Logistics Management - June 2010

A special supplement to logistics management
caused a three-year decline in real rates, perhaps as much as
10 percent from 2006 through last year. “It would be nice to
recover some of that this year,” he says.
The bad news for TL carriers is that their costs are also
rising. Besides $3-a-gallon diesel, there is expected to be
some shortages of equipment and drivers. A new government
initiative called Comprehensive Safety Analysis
2010 (CSA 2010) is expected to weed out as many as 2
percent to 7 percent of the nation’s 3 million long-haul
truck drivers as their safety records get increased scrutiny
and visibility.
Besides fuel and wages, carriers are
seeing financial affects from the rise in
their health care costs, hours-of-service
regulations, and new equipment costs.
A new 2010 model Class 8 truck costs
about $135,000 (before volume discounts
for large fleets), about $35,000
more than five years ago.
“There is some sticker shock compared
to what you paid the last time,”
Quinn said. That increase translates to 5 cents to 8 cents a
mile just to break even. “We’re going to have some unprecedented
cost pressures…and it’s going to be a real sticker shock
to some shippers.”
Steve Williams, chairman and CEO of Maverick Transportation,
the largest privately held trucking company in Arkansas,
says he downsized his fleet by 20 percent (or 300 trucks)
during the recession. But he adds that Maverick is currently
rehiring drivers and other staff, but he is forced to raise wages
to find experienced personnel.
“We’re having a great deal of difficulty in attracting
people back to start driving a truck. That’s not what we
were expecting,” Williams says. “Unfortunately, it’s safe to
say we’re going to have to raise driver wages. At the same
time the cost of fuel has raised its ugly head again and we’re
forced to spend money to ramp that back up. It’s not going
to be easy rolling.”
Truckload had its best pricing power from 2004 through
2006. “But even in that time, the best years, the returns were
pitiful,” says Williams. “If you start in a fairly poorly capitalized
state in best of times, and you go to hell for three years,
how optimistic should you really be”
Williams is predicting “a sea change” in rates and costs during
2010 and 2011, driven by regulatory changes and demand levels.
“It’s appropriate and necessary to build this new (pricing)
model,” he adds. “The old random over the road TL model of
last 30 years is really not sustainable in the future. Relationships
with shippers are going to have to be more mature, and
everything is more complex. A lot of us are really getting tired
of just scraping by.”
“We’re having a great deal of
difficulty in attracting people back
to start driving a truck. That’s not
what we were expecting.”
— Steve Williams, chairman and
CEO of Maverick Transportation
The little guy’s view
James Bozeman is president and CEO of J.M. Bozeman
Enterprises in Malvern, Ark., a dry van carrier with $9 million
in revenue annually. He operates 57 company-owned trucks
and is representative of literally thousands of small, non-union
TL carriers who get their business in niche areas, often when
the likes of giants J.B. Hunt and Schneider National eschew
an account or shipper.
According to Bozeman, judging from his trucks, the
economic recovery is real. “It’s been weird,” says Bozeman.
“Our deal didn’t fall off in November
and December as usual. January and
February were decent and March was
like…wow. We saw capacity come
back in February and March that
we’re really not used to seeing. In the
last three weeks of April we saw rate
increases coming.”
Bozeman adds that his company is
now getting business “on lanes that we
don’t normally get.” He says shippers
are calling with an air of desperation in their voice. That’s
opened the way for higher rates in some cases, he says, which
customers are paying.
Like his bigger competitors, Bozeman also reports that
he’s sensing some optimism out there regarding higher rates.
While he’s concerned about the effect of $80-a-barrel oil and
10 percent unemployment rates, demand levels and pricing
appear strong. “We’re getting some people willing to do whatever
they need to do to lock in rates,” he adds.
A few predictions
While predicting the economic future is always murky, TL
executives say they’re “guardedly optimistic” about rates, especially
in 2011. Increasingly, they’re ranking their customers as
far as their ability to take rate increases. Those in the bottom
10 percent or so can expect to receive overtures about possibly
increasing rates.
“Many of our customers have been very cooperative during
the recession and we’ll continue to work with them,” says U.S.
Xpress’ Quinn. “Others were not. There’s got to be some ranking
if there’s going to be a shortage of equipment.”
For a change, Quinn says, carriers “have a hammer instead
of being hammered.” That supply-demand equation is being
driven by hopes of a robust economic recovery and lack of adequate
capacity. “Barriers to entry and price of new equipment
are so high that nobody is rushing out to buy new equipment
until there is some return for that risk and investment,” he
says. “It isn’t there today.”
Larkin adds that TL pricing power is “clearly not” where
it was during 2004 and 2006 when many TL carriers enjoyed
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