With Dan England of CR England serving as moderator, a panel of four executives from a variety of different segments took on an assortment of issues, including innovation and technology, market and business outlook, and regulatory environment.
The panelists: Flatbed/platform, Chris Cooper COO, Boyd Brothers; tank, Gary Enzor, CEO, Quality Distribution; van/dry, Steve Gordon, president, Gordon Trucking; and LTL/package, Lee Long, Southeastern Freight.
Q: Based on your own businesses, how would you characterize the freight demand in your company? What do you foresee freight demand to look like over the course of 2013? What’s driving your opinion about future freight volumes?
Cooper: We’re all open deck, flatbed, open top, intermodal. In 2009 for our flatbed industry, the average loss of revenue was 39-40%. That eliminated a lot of weaker carriers. We’ve seen a lot of capacity come online in the last 18 months in the flatbed industry. That is coupled with the fact that freight levels have been kind of sideways: 10 to 14 good days of strong freight and four days of slow freight. There’s no consistency now.
Enzor: Volumes have been good in the chemical space. It’s pretty balanced across the portfolio. We’re seeing decent pickup in latex as there has been pickup in the housing market. We’ve had good volumes increasing, which typically will support manufacturing in the automotive space. Most of the time we’re six to nine months ahead of other parts of the cycle, so I hope that holds. In the intermodal business, which moves chemicals going internationally, that’s strong. We have an energy business, moving water and oil in frack markets. The water side of that market is very volatile. A guy may decide to move the frack schedule back a few months. The oil side is very stable.
Gordon: Our business on the dry van side is primarily in large CPG companies and producers to big-box retailers. It’s been spotty. A lot of our customers during the fourth quarter last year were preparing us for the end of the world this year. It hasn’t been. But it hasn’t been great either. The area of business that’s been best is home improvement.
Long: The recession had an effect on us, but in the opposite way you might think. During the recession, we put people to work in different avenues to make our processes better. As a result, we came out of the recession ready to take on whatever was thrown at us. Last year was great for us. We see improvement in the housing market. In LTL, we look at bill count, and that has continued to grow in the last year and a half.
Q: We talk about steady, spotty, lackluster. