO of Con-Way Transportation Services, Ann Arbor, Mich., can speak knowledgeably of those regulated years. Detter spent the first 16 years of his career in the regulated environment, with the last 24 in the deregulated environment.
Before deregulation, “there were fewer competitors. Each carrier had certificates to serve a certain geographic area,” Detter recalls. “Carriers that didn’t have certificates were prohibited from servicing those areas.”
All that changed in June 1980, when President Jimmy Carter signed the Motor Carrier Act. Operating authority was deregulated, and carriers could serve any area in the United States. The years following deregulation were turbulent, with much change taking place.
A number of weak carriers went out of business or were acquired, and new, more efficient carriers began operating. “Motor carriers that were smart got nationwide authority,” Gallamore says. “Less than truckload (LTL) carriers had to change their paradigm dramatically,” with smart, aggressive companies expanding their territory state by state.
“The Motor Carrier Act of 1980 did, in fact, reduce costs and enhance efficiency,” Detter says.
Prior to deregulation, the percentage of transportation cost to the total cost of manufacturing and delivering goods was much higher than it is today—perhaps 50 to 75 percent higher, he notes. Those costs have gone down dramatically.
Deregulation changed trucking dramatically, and the industry has continued to evolve ever since, as motor carriers add new services, coverage areas, and even modes as they strive to meet customers’ changing needs.
Today, proactive motor carriers have transformed from simply hauling shipments to becoming integral parts of their customers’ supply chains. Here’s a look at a few such truckers.
Con-Way: From Start-up to Success
Con-Way Transportation Services Inc., a $2.2-billion transportation and services company headquartered in Ann Arbor, Mich., offers a blend of modes and services.
Con-Way companies provide ground expedited; air expedited; less-than truckload regional, inter-regional and transcontinental service; airfreight forwarding; assembly and distribution logistics; truckload and intermodal shipping.
Con-Way got its start when deregulation happened, Jerry Detter explains. At the time, Detter was a division manager with Consolidated Freightways.
“Our parent company, CNF Incorporated, sold Freightliner Corporation (the heavy truck manufacturer), and we ended up with a large cash supply,” he says. CNF leadership sought investment opportunities that would grow the company going forward.
“In the new deregulated environment, weak, ineffective motor carriers were starting to fail,” Detter says. “Most were in the short-haul or regional business. Spotting an opportunity for growth, our parent company decided to invest some of its cash into regional carrier operations that would enhance our sister company at the time—CF Motor Freight, a long-haul carrier.”
Detter and two other CF managers were tapped to head the new regional businesses. Detter wrote the business plan in September 1982 for what became Con-Way Central Express, a start-up, non-union regional carrier that began operating in June the following year. Con-Way Western Express started up in May 1983. Con-Way Southern Express started in April 1987 and Con-Way Southwest Express opened in November 1989.
“The original premise was that these companies would be geographically limited to overnight and second-day lanes,” Detter says. But the regional carriers were a success, and customers encouraged them to expand into new, larger geographic areas.
Because the Con-Ways were profitable, the parent company decided to let them go head-to-head against all the competition—including sister company CF Motor Freight.
The Con-Ways continued to grow and expand into new markets. Con-Way Southern and Con-Way Southwest were merged into one company in 1994. The Central, Southern, and Western operations were linked to cover the entire 48 states. By April 1998, the company had evolved into a fully integrated national network, providing one- and two-day delivery of LTL shipments as well as transcontinental service.
“Then we got into the time-definite business, offering an exclusive-use service for critical time-sensitive freight,” Detter explains. Next, the company added a third-party logistics and warehousing capability, and introduced full load and airfreight services.
“And we will offer an asset-based truckload service next year,” he says; Con-Way Truckload is slated to open during the first quarter of 2005.
Up to this point, Con-Way has grown the business organically, and will continue to look at new start-up opportunities, Detter says. However, “that doesn’t mean that, in the future, we won’t look at acquisitions that are accretive and attractive to us, that enhance our menu of services and companies.”
ABF: A New Way of Operating
ABF Freight System Inc., Fort Smith, Ark., is a major LTL carrier of general commodities. Founded in 1923 as Arkansas Motor Freight, a small local carrier, the company today offers direct service to all 50 states, nine Canadian provinces, Guam, and Puerto Rico, with broad service to Mexico. ABF trucks travel more than one million miles a day, carrying more than 17 million pounds.
