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For the last several weeks, we have introduced the challenges of the truckload sector in today’s market. Factors that include rising freight volumes, produce season, and capacity constraints caused by carriers and drivers exiting the industry are all contributing to growing difficulties in moving truckload freight.
From your perspective as a shipper, asking “Will there be a truck available?” depends on your type of freight, your location, your rate and your planning. The ability to communicate as far in advance as possible to your carrier gives the carrier an opportunity to plan their drivers and commit trucks to your freight. However, it is just as important for shippers to understand what carriers are doing in response to the increased demands. For most carriers, the answer is summed up in two words: Recruit and Retain. Recruit new drivers and retain good drivers. In pre-recession years, the turnover rate for drivers was well over 100 percent. In today’s market, the turnover rate has fallen to approximately 40 percent, much improved, but still high by other standards.
Why is it so difficult for carriers to hire drivers and why is it so difficult to retain them? Much of the reason lies in how a driver is paid. There are as many different pay structures as there are carriers. It is difficult for drivers to compare apples to apples when trying to calculate how much money they will make with different carriers. Some carriers pay a lower base rate per mile, but do not charge the drivers for various items such as taxes and equipment rental. Some carriers pay a higher base rate per mile, but charge the driver for a variety of miscellaneous items. Some carriers pay a flat percent of what they will receive on the load. And the most important factor of all is how many miles a driver will run each week. If a driver is making a high rate per mile, but does not run enough miles each week, he or she will make less than the carrier with a lower base, but who can keep their drivers running. Drivers must ultimately consider how much cash ends up in their pocket at the end of the week.
Quality carriers who have survived these tumultuous years are now putting time and resources into building their driver pool with qualified drivers. Good carriers communicate in a straightforward fashion to driver applicants; they tell it like it is and don’t try to muddy the waters with false claims to candidates. Recruiting is an ongoing process with carriers, but it ensures they can answer yes to customers who ask, “Do you have a truck available today?”
This week we would like to delve deeper into the new driver and carrier safety standards, known as CSA 2010. CSA 2010, which stands for Comprehensive Safety Analysis, is receiving a great deal of attention by industry analysts and is very much on the minds of carriers and drivers alike. If you are a shipper, you may not be interested in all of the details of the new regulations, but it will be helpful to have a basic understanding of the program and why it may affect the answer to your pressing question, “Will there be truck available today?”
Basically, CSA 2010 will be rating the safety of both carriers and drivers. This is different than the current federal safety program known as SafeStat, which provides safety rankings for carriers only. There are differences in how safety will be measured, which we don’t need to detail here, but CSA 2010 will be using a seven category program, called BASICs (Behavior Analysis and Safety Improvement Categories), to rank a driver’s behavior that could lead to accidents. Data and history of unsafe driving, fatigued driving, driver fitness, controlled substances and alcohol, vehicle maintenance, improper loading or securing cargo and crash history will be monitored through roadside inspections and other traffic enforcement processes. The safety ranking of an individual driver will include 36 months of performance and will follow the driver, even if he or she moves to another carrier. CSA 2010 has also implemented a carrier intervention program with increasing severity of intervention, ranging from warning letters to ultimately a determination of suspension of carrier authority.
What will change for carriers once CSA 2010 is fully implemented (target date has been delayed to November 2010, with full implemention probably some time in 2011)? If you read industry publications, carriers will have a much more difficult time recruiting drivers who can pass safety standards, and insurance companies will be increasing premiums for drivers and carriers. This may very well be true for many motor carriers, but what about YOUR core carriers?
Here’s the bottom line- qualified carriers have followed their own high standards of driver safety, which naturally include any government regulations, and surpass those standards by ensuring their drivers can safely and responsibly service their customers. CSA 2010 will not catch these carriers by surprise, rather it will validate how they have been managing their fleets for many years. To be sure, qualified carriers will feel pressure in growing their fleets, but CSA 2010 will force sub-par carriers and drivers to either improve or leave the market. This is a good thing; good for our highway safety and good for our industry to promote safe practices.
Now, when you ask yourself if you will have a truck today, maybe rethink the question and ask yourself, “Are my core carriers safe and conscientious?” A very good question, particularly today when we all feel the effects when companies operate outside their industry’s safety standards.
This week’s news in the truckload market can be summed up in two words: Capacity Shortage. The shortage of available equipment is particularly felt in the South where the produce season continues to take capacity. This happens for two reasons; first, there is more freight moving during this season, and second, produce freight can pay a significantly higher rate for carriers. Couple this with the increased volumes of all freight moving in the first five months of 2010, and the result is a definite challenge in finding enough trucks.
The best approach a shipper can take to maneuver through this environment is to plan ahead and communicate future loads to your core carriers as soon as possible. Carriers are better able to plan when they know what freight they have to offer their drivers. As shippers work with their carriers, be aware if your carriers will “abandon” you during produce season. A carrier’s low rate may be appealing in the off season, but if that carrier is not committed to you throughout the year, that low rate will not help you move your freight.
This week has also seen the spot market for freight rates continue to push higher. This is an important indicator to watch. This obviously impacts the immediate cost of freight, but also, the industry is watching to see if this is a precursor to a more permanent increase in rates. Naturally, this depends on whether or not the increased volumes will continue through the year, but all indicators seem to point in that direction.
We will continue to watch these developments and report to you as they unfold.
For those companies touched by transportation, which is just about every organization involved in purchasing raw material, shipping finished product, or carrying the freight, there has been a significant change in business dynamics during 2010. Whether one can attribute this to an overall improvement in the economy or a natural increase in volumes due to historically low levels of inventory throughout 2009, there is no doubt that the first five months of 2010 have been riddled with challenges in the supply chain brought about by equipment capacity shortages, particularly in the truckload sector. Depending on where your plants or distribution centers are located, you may also be experiencing cyclical equipment shortages brought upon by the produce season which grabs capacity out of the market. Or worse, the carrier who you have worked with may not even be around anymore, having joined the ranks of thousands of carriers who did not survive the recession and continued to declare bankruptcy well into the first quarter of 2010. For whatever the reason, this year has been an unexpected and bumpy ride and the coming months will very likely continue to be more of the same.
The question you should be asking yourself is “What is ahead for the next several months, and how can I be sure there will be a truck available when I need one?” Simple question, but with several points to consider; all happening “behind the scenes” that represent some of the core reasons why there may or may not be a truck available.
First, how much capacity can a carrier expect to add to react to the increased freight volumes? It depends-depends on whether or not lending institutions will release credit so carriers can add equipment and expand their fleets; depends on whether fuel prices will increase, further challenging some still cash-strapped carriers. Second, how many long-distance drivers and owner operators have permanently left the industry and how will pending regulations affect the already challenged labor market? CSA 2010 will be implemented beginning in November 2010 with the goal of improving safety on our roads and highways. Some estimates state that up 6 % to 7% of drivers will not qualify under these new regs (Logistics Management, May 2010, p. 15) and conscientious carriers will proactively review their driver pool to insure they are compliant.
Third, carriers with limited capacity, no matter the cause, will commit equipment to those customers who offer consistent lanes and volumes, coupled with other beneficial areas such as consistent and timely payment.
As the year unfolds, we will be keeping you abreast of the latest in the transportation industry and how it will affect that ever-pressing question “Will there be a truck available?” Hopefully, we can offer insight that will help you ship your product and satisfy your customers. We look forward to creating this dialogue.
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