Major carriers discuss truckload environment

May 1, 2003
Truckload carriers can get there from here, mostly following the same routes, but branching away from the main roads from time to time. At least that's

Truckload carriers can get there from here, mostly following the same routes, but branching away from the main roads from time to time. At least that's what four truckload executives ranging from Donald Schneider at Schneider National with its $2.4 billion in annual revenues to Vernon Garner of Garner Transportation, a company with 85 trucks and annual revenue of $12 million, said in a panel discussion titled “Traversing the New Age of Trucking.” The panel also included Russell Gerdin, chairman of Heartland Express, a large publicly traded motor carrier with revenue of $294 million, and Jeffrey Crowe, chairman of Landstar System, a non-asset based logistics company with $1.5 billion in annual revenue. The discussion was conducted during the annual meeting of the Truckload Carriers Association in Orlando, Florida, on March 9 to 12, 2003.

Starting with the subject of safe operations and how to make sure that safety remains in the forefront of operational thinking, Don Schneider said that safety is so important that it is a job that belongs to everyone in a company. Obviously, drivers have a responsibility for safety, but so do the personnel that make load assignments along with everyone else that interacts with them. At the top of the Schneider list of safety imperatives is training, including a program that puts drivers through three months of strict supervision and training before becoming solo drivers. “Safety is such an important topic at Schneider National that the first item on the agenda at each quarterly board of directors meeting is a safety review,” he said. “We work extremely hard to ensure that safety awareness is a company-wide, pervasive program.”

Safety starts at the top, and no company can claim to be a safety-first operation unless the CEO spends a significant amount of personal time on the safety process, Jeffrey Crowe said. Establishment of a safety culture within a transportation company will not succeed unless senior management leads the effort. For instance, Landstar has a history of holding a monthly conference call dedicated to safety. The call is scheduled for the third Thursday of the month and has been held every month for the past 12 years. “We call that day Safety Thursday,” he said. “On any given Safety Thursday, we include 2,100 to 2,500 Landstar associates in the US, Canada, and Mexico in the conference call. The nationwide, interactive call also includes federal regulators, state and local representatives, many of our customers, and many of our business capacity owners. I have hosted all 144 calls and will never miss one.”

Best and brightest

Building a safety culture requires the involvement of customers, and in the case of Landstar, its owner-operators and the third party carriers that provide transportation services for the company, Crowe said. Safety supervision has to be the place for the best and brightest people in the company. At Landstar, safety and compliance are separate departments. That is because safety and compliance have different functions, he said. Compliance is the process of complying with laws and regulations. Safety is the act of preventing accidents, Crowe said.

Safety does not begin with a crisis in a company that causes senior management suddenly to worry about insurance rates, Crowe said. Safety happens because the CEO and everyone else in the company wants passionately to prevent accidents, he said. The passion behind safety comes from moving the personal pain of accidents into corporate behavior. Withdrawing funding from safety training would impose heavy costs on trucks, especially in terms of public perception. In fact, companies must devote more money to safety and training.

The future of trucking lies with its training programs, Russell Gerdin said. Training is an investment, just as much as purchasing new equipment is an investment. Early training allows drivers to develop the skills they need before they get out on the road. Without proper training, drivers continue to make the same mistakes over and over, he said. All Heartland operating centers have skid pad training. “We flood them with water in the summer and ice them in winter,” he said. “We want drivers to have the experience of being in an out-of-control vehicle knowing at certain speeds nothing they can do will change the outcome. We want them to feel that panic so that they know in the future that the only thing that will prevent loss of control is to slow down.”

Highway watch for security

Safety and security were and are now an object of company emphasis before terrorist attacks in September 2001, Vernon Garner said. A lot of that emphasis has been a simple common sense approach to operations and procedures to ensure that equipment meets company standards before use. In addition, the American Trucking Associations has instituted a highway watch program that now is in use in 16 states. A consultant on staff at ATA helps train drivers to be the eyes and ears of the country, he said.

One proposal made as a part of the homeland security program has been a transportation worker identification card. Crowe said that he was totally in favor of such a card, notwithstanding the opposition of some labor groups. He said that the system must be set up to do criminal background checks on workers so that they can be given a positive biometric identification such as a retinal scan or a thumbprint.

The discussion moved almost immediately to the subject of engines built to meet the EPA emission standards that went into effect in October 2002. Gerdin noted that he had previously said that he had no faith in the new engines at the time of their introduction. “The more I studied the issue, the more I became convinced that we were all walking into la-la land with respect to these new engines,” he said. “Heartland may not have much ingenuity of its own, but we are real good at following others and improving their results just a little. In this case, we probably have more brand new trucks waiting to be put into service than any company in the country. We bought new trucks ahead of the effective date of the regulation, and we plan to keep them longer until the final data on the new engines becomes available. We might even be able to run our current trucks until the 2007 engines come out considering the number of new trucks we have available.”

Running trucks longer

Garner said that Garner Transportation would not serve as a guinea pig for any new engine designs. “We've already been that route with the 121 braking systems back in the 1970s,” he said. “That taught us a lesson. In 1985, we made a decision to run trucks for five years or 500,000 miles which ever came first. We held to that decision until 2000 when we had to extend the service life, because used truck values fell so much. Extending the service life of our 2000 model year trucks has been lucky in a way, because if we had held to our previous operating procedure, we would be in a position where buying new trucks would be necessary. Some of our trucks are approaching 800,000 miles, but we plan to keep running them until the questions about these new engines are sorted out.”

No one in trucking is opposed to efforts to make the environment a better, cleaner place, Schneider said. At the same time, truckload carriers have a responsibility to move goods around the nation in a safe and economical fashion. The problem is that the new engines are placing a cost burden on all the goods that consumers purchase. Buried in the cost of everything is the price of logistics, he said.

Forcing the accelerated adoption of these new engines without adequate testing by fleets has been a tragedy. That said, the industry will respond and do the things that it needs to do, Schneider said. The response at Schneider National has been to purchase substantially more equipment ahead of the October 2002 effective date that it normally would have done. That equipment will be run longer, knowing that more maintenance will be required for the older tractors, he said.

Lower fuel economy

Schneider National has some October 2002 engines that have logged 225,000 to 250,000 miles. “We think that pumping all that extra heat back into the engine will cause wear and some other unusual things to happen,” Schneider said. “In addition, the new engines use new components that have never been subject to a lot of real world, fleet testing. The biggest disappointment has been fuel economy. We have seen major degradation in that area.”

Truckload carriers who have resisted buying the new engines understand the impact they have on suppliers to the industry, Schneider said. The economic impact of major production surges followed by a long period of low manufacturing activity produces a cost that the entire industry eventually will pay.

Landstar approaches the engine issue one truck at a time, because the company has about 8,000 owner-operators who run roughly 9,000 trucks, Crowe said. The decisions of those operators will mirror the rest of the industry in that they probably will run their pre-October 2002 trucks longer; however, those decisions will be made one truck at a time.

The driver shortage has never gone away. However, Landstar sees a continued supply of independent contractors, Crowe said. Those operators will mature into contractors who are paid a percentage of their trip revenue and make all their own decisions, having learned to be an independent in a lease-purchase program where they are paid by the mile. Drivers will choose the independent contractor path, because they see it as a career with enhanced income possibilities. However, the availability of drivers is critical to Landstar, because it does need a steady stream of independent contractors as well as knowledge that drivers are available to the third party carriers that provide its transportation capacity.