From the 1930s to the 1950s, ABF grew steadily, expanding first from Arkansas to Kansas City and St. Louis, then spreading out to Texas, Chicago, Indianapolis, Ohio, and cities in the south. Over a 17-year period, the company expanded its operating authority to 11 states and changed its name to Arkansas-Best Freight System Inc.
In the 1960s, ABF made several small acquisitions that gave it authority into North and South Carolina, Georgia, and several cities in New York. More acquisitions in the 1970s (including Navajo Freight Lines) moved ABF into the Southwest, further into the East, and north to Detroit and New England, with interline service into Canada.
The 1980s and 1990s saw further expansion, with acquisitions of East Texas Motor Freight and Worldway Corporation, including subsidiaries Carolina Freight and Red Arrow.
ABF also introduced international service, establishing a non-vessel operating common carrier (NVOCC) operation called ABF International Services.
During the past 35 years, ABF’s operations have changed significantly, says Wes Kemp, vice president of terminal operations. “The freight itself has changed. We used to have a lot of loose cartons; now everything is palletized, which has speeded the handling process and freed up our docks.”
ABF has 289 terminals today, compared to just 29 terminals in the late 1960s. Not only has the number of terminals grown, so has the size of those terminals, which can range from 20 to 40 doors to a mega-distribution center with 300 doors.
While the material handling used in the terminals hasn’t changed significantly since the 1970s, the technology certainly has. ABF today uses wireless communication technology to increase operational efficiency and visibility. The solution combines Nextel microbrowser technology—including cell phones with Internet connections—and proprietary web-based connections.
Using a paperless dock application, for example, supervisors push assignments to yard workers, sending real-time instructions for trailer movement to their handhelds. The dock workers also enter information regarding the trailer’s location and status.
Eighty percent of city drivers use the wireless technology, entering information from the shipment’s bill of lading into a handheld at pickup and transmitting it to ABF’s mainframe system. This enables ABF terminal workers to run an outbound planning application that optimizes the terminal’s work.
Drivers report deliveries via the microbrowser, updating the status of the shipment in real time and providing instant visibility for the customer.
Getting Methods Down and Controls in Place
Well into its eighth decade of operation, the company looks for continued success, Kemp says. “There is no one formula for success. Carriers need to have their methods down, good controls in place, and a culture where workers really want to serve customers and get excited about doing it.”
For ABF, these methods and controls include a disciplined approach to capital investments and pricing. “If we can’t make money at a particular price, we walk away from the business, while trying to remain friends with the customer,” Kemp says.
Another strength is ABF’s culture. “We’re a people-oriented company,” he says.
This culture can be traced back to the 1950s, to the founder of modern-day ABF, R. A. Young, Jr. “He was a champion of people and an honest man who tried to pick honest people with integrity,” Kemp says.
Quality improvement is a critical aspect of the company’s culture. This culture, he notes, “may be the greatest competitive weapon we have.”
Ward Trucking Becomes a Driving Force
Entrepreneur William W. Ward borrowed $300 in 1931 and, after buying a used truck, launched what would become Ward Trucking Corporation, Altoona, Pa. Ward picked up produce from farmers in central Pennsylvania, and hauled it into New York City where he would peddle it.
“When his truck was empty, he’d pick up cases of oil from oil suppliers in the city, and bring it back on the return haul to the farmers,” explains Dave Ward, president of the regional LTL carrier. “A trip that now takes six hours took 12 hours back then, because of road conditions and equipment limitations.”
Ward grew conservatively, one employee and one truck at a time. In 1979, the ICC gave Ward authority to operate in 48 continental states, but it chose to continue as a regional carrier.
When deregulation threw up a number of roadblocks, Ward Trucking responded cautiously. “We were very conservative,” Ward says. “Instead of acting for the sake of acting, or expanding for the sake of expanding, we took our time to figure out what we were going to do.”
The company began a slow process of expansion, filling out the rest of Pennsylvania and moving into Baltimore and Cleveland. Ward retained its customer base, providing a high-end service product.
