Logistics costs creeping up, threatening U.S. economic growth
Logistics costs account for more than 10% of the U.S. gross domestic product (GDP), and trucking is the engine that drives that logistics system. While this statistic speaks to the power and importance of trucking, it also highlights trucking's responsibility to the U.S. economy, a charge t hat is not being fulfilled, according to Robert Delaney, executive vice president of Cass Information Systems Inc.
Speaking at the 9th annual State of Logistics Report in Washington, D.C., last month, Delaney noted that logistics costs were equal to 10.7% of the GDP, compared to 10.2% in 1993. "That increase of one-half of 1% of GDP translates to a $40-billion loss of productivity," he said.
Delaney's report, co-sponsored by Security Capital Industrial Trust (recently named ProLogis) outlines ten propositions for reversing this upward trend in an attempt to bring logistics costs down to 10% or less of the GDP. While Delaney concedes there is nothing magical about this 10% figure, he offers it as a goal worthy of the industry's efforts.
Two of Delaney's propositions center on the trucking industry. If implemented, these changes could have profound effects on the logistics industry and, by extension, the U.S. economy because trucking's share of the nation's freight bill is slightly above 80%. "To understand the economic leverage of the trucking industry, consider that the $32-billion increase that trucking achieved in 1997 exceeds the total expenditures for the entire intermodal transportation industry," he said.
By addressing two specific trucking issues -- driver shortage and truck weight and length -- $12 billion might be saved. According to Delaney, this is part of his proposal to save $56 billion in overall logistics costs, which would drop logistics' effect on the GDP from 10.7% to his 10% target.
Delaney implored carriers to reduce driver shortages, especially in the for-hire market segment where annual turnover approaches 100%. "Driver turnover is expensive," he said. "In addition to recruitment, consider the cost of acquiring tractors in response to growing demand, and then being able to position drivers in their seats. These costs simply cannot be absorbed."
Delaney applauded efforts by J.B. Hunt Transport Services, which increased driver pay by 33% in February 1997. While the plan met with skepticism at the time, it has paid off. "Collisions per mile of operation have been reduced by 34%. Driver turnover has fallen to 35%. The fleet has expanded, and J.B. Hunt has achieved exceptional improvements in productivity." He noted that Hunt exceeded Wall Street's estimate by 20 cents per share in first quarter 1998.
Another initiative is to relieve drivers of loading and unloading duties, because shippers and receivers are more productive than drivers in this task. Delaney told the audience at the National Press Building about Cornhusker Motor Lines, whose president, Edward Trout, currently chairman of the American Trucking Assns., decided to get his company completely out of the loading and unloading business. "Placing the freight-handling burden on drivers is a false economy," Delaney noted. If both of these driver initiatives are met, Delaney estimates a logistics productivity gain of $2 billion.
Operating longer and heavier trucks could bring another $10 billion in productivity gains, Delaney said. He discussed the National Research Council's study of truck weights and length, published in 1990, which reckons that tractor-trailer productivity could be improved by 21% with six axles on the ground, or by 48% with seven axles on the ground. These additional axles, transporting greater weight, would have no adverse impact on roads and bridges, according to the report. "That has been the experience in Europe, Canada, and Michigan, where six- and seven-axle tractor-trailer combinations are in use," said Delaney.
Delaney spoke in detail about the Argosy Safety Concept Vehicle, a joint venture of Freightliner Corp. and Wabash National. The truck has a 90,000-lb. payload, which is achieved by adding a fifth axle. This 22-wheeler fits within the current federal bridge-axle weight formula, which limits trucks to 20,000 lb. per axle. At the same time, its 58-ft. length has 17% more volume than current 53-foot trailers.
The Argosy vehicle can be operated legally in Oklahoma and Wyoming; seven other states allow the length but not the 90,000-lb. gross weight. "There will be an export market for the Argosy in Europe, South America, South Africa, Australia, and New Zealand. Why are we exporting our productivity rather than using it ourselves?" asked Delaney.
