In The Driver's Seat

High costs, decreased hours of service and a lack of trained drivers have trucking companies commanding and getting respect. Great for them, but what does it mean for manufacturers?

Sitting in miles of stopped traffic on icy I-70 near Dayton, Ohio, just days before Christmas 2004, a driver rolled down the window of his car and yelled up to a man in a black 18-wheeler, asking if he knew another route around the weather-induced mess.

Like the Pied Piper of the highway, truck driver Tim Von Duyke led a convoy of cars and other 18-wheelers through myriad back roads, ultimately circumventing the huge traffic jam. His goal was not to be a good tour guide but to save as much of his 11 hours of service allotment for the day as he could.

The Hours of Service (HOS) rules, which the U.S. Department of Transportation's Federal Motor Carrier Safety Administration modified in January 2004 (the first rules had been untouched since 1939) and is currently rewriting due to a federal appeals court decision, have exacerbated an already stressed trucking industry. Truck drivers and the companies they work for have had to adapt to stricter rules about how much time drivers can spend on the road in addition to battling higher fuel costs. Add to that a shortage of trained drivers, and the atmosphere is ripe for a logistics nightmare capable of throwing a big wrench in manufacturers' supply chains.

"There was feedback coming through our business units that we were missing shipments, and there were delays."
-- David McGregor, senior vice president/logistics, BASF in North America

Indeed, BASF, a global chemical company, knows first-hand what HOS, higher fuel costs and a shortage of drivers can do to a company.

"There was feedback coming through our business units that we were missing shipments, and there were delays," says David McGregor, senior vice president of logistics for BASF in North America, who is based at the company's regional headquarters in Florham Park, N.J. "That was obviously impacting the ability to maintain the service levels that our customers expect from us. We had numerous business units complaining that they could have made one more sale if we were able to get that product to the customer on time."

This scenario happened early on in the new HOS regulations. According to McGregor, BASF struggled a bit through March 2004 until his company, suppliers and customers became more aware of the legislation and what impact it was having on industries.

"I would love to say that we were proactive [about HOS] and put workaround solutions in prior to the legislation taking effect, but in reality, it was more reactive than proactive," says McGregor. "I don't think anybody really fully understood what the impact was going to be."

While manufacturers and their customers weren't quite sure what was in store in early 2004, many carriers were already calculating what new HOS rules would do to their industry.

"When we were preparing for the implementation, we were speculating that the overall productivity [reduction] would be about 4.5% for the industry," says Bill Matheson, vice president and general manager of intermodal services for Schneider National Inc., Greenbay, Wis. "As it has ultimately played out, we believe, at least based on our own data, that we were pretty accurate."

Workaround Solutions

To get his company back on track, BASF's McGregor implemented several solutions.

For example, "We instituted a weekly carrier-crisis status meeting with all of our business units to keep them apprised of what is going on and how to implement workaround solutions.

"We've tried to find workaround solutions to attempt to become what I call a more friendly shipper. We are trying to work with our carriers to allow them to maximize as much as possible the use of their equipment and drivers."

The solutions include placing drop trailers at many of BASF's plants so the trailers can be preloaded, which enables drivers to hook and go. "They don't lose time sitting and waiting at the gate or waiting for a live-load situation," explains McGregor.

Another solution: The use of "yard dogs" or other dedicated tractors to move empty containers around so that they can be pre-filled. "The whole key is to allow that driver to get as much productive time behind the wheel as possible."

According to McGregor, "We are going to have more of an advantage in that we are going to get the equipment and the drivers when we need them so we can service the needs of our customers."

Agreeing with this application of the old business axiom "scratch my back and I'll scratch yours," Schneider's Matheson notes that demand for transportation has exceeded capacity, thus "allowing carriers to select freight that is far more productive than what we were hauling in the past.

"Clearly being in the demand situation we're in, we're selecting freight that requires less dwell time at the shipper and more efficient freight so that the HOS impact isn't as adverse."

Matheson says that through the improvements that customers have made at their docks, Schneider has been able to reduce its average delay time at a stop by about 15 minutes. "That's literally a 30% reduction."

What can manufacturers do to be considered "productive freight?"

Matheson reiterates what BASF has already implemented: Yard management is an important component. In other words, reduce the amount of time the drivers have to spend repositioning equipment. The more expeditiously a driver can get in, enter a facility and get offloaded, the more a carrier is going to perceive that as higher-quality freight.

Also, shippers that are willing to palletize loads and take advantage of spotted equipment, allowing carriers to spot empty trailers so they can be preloaded, will be thought of more favorably from a carrier perspective.

"There's been a tremendous amount of cooperation with most of the shippers in terms of trying to improve driver throughput," says Matheson. "However, there are number of customers that have not made those types of adjustments. To be quite honest, those are the ones that are going to have trouble getting their freight moved."

Higher Costs, Fewer Drivers?

According to a survey by First Fleet Corp., a Fort Lauderdale, Fla.-based provider of asset management, operational support and financial services for companies that maintain private trucking fleets, fuel prices have 61% of respondents adjusting vehicle specifications to address and lower fuel consumption.

"One company offered me $1.40 per mile with a 20 cent fuel surcharge, and within five minutes they were willing to pay me over $2 per mile plus the 20 cent fuel surcharge because they needed the raw material on the line."
-- Tim Von Duyke, owner-operator, Admiral-Merchants Motor Freight Inc.
The study also found that more than three-quarters (77%) of fleet managers stated one of the most critical issues facing the U.S. trucking industry is a major shortage of qualified drivers. A shortage of drivers and skyrocketing fuel prices ultimately will drive up the price for shipping.

Indeed, "Companies will financially fight over the use of a truck," says Von Duyke, who is an owner-operator for Minneapolis-based Admiral-Merchants Motor Freight Inc. "Production lines are shutting down because they don't have what they need because of a shortage of trucks on the road.

"One company offered me $1.40 per mile with a 20 cent fuel surcharge, and within five minutes they were willing to pay me over $2 per mile plus the 20 cent fuel surcharge because they needed the raw material on the line."

For BASF, customers are somewhat empathetic to the shipping situation because they, too, are faced with shipping shortages. "But at the end of the day, if you've got a critical raw material being supplied by BASF that has the potential to shut down your plant, you are only going to be so forgiving," says McGregor.

As for paying top dollar, "We want to take advantage of the economy picking up, and we want to make the sales and grow the top line of our business. We have in some cases paid a premium in order to make deliveries."

With such demand for truck drivers, carriers are also faced with paying premium wages.

To be sure, Schneider National has introduced the largest pay increase for drivers and owner-operators in its 70-year history. The pay increase more than doubles the company's 2004 pay increase -- specifically, drivers will receive about $4,000 more per year.

"Carriers are going to have to increase wages dramatically over the next couple of years, and that is a substantial percent of the cost of transportation, which will have to be absorbed by the shippers over time," says Matheson.

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