Then the road got a little rocky. “Margins started to shrink, and discounting came into play,” Ward says. “When Overnite Transportation threw out the first five-percent discount, we were stunned, and positive that it would go out of business.”
He notes that Ward Trucking “was slow to understand and adapt to the changing marketplace, and slow to convert an operationally driven company into a sales-driven or customer-driven company.”
At the same time, trucking became much more competitive. “Not only did the truckload sector blossom, but a whole new breed of companies—the post-deregulation LTL carriers—came into play. They sought to do things differently; they didn’t have the baggage of being an operationally-centered company,” Ward says. “The market was a next-day market” instead of the traditional two-day model.
Ward Trucking struggled to keep up. “At a time when our margins were very thin, we went into a four-year lull,” Ward says. “We were beaten and battered by our competition. Competitors told our customers that we were on the brink of going out of business. There were years when our employees received no pay increases or benefits.
“One reason we made it through the tumultuous 1980s was the fact that we were conservative in our financing,” he says. “We had a rock-solid balance sheet, so we could weather the financial storm.”
Thanks to what Ward calls “the golden balance sheet,” the company rode out the turbulence and began building for the future.
Dave Ward became president in 1991 and took swift action, making personnel changes at the executive level and in sales and marketing. In addition, realizing that the company’s network of service centers “no longer made sense,” he closed five small service centers, consolidating them into larger centers.
“At the same time, we adjusted our line-haul process, and converted many inefficient runs to more efficient direct runs,” he says.
Throughout the 1990s, Ward Trucking grew organically, adding service centers in locations such as Buffalo, Columbus, and Cincinnati. Two years ago, the company expanded into Virginia, acquiring a carrier with full service centers in Richmond and Winchester. Today, the company stretches from Buffalo to Charlotte, from New York City to the Ohio-Indiana line.
“Our philosophy is to offer full state coverage; that’s the way our shippers buy,” Ward explains.
Ward Trucking in 1995 decided to become a niche player, operating in a defined geographic area and specializing in unitized, palletized freight.
The company’s leadership team became more financially savvy, learning the dynamics and microeconomics of making money in the LTL business and creating a new profit model.
“Once we understood the separate pieces of the model, we could manage those pieces toward improvement,” Dave Ward says. “Over time, the company’s leadership became more adept at understanding how price affects capacity utilization, and how we could use price as a weapon to increase utilization.”
As part of its transition, the company has upgraded its carrier sales positions. “Today, our salespeople have to be sophisticated and knowledgeable about pricing, freight classification, and base rates,” Ward says. Gaining an in-depth understanding of the company’s profit model enables sales reps to ensure that the business they’re seeking fits that model.
The remake of Ward Trucking is paying off handsomely. “We grew at 13 percent this year, and profits are up 50 percent,” Ward says. “We’ve decided to remain family owned and operated.
“The challenge is staying relevant to the shipper,” offering a footprint, services, and pricing that make Ward attractive to customers.
“The future looks challenging,” Ward says. “Our radar screen is turned on 24/7, rotating through all 360 degrees. We are constantly scanning the market horizon, asking relevancy questions, and studying the competition to learn what they are doing that the marketplace values.”
Schneider Delivers Solutions
Schneider National Inc., Green Bay, Wisc., a provider of premium truckload and intermodal services, was founded in 1935 by A.J. “Al” Schneider with the proceeds from the sale of his family car. Three years later, Schneider acquired a transfer and storage company, then stayed in the moving and storage business until the 1940s.
“For the first 50 years of our career, we were predominantly what we call a one-way van TL carrier,” says Scott Arves, Schneider’s president of transportation.
Schneider gradually expanded through acquisition and organic growth. “In 1969 we bought a liquid bulk carrier, in 1984 a flatbed company, and in the late 1980s introduced the concept of dedicated fleets.”
Schneider formally launched a logistics division—Schneider Logistics Inc.—in 1993, began offering brokerage services in 1995, and acquired a freight payment company in 2000.
The carrier’s growth has been steady, especially in the last decade. Schneider first surpassed one billion dollars in annual revenue in 1992, Arves notes. The company doubled its revenue four years later; Arves anticipates hitting four billion dollars within the next four or five years.