To be sure, Delaney's nontruck-related issues, such as inventory velocity and Jones Act Reform, could play significant roles in lowering the country's logistics costs. However, trucking is where the action is. While trucking's interest in greater productivity has intrinsic worth -- a cool $12 billion -- if the industry does its part to reduce the nation's $56-billion logistics bill, it could save every American about $200 per year in prices paid for goods and services. "That translates to a savings of $750 annually for the average American family," says Delaney.
Government sues for recall of diesels; talks continuing with other engine makers
The U.S. Environmental Protection Agency (EPA) and Mack Trucks have broken off negotiations over allegations that the company has designed electronically controlled fuel systems to circumvent federal emissions standards for heavy-duty diesels.
Moving the argument to a public forum, EPA has filed suit in federal court charging that Mack intentionally designed those systems to pass federal emissions tests, while producing higher emissions levels under normal highway operating conditions. The EPA suit seeks recall and modification of all Mack engines built since 1990 with electronic ignition timing devices. It also calls for fines of $25,000 per engine built between 1990 and January 1997, and fines of $27,500 for engines built after that date.
In response, Mack has filed its own suit in federal court seeking to block "EPA actions that could have a severe and long-lasting impact on employment and (the company's) competitive position."
At issue is the EPA mandated testing procedure used to certify that all heavy-duty diesels currently sold in the U.S. meet federal emissions standards. It appears that while the test cycle accurately predicts emissions under urban stop-and-go conditions, the engines actually produce significantly higher nitrogen oxides (NOx) under normal highway operating conditions. It is illegal under the 1990 Clean Air Act and EPA regulations to produce engines with "devices" intentionally designed to bypass or "defeat" emissions controls.
Most of the country's other heavy-duty diesel engine makers are currently continuing individual negotiations with EPA over the issue, as well as participating in collective talks through the Engine Manufacturers Assn.
Pointing out that its engines have passed all federal emissions tests and been certified by EPA, Mack has asked the court to declare that its electronic fuel system does not constitute an illegal "defeat device;" to prohibit the EPA from revoking its current certificates of conformity or denying those certificates for the 1999 model year; and to prevent the agency from seeking or assessing any penalties against Mack.
"If the agency would like to change emissions standards or testing procedures in the future, we'd be happy to help in that process," says Mack executive vice president and general counsel Terrence C. Grube, "but we refuse to sit still in the face of assertions that we have ever violated the law."
On June 9, President Clinton signed the country's largest public works bill, the six-year Transportation Equity Act for the 21st Century, dubbed TEA-21, which guarantees $198 billion -- within the balanced budget agreement -- for transportation systems into the next century.
The successor to the Intermodal Surface Transportation Efficiency Act (ISTEA) provides $217.3 billion for surface transportation (only $198 is guaranteed; the remainder will be worked out later), which includes $28.6 billion for the National Highway System, $23.8 billion for Interstate Maintenance, $33.3 billion for the Surface Transportation Program, $20.4 billion for Bridge Replacement and Rehabilitation, $8.12 billion for the Congestion Mitigation and Air Quality Improvement Program, $42 billion for transit, and $1.3 billion for Intelligent Transportation Systems.
Aspects of TEA-21 that affect trucking in particular include the following:
* $175 billion over six years earmarked specifically for highways.
* States will get back at least 90% of the fees they pay to the federal government, correcting the so-called "donor-donee" states inequities.
* Continuation of truck-tire excise tax.
* Tolls may be imposed on three interstate highways that have high maintenance expenses.
* Tolls may be imposed on up to 15 interstates with high urban commuter traffic.
* $700 million designated for border-crossing facilities and enforcement.
* $900 million to replace the I-95 Woodrow Wilson Bridge in Washington, D.C.
* Liability protection for trucking companies when they provide driver information to potential employers.
* Authorizes DOT to shut down a carrier on the 61st day of its being designated unfit to operate.