Training includes contractors

Just because Landstar uses independent contractors does not mean that it can overlook training, Crowe said. Although the company has no direct control over contractor behavior, it does have control over those operators brought into the system. Landstar evaluates potential operators as drivers and as business operators. Not only does the company look at driving records, it also looks at business records and at previous interaction with customers. “We make it hard to get into Landstar and are proud of our claim that we are one of the hardest companies to join,” he said. “Once an operator is in our system, we have ongoing training available based on the driving record the operator posts as a part our services. We are responsible for the owner-operators traveling under our leases, so we make training constantly available. Under some circumstances, that training is a condition of remaining leased to Landstar.”

Truckload carriers face a problem with respect to drivers, because the demographics trends are headed against them, Schneider said. The trend has been that young people enter truck driving and then leave the industry after a certain age. With the current birth rates in North America, the young people who make up the entry level driving force no longer are available. The other negative demographic trend shows that more and more truck drivers are drawn from an urban environment rather than the rural backgrounds that once brought partially trained drivers in the industry. Many urban workers do not come to trucking with the familiarity with heavy equipment that rural workers brought with them as a matter of course, he said.

The other aspect of the driver shortage that needs special attention is retention, Schneider said. Retention can only be successful in situations where drivers have a sense of pride in their jobs and know that they are respected by their employers and co-workers. Companies must always remember that most drivers have families, and that they must find a way to accommodate individual family needs. These include weddings and first communions and all the other things that normal families celebrate together, he said.

Retention starts with training

“At Schneider National, we recognize that people stay with the jobs they are good at,” Schneider said. “Training starts people on the track to doing a good job. As they begin to succeed at their jobs, they carry a real sense of pride as well. Another factor in fostering the pride that helps with driver retention is to use driver time for the right reasons. We need to communicate with our shippers that their best service becomes available when drivers are allowed to do the job they do best — moving freight, not handling freight.”

Truck drivers work hard in jobs that require unusual hours, Schneider said. For that reason, pay is important, perhaps more important than in other jobs.

The driver shortage has not ended, Garner said. The industry still faces a real shortage of the qualified drivers that will allow it to operate at peak productivity. One of the challenges behind this shortage is keeping drivers in the industry. Carriers must reinforce the message to shippers that a driver's time is valuable. “Keeping drivers is a function of pay, and we can only pay them more if we are allowed to be more productive,” he said. “Shippers must understand that carriers need to make their fleets more productive in order to pay drivers more and continue providing the service the shippers expect. In many cases today, truck drivers have a job that requires 70 or more hours a week every week and only pays them for 40 hours or less.”

Heartland hires no trainee drivers. “Our competitors tell us that we simply can't operate that way,” Gerdin said. “They may be right. When we get to the size of Schneider or one of the other extremely large carriers, we may have to change our thinking. But first, we will raise driver pay to attract the experienced drivers we need. I'll be the first to raise driver wages, and I'll have drivers as a consequence.”

Improve system efficiency

Crowe said that efficiency can substitute for simply increasing pay. Improved efficiency in the system can reduce the need to pay a higher wage per mile, he said. Gathering more information and operating the system with more precision can add greatly to total system productivity. The need for appointments and narrow windows for deliveries will become worse rather than better as traffic becomes more congested, Crowe said.

Gerdin said that insurance rates and availability are the most critical issues facing truckload carriers. A lot of carriers seem to believe that tort reform is the key to relieving the insurance crisis. However, trucking is too far from tort reform even to talk seriously about achieving it, he said. “Insurance is another matter,” Gerdin said. “We have to change the whole set of issues surrounding insurance and the idea of liability that goes with it. The level of general liability insurance has to rise, and that level has to be the same for all carriers. One way to level the playing field for all carriers is for a shipper to be brought into a liability lawsuit. That will happen someday soon. The shipper may not necessarily lose the case, but being dragged into court will be an eye-opener.”

Garner, as chairman of ATA for the current year, made the argument for tort reform. The industry accident rate has fallen as a percentage of miles driven, while insurance rates continue to climb, he said. Those rates can be attributed to out-of-control jury awards. “We've done our part to improve safety,” Garner said. “Now it is up to the Congress to provide tort reform to take on the other side of the equation.”