Schneider today has 20,000 total associates, with 15,000 drivers and independent contractors. “We were mostly a company-driver-only fleet until the mid-1980s, then started introducing owner-operators into the mix,” Arves says. Some 20 percent of Schneider’s total driving force today are owner-operators.
Technology has been a key enabler for Schneider. In 1986, Schneider installed two-way satellite communications in its trucks. “That’s standard now, but it revolutionized the industry,” Arves says.
It also helped drive out significant cost by improving on-time delivery and enabling greater precision as well as the ability to track equipment.
Also in the 1980s, Schneider implemented computer dispatching on a wide-scale basis, as well as a number of cost disciplines. That emphasis on cost containment continues today.
“The best way we can be low-cost is to be as efficient as possible with our assets,” Arves says. Schneider has some 15,000 tractors and 48,000 trailers. The company has worked to increase utilization of those assets, running seven percent more miles across each tractor and 20 percent across each trailer in four years.
Technology Increases Utilization
Schneider today is retrofitting its entire trailer fleet with satellite technology. “We’ll know where any of our trailers are at any point in time,” Arves says. In addition to knowing its location, Schneider will know whether a trailer is loaded or empty, thanks to sensors in the trailer. This should increase utilization even more.
Like other motor carriers, Schneider’s role has evolved over the years. “We’re more engaged in terms of where customers put their warehousing capabilities, more of a partner in talking about ways to shift from truckload to intermodal,” Arves says. “We are more involved in creating solutions, and more collaborative with customers.”
Averitt Brings it All Together
Averitt Express, a Cookeville, Tenn.-based regional motor carrier, traces its beginnings to 1958, when Thurman Averitt founded a small trucking company that hauled dry goods in Tennessee. In 1969, the company was incorporated and named Averitt Express.
In 1971, Averitt sold the business to Gary Sasser, a young dockworker who had helped him unload his trailer. The company consisted of two associates, three tractors, and five trailers.
Since that time, Averitt Express has grown into a full-service freight transportation and logistics provider, with more than 5,000 associates, approximately 3,600 power units, and $700 million in total revenue.
The company gradually expanded from its Tennessee operations and today offers total coverage in 13 states, serving an area from Cincinnati to Miami, from El Paso to Norfolk. Locations in St. Louis, Chicago, Cleveland, and Los Angeles feed Averitt Express’s core states.
“We were primarily LTL, but we’ve had a truckload product for 24 years,” notes Phil Pierce, Averitt’s executive vice president of sales and marketing. Averitt has added numerous services over the years in order to offer one-stop shopping to transport buyers.
“Our thought process is: ‘any size, anywhere, any time,’ regardless of mode,” Pierce says. “With one phone call to our corporate customer service department, a transport buyer can tell us the shipment size, where it’s going, and when it needs to arrive, and we’ll provide the right transportation, regardless of mode.”
In addition, the company in the late 1990s developed a supply chain consulting capacity. “We now have the capabilities to re-engineer and redesign a company’s supply chain,” Pierce says.
Averitt is now in the midst of re-designing its own operation, moving to an integrated approach. “We integrated our operation center, consolidating LTL and TL dispatch and broker services into a single center,” he notes.
Integrating the different operations enables the company to be more effective for customers. For example, “we’ve been able to bring in units from our truckload group for a dedicated customer, take care of the customer’s peak season, then roll the units back to the TL group,” Pierce explains.
Soon, Averitt’s operating people will have total visibility of all power units, including LTL, TL, or dedicated trucks. The company is also implementing technology that will provide total visibility across all its services and modes, including across carriers with whom it has aligned itself around the world.
Moving to a fully integrated company is just one in a series of transformations for Averitt. “In the 1970s and early 1980s, we went through a transformation related to geographical expansion and deregulation,” notes Brad Brown, the company’s marketing communications coordinator.
“In the late 1980s and early and mid 1990s, the expansion and transformation came through the addition of new services—truckload, expedited, logistics, dedicated, air freight, and international freight forwarding,” he says. “We had multiple services, but were still in a regional LTL carrier mindset.”