* DOT will review testing procedures for CDLs. In addition, all CDLs issued after January 1, 2000, will carry driver-specific identification.
* Funding for MCSAP roadside inspections increase from $79 million in 1998 to $110 million in 2003.
Meritor Automotive and Volvo Truck Corp. announced last month that they have signed a memorandum of understanding that would allow Meritor to acquire Volvo's heavy truck axle manufacturing operations based in Lindesberg, Sweden. Under the terms of the proposed agreement, Meritor would become the primary supplier of heavy-duty axles for Volvo's global heavy truck operations.
Meritor chairman and chief executive officer Larry D. Yost said, "The acquisition of Volvo's heavy truck axle manufacturing resources would enhance Meritor's position as a global leader in commercial axle production. This major growth opportunity provides premier manufacturing capacity and leverages our global production volumes."
Volvo Truck Corp. president Karl-Erling Trogen added, "The decision to sell our axle manufacturing capability is based on the belief that Volvo will be better positioned to serve its end-user customer by teaming with a company whose core business is axles."
FLEET OWNER is moving. Effective July 20, the new office location will be 11 River Bend Drive South, Stamford, Conn. 06907. Our new telephone number is 203-358-4300; the toll-free number will remain 800-776-1246.
The move represents a consolidation of Intertec Publishing Co.'s New York- and Connecticut-based publications. This opportunity to consolidate was made possible by Intertec's acquisition of Cowles Business Media in March of this year.
Paperless The FHWA will allow Werner Transportation to switch to paperless log-keeping under a test program to monitor how effective the use of electronic technology can be in improving highway safety. While applauding the move, ATA warned against any government mandate that carriers retain and submit such electronic information.
Drug testing standards The U.S. and Mexico signed a memorandum of understanding under which Mexico will ensure that its drug and alcohol testing program for commercial drivers meets U.S. standards. As of July of last year, all motor carriers based in other countries were required to comply with the requirements for their drivers who operate within the United States.
New look A reorganization plan unveiled by ATA calls for a 25% reduction in combined dues by ending the "a la carte" nature of membership within the organization. Currently, companies pay separate dues to ATA and its affiliated organizations. To reduce duplication, the plan would integrate the 14 autonomous conferences into the association.
New look II FHWA has proposed extending conspicuity regs to trailers built before December 1, 1993. Retroreflective tape or reflex reflectors are now required on the sides and rear of trailers that were manufactured after that date. Carriers would be allowed some flexibility in terms of the colors for the first 10 years before identical conspicuity treatments are mandated. Comments on the proposal are due September 17.
New look III FHWA has proposed replacing the old ICC rules with a single U.S. DOT number that would be posted on a vehicle, along with the legal name of the business that owns or controls the carrier, and the city and state of the carrier's principal place of business.
Pressure increases on fleets to put their drivers first
Driver wages increased 4.5% during the first quarter of '98, according to the "National Survey of Driver Wages," a quarterly study that tracks labor costs for the trucking industry. Hudson, Wis.-based SignPost, which conducts the survey, reports that flatbed carriers led the pay race at a 6.6% clip, followed by dry van carriers at 3.9%, and refrigerated carriers at 2.9%.
The only sign that wage growth might be slowing is that the average annualized increase for all carriers reporting in the first quarter was 3.1%. While that's still ahead of inflation, it's behind last year's annualized first-quarter gain.
SignPost now pegs 30 cents/mi. as the price of entry to attract and retain qualified drivers. "While it is true that wages are not the only factor in competing for drivers, wages are by far the dominating factor," according to the latest report.
A case in point is M.S. Carriers. The nationwide truckload carrier, which has a fleet of more than 3,400 company trucks, earlier this year boosted starting pay as high as 30 cents/mi. Included in the fleet are 1,024 owner-operators, who are paid 80 cents/dispatch mile.
