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Rather than offer a rash of predictions for the coming year, we would like to focus on some key facts that are of importance to shippers and drivers alike.
CSA 2010 is here. The new safety standard implemented by the Federal Motor Carrier Safety Administration (FMCSA) underwent intense scrutiny in 2010 and prompted serious debate between the FMCSA and the transportation industry. While we suspect there will be continued discussion in the months ahead, the program has been launched.
In our opinion, there are two sides to consider with CSA 2010. The transportation industry is predicting increased pressure on its labor pool as drivers will be forced out because of the standards of CSA 2010. The labor market in transportation has been challenged for many years, with an aging population of drivers and fewer individuals interested in entering the profession. This challenge was somewhat alleviated during the recession, but is expected to resurface as the primary concern for motor carriers in 2011. On the other hand, increasing safety on the roads should always be a common goal for both motor carriers and the government alike. The disagreement, of course, begins with whether or not CSA 2010 will in fact impact driver and motor carrier safety.
Proposed changes in hours of service rules are under scrutiny as well. The FMCSA proposed new rules on December 23, 2010 with a final rule expected on July 26, 2011. Again, there is debate between the transportation industry and the FMCSA as to the need for a change. We will monitor the debate in the coming months and keep you updated as to how pending developments may impact your operations.
Finally, the truck tonnage index increased for the 12th consecutive month in November 2010 (Transport Topics, Jan 3, 2011). Increased volumes are good news for both shippers and motor carriers and reflect a positive indicator for economic recovery. Should this level of recovery sustain in 2011, there will most likely be an increase in freight rates as motor carriers readjust their pricing from 2009 and 2010 levels.
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?”
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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