Averitt is now undergoing yet another change, which Brown calls “our greatest transformation yet.” The company is striving to transition from an LTL carrier offering multiple services to a full-service transportation and logistics provider—”a carrier with the brain of a third-party logistics provider,” Brown says.
“It’s all about flexibility and options, working with customers consultatively rather than pushing services at them,” he says. It’s a new way of operating, driven by customer need, as transportation continues to move from a commodity service to a strategic advantage.
The Road Ahead
Trucking has evolved significantly in the past 25 years. But the change is far from over, as truckers look for ways to meet the challenges ahead. Here’s a look at what carriers and shippers alike can expect down the road.
Regulations. Ward Trucking has operated in four regulatory environments, according to Dave Ward. “We started two years before the industry was regulated, so we’ve been through no regulation, a period of heavy regulation, deregulation, and now this fourth phase, which I call ‘reregulation.'”
“‘Deregulation’ is basically a misnomer,” Con-Way’s Detter notes. In 1980, operating authority was deregulated, enabling companies to operate anywhere they chose to.
But beyond that change, “there’s still a tremendous amount of regulation,” he says, including hazmat regulations as well as rules regarding commercial driver’s licenses and certification to operate certain types of equipment and freight.
Then there are the Hours of Service (HOS) regulations, which are still being worked out.
On top of all these regulations are increased security requirements. “There will be even more regulation, and I think carriers are on the cusp of having to do extensive background checks on all employees, not just new ones, on a regular basis,” Detter says.
Highway infrastructure. New construction technologies and methods make it possible to build highways more quickly and cost-effectively. The Federal Highway Administration, for example, cites prefabricated pavement that snaps together, and concrete that hardens in hours instead of days.
While construction technologies have improved, some economists argue that the highways should be built to last for a longer time, Bob Gallamore says, with much thicker pavement and a much deeper infrastructure. Building highways that last longer and require less upkeep would cost more upfront.
As a result, “it’s a question of lifecycle economics vs. annual economics,” Gallamore says.
“It’s a difficult set of economics,” he says, involving federal and state government investment, as well as truckers’ and shippers’ willingness to pay for the improved roads. In addition, more durable highways would likely lead to calls to allow heavier trucks, itself a controversial topic.
While technologies and materials are available now to build longer-lasting highways, the rising cost of fuel, coupled with requirements for cleaner-burning fuel, will make it “tough to talk truckers and shippers into an additional increase to pay for better roads,” Gallamore notes.
Congestion. Already changing the way truckers operate, congestion may become an even more substantial challenge during the next two decades.
“Think of putting four to five percent more truckload traffic on the highways every year,” Scott Arves suggests. Then project those increases out 10 to 15 years, and assume that no new highways will be built or rail tracks laid.
NPTC’s Gary Petty cites an expected 17-percent population growth by 2020; this will likely be accompanied by an expanding economy. The growth “will mean more grocery and retail stores, more fuel, more building materials—and all that means more trucks,” he notes.
The crumbling highway infrastructure and an increasing amount of non-truck traffic will only add to congestion. Much of the anticipated growth will be concentrated in already-crowded mega-communities, Petty says. And the risk of terrorist attacks involving trucks is causing some communities to restrict access of commercial trucks in certain high-risk blocks or areas.
The result of the increased congestion? Not only will service levels and delivery cycles deteriorate, “the truck driver’s job becomes less attractive,” Arves warns.
That’s why truck manufacturers such as International Truck and Engine Corporation, Chicago, are taking congestion into account when building for the future. For example, International’s new International CF Series—a low-cab forward product—is designed to be roomy, comfortable, and easy to drive, with maneuverability for navigating urban congestion.
Intermodal. Intermodal transportation grew significantly in the 1980s, when freight railroads as well as motor carriers were deregulated. “The initial wave was piggyback service, with trailers carried on flat cars,” Gallamore notes.
In the mid 1980s, intermodal became more container-oriented, as U.S. imports from Asia increased and a larger number of goods were shipped overseas on international containers. Intermodal traffic has grown steadily for the past 15 quarters. It will pick up even more if ground transport costs—such as fuel, user fee costs, and driver wages—or road congestion increase.