Aside from the effort to clear the 30 cents threshold, more motor carriers are simplifying their bonus plans, in effect rolling these bonuses into base pay. The reason? The survey found that the complicated bonus plans offered only a couple of years ago generated distrust on the part of the drivers.
Clarity also resonates when it comes to discussing items such as "unloading" pay. No longer do carriers believe they can remain competitive by saying these items are negotiable.
The survey found that the following items can also help win the recruiting battle:
* Top-notch equipment
* 401(k) plans (offered by just about everyone, with 60% of the carriers contributing matching funds)
* Wireless communications (more than two-thirds of the respondents offer some form)
Another significant factor is a "driver-friendly" attitude. Although many companies profess that claim, few live up to the hype, says SignPost. "All the fancy ads proclaiming a carrier is driver-oriented are discredited if a prospective driver is put on hold for 20 minutes or ends up talking to a recruiter who can't answer all their questions."
In little more than a year, LucasVarity Heavy Vehicle Braking Systems has its Franklin, Ky., manufacturing facility humming. The 130,000-sq.-ft. plant, located about 30 miles north of Nashville, is dedicated to the manufacture of the Dayton SteelLite X30 brake drum.
Not only does the facility feature the latest manufacturing processes, it boasts a highly energized work force. The combination leaves the company on track to achieve QS9000 quality certification this summer.
LucasVarity hired its 60 workers in the first quarter of 1997 to ensure each individual's understanding of the product and manufacturing processes prior to the X30 launch.
The X30 features an exclusive one-piece steel shell design and cast iron liner, which enables the company to trim 20 lb. from the drum while boosting strength.
Behind the increased performance lies a highly automated plant that carries out the entire manufacturing process from raw material to final product under one roof. This includes gray iron electric melting, spin-casting, spin-forming, and machining.
Metal is machined out of drums to achieve precise balancing and eliminate weld-induced hard spots. This process enables LucasVarity to take a flat, round piece of steel and, in a process similar to a potter's wheel, spin it into a one-piece drum design that eliminates all welds. The spin-casting process permanently fuses a gray iron liner to the shell, giving end users enhanced braking surface that helps eliminate fragmentation.
The product of a 1996 merger between Dayton Walther and Lucas Heavy Duty Vehicle Braking Systems, LucasVarity manufactures heavy-duty foundation brakes and wheel-end brake components such as drums, rotors, hubs, cast spoke wheels, air and hydraulic disc and drum brakes, electronic braking systems, and hydraulic antilock brakes for medium- and heavy-duty trucks.
Allison Transmission will invest $100 million to increase overall production capability and help meet growing fleet demand, president Dan M. Hancock said in a press statement last month.
Allison's action was spurred by the continued strong economic growth in the truck and bus industry, and by an "increasing need" for automatic transmissions in traditional and nontraditional markets. "Our plans are to meet those demands," Hancock said.
"Once again, General Motors is expressing a high level of confidence in our business," he continued. This investment, which brings to more than $400 million the amount invested in the company since 1995, "allows major increases in production," he added.
The GM funding is directed at the World Transmission, a move that will allow Allison to produce 35% more of these transmissions within 18 months. The investment will also allow Allison to meet the "aggressive" production goals for its AT automatic transmission.
The first major upgrade to the Vehicle Maintenance Reporting Standards (VMRS) in 25 years has been introduced by The Maintenance Council of the American Trucking Assns. The first products under the new VMRS 2000 are Code Key 33 (Component Code) and Code Key 34 (Manufacturer Code). Both are available on a single 3.5-in. diskette.
The entire VMRS 2000 Coding Convention is now available electronically as well. The release of Code Keys 1-80 includes modifications to Code Keys 1 (Equipment Activity), 2 (Equipment Category), 10 (Trailer Body Type), and 48 (Special Body Type) made at the request of various industry segments.
A communications link between maintenance personnel, computers, and management, VMRS sets a universal language for fleets, manufacturers, suppliers, and computers.