By Clifford F. Lynch
Perfect storm or perfect pretext? Back in June, Chris Burruss, president of
the Truckload Carriers Association, described conditions in the trucking
industry as a "perfect storm" (see "truckers in the driver’s
seat," DC VELOCITY, June 2004). It’s not that truckers weren’t
used to being squeezed by cost pressures from one quarter or another, he
explained, but it was rare that four major forces – fuel, insurance, labor,
equipment – should all come to bear at once.
Still, compared to what’s happening to the shipping public, many carriers
are enjoying a day at the beach. To my way of thinking, the real "perfect
storm" is the one brewing for shippers.
It’s not that shippers haven’t tried to ease the truckers’ pain. When
the new truck driver hours-of-service (HOS) restrictions kicked in last January,
for example, shippers did whatever they could – cutting loading times,
shipping unitized loads, eliminating stops – to minimize the rule’s impact
on their carriers. And it’s clear that many have met with great success. A
group of truckload carriers recently told investors that their customers had
taken steps to eliminate the causes of detention charges and were "showing
good faith" efforts in other areas as well. The percentage of shipments
that incur detention fees is falling all the time. And carriers report that the
number of stops has dropped 15 to 25 percent.
So what’s the problem? The problem is that more than a few carriers jumped
the gun and raised rates based on the expectation of soaring costs. They simply
weren’t willing to wait and see whether fuel surcharges or detention and
stop-off charges would offset some of those costs.
The result is that many truckers are doing quite well. J. B. Hunt, for
example, managed to weather the "storm" by tripling the previous year’s
quarterly profits. For 10 truckload carriers tracked by investment banker
BB&T Capital Markets, earnings rose an average of 21.6 percent during the
first quarter of 2004 compared to 2003.
And their leaders can hardly contain their glee: A recent article in Traffic
World quoted several senior trucking executives who sounded like kids on
Christmas morning. "It’s a great time to be in trucking," said Jerry
Moyes, CEO of Swift Transportation. Gerald Detter, CEO of Con-Way
Transportation, said, "I’m smiling again. Trucking is fun." David
Hughes, director of business development, reported, "We are getting rate
increases. We are culling accounts." And the gloating’s not confined to
the pages of Traffic World. At a meeting two months ago, another trucking
CEO told me, "You don’t price on cost. You price on supply and demand.
That’s the way business is done." Ouch!
How should shippers respond? Should we stop using trucks? Of course not. We
cannot and should not. But we’d be foolish not to consider our options. Among
other steps, we should:
Review our relationships and demand to share in the savings. If a DC
manager is doing his part to make his carrier partners’ operations more
efficient, he should have something to show for it.
Explore intermodal. Once dismissed by shippers as slow and
unreliable, intermodal service has made great leaps over the past few years.
In fact, there’s already some evidence that shippers are diverting
freight. Intermodal traffic as a whole is up 8 percent over last year, and
NS and BNSF have reported increases as high as 15 to 19 percent.
Consider private carriage. Private fleets already account for 50
percent of the intercity truck tonnage. Many fleet operators are looking at
setting up or expanding existing private fleet operations to increase
capacity and cut costs.
Will shippers survive the storm? Sure they will. But when the skies clear,
they’d do well to remember who held the umbrella for them and who sat in a dry
office and laughed.