Continuing driver shortage. Addressing the driver shortage is a riority for Schneider National. “Drivers are about as scarce as I’ve seen in the past 25 years,” Arves says, “and it will only get worse.” Schneider is working to optimize the match of drivers, equipment, and loads, and trying to provide drivers with greater schedule predictability.
Noting that “it’s tough to find a quality driver,” Phil Pierce says that Averitt Express is testing the use of truckload drivers to recruit other drivers in some markets. In addition, the company has found a powerful tool for recruiting TL drivers: enable those drivers to transfer over time to other services such as the LTL, contract, pickup and delivery, or shuttle services.
“Drivers are the most immediate need in our industry,” agrees ABF’s Wes Kemp.
While ABF is experiencing pockets of driver shortages in parts of the nation, it’s not affected in the same way as the truckload sector. ABF is experiencing a low driver turnover rate of about six percent, most of which stems from retirement. ABF drivers are typically home every day, or every other day, and the company offers an excellent benefits and pay package.
ABF is taking steps to find good drivers, recruiting through ads and billboards as well as through employee referrals. ABF’s recruitment “focuses on experienced drivers who are looking for an upgrade from their current situation,” says Rich Beaulieu, ABF vice president of transportation.
Numerous carriers are taking steps to increase the attractiveness of the driving job, including raising driver pay. But the answer to the driver shortage doesn’t just lay with carriers. Traditionally, “drivers have been shock absorbers for customer inefficiencies,” Arves says. For example, drivers are asked to wait—often for hours—if a load isn’t ready.
Especially if the Hours of Service regulations take away additional driving time, transport buyers and carriers alike need to “recognize how precious each hour is and work to maximize driver utilization and effectiveness,” Arves says.
This may include providing unloading help 24/7, lengthening hours of operation at the shipper location, making sure that equipment is ready and loaded when the driver arrives, and exploring the option of loading out of trailer pools rather than what Arves refers to as “live loads.”
Transportation rates. “We’ve been able to deliver improved service at lower cost for an extended period of time,” Arves says. Rates went down every year in the 1980s. In the 1990s, they grew at about one percent a year. But the picture has changed sharply.
“Today, they’re going up about six to seven percent a year,” he notes.
“Each year, LTL motor carriers pass out a four-to-six-percent average rate increase,” notes Dave Ward. “While the increases seem exorbitant, shippers manage to push back on pricing through higher and higher discounts.”
While Ward calls this pricing model “a crazy and archaic practice,” he doesn’t expect it to change dramatically in the short run.
“On the other hand, costs are an area where smart carriers can excel,” he says. “While pricing is set by the marketplace, costs are an area that can be controlled through efficient utilization and absorption of capacity—a practice that lies at the foundation of carrier profitability.”
Effect of demand-capacity imbalance. An economic upswing, coupled with many of the factors described here, have resulted in a shortage of transportation capacity.
“When demand is greater than capacity, when new entrants aren’t flowing into the business, we have an environment where some customers will have more difficulty moving their freight,” says Scott Arves.
Carriers now find themselves in the position of being able to pick and choose their customers and the freight that they’ll haul. Transactional transport buyers who are not committed to creating partnerships with carriers will probably pay more in the future to move their goods and may have to scramble to add extra carriers, Arves says.
Carrier economic health. “All that deregulation was supposed to achieve has happened,” Con-Way’s Detter says. “But we’re not getting much more efficient as an industry now; most of the improvements occurred in the first 10 to 15 years following deregulation.”
While information technology has enabled additional improvements during the past five years, Detter says, “ultimately that will slow as well. With our costs increasing, we’ll have to pass that on to customers.”
Bob Gallamore advises that shippers “pick quality carriers, and enter into long-term relationships or partnerships with them. Don’t try to whip-saw for the last dollar.” In addition, he urges, “work with carriers more on the scheduling of their deliveries,” particularly if the Hours of Service regulations are re-introduced.
“The Hours of Service law means truck drivers have less time, and wait time becomes more expensive,” Gallamore says. Be flexible about delivery windows, and work with carriers to determine reasonable unloading expectations. Look for ways to support the truckers, for example, providing a lunchroom and a place where they can park their rigs overnight.
In short, Gallamore says, “you want to make sure that your carrier partner will make money on your business to the extent that it wants your business, will serve it, and will treat you well.”