Tort reform requires politics

First and foremost, tort reform is a political activity, Crowe said. Carriers must play their part in this by getting involved in state and local politics to elect legislators and judges who are receptive to the idea of tort reform. This is a state-by-state fight that must be won at the local level.

To resolve the insurance crisis, more carriers are going to have to accept the concept of self-insurance, Schneider said. Another part of solving difficulties with insurance is to realize that safety pays and that money put into a comprehensive safety program will come back into the company in the form of lower liability from accident prevention.

Self-insurance is the key to controlling insurance costs, because the price of premiums is not about to go down, Crowe said. In the case of Landstar, the company has raised its self-insurance level from $1 million per incident to $5 million per incident. “This is necessary, because we have to face facts, insurance premiums are not going to come down,” he said.

The primary issues facing trucking on the legislative and regulatory front are tort reform and reauthorization of highway funding, Garner said. While tort reform is a tougher issue, highway authorization can be handled. “We need to get the bills through Congress and then get the money released for spending,” he said. “When the money gets spent, we need highways, not bicycle paths.”

Break the negative yoke

Speaking to the financial outlook for truckload carriers, Crowe said that the nation as a whole needs to break the yoke of seizing on the negative. “There can be 10 positive things in a day, but we haven't broken the chain of fear and negativism that is holding the economy down,” he said.

Fundamentals in the economy, including things such as productivity, are psychological, Schneider said. When people are uncertain about the future, it is difficult to make the decisions that will boost the economy. However, the economy is in fairly good condition, certainly not in a recession. The Federal Reserve is approaching the economy cautiously, because they do not want to over-stimulate the economy and ignite inflation. Interest rates have been cut recently, but still, it takes six to nine months for an interest rate change to have an impact on the economy. That means the Federal Reserve is trying to anticipate the results of their actions several months before the evidence becomes clear, he said.

The biggest single cost in trucking is driver pay, Schneider said. Drivers must be paid well in order to retain them and to attract the drivers needed for expansion. Fuel prices are always a challenge and will remain so, because the world situation lends itself to volatile oil prices. Given that carriers must pay drivers and cannot control fuel prices, they have to take control of costs in other areas. The best bet for controlling costs is to reduce empty miles, because deadhead mileage is a pure waste of a carrier's resources.

“I've begun to see carriers share loads to reduce empty miles,” Schneider said. “Carriers don't want to turn loads down, but neither do they want to run empty miles to get to those loads.”

Weather had a big impact on many carriers over the winter, but with all those problems of the past few months, revenue has remained relatively stable, Garner said. Trucks continue to move, so the economy looks decent as far as demand goes. The problem is that tonnage is remaining stable. Most carriers would like to see tonnage grow more, but at least it is not dropping. To operate successfully in such an economy, small carriers need to have a good picture of their costs. With an accurate picture of costs, carriers can set appropriate pricing structures. “One extremely important part of any pricing decision in this economy is to impose appropriate fuel surcharges and make sure to collect the maximum amount possible,” Garner said.

Gerdin believes that the trucking economy is in better shape than his colleagues seem to think. He said that in the past 60 days some of the larger shippers have begun to worry about a lack of trucking capacity. The problem, he said, is to survive the immediate period of a war in Iraq with its impact on fuel prices. Those that survive the high fuel costs during a war will live to see some of the best conditions for truckload carriers in years, Gerdin said.

Truckload carriers sometimes have a tendency to feel sorry for themselves, Gerdin said. Instead they should be concentrating on their customers. “We need to provide more information to customers than we do at present,” he said. “We need to get so close to our customers that we become their bookkeepers as far as transportation is concerned. The result will be that customers have a better understanding of the service that their carriers provide. With information comes understanding; so if carriers provide service to their shippers and give them the information to show what that service is worth, the shippers will pay compensatory rates in return.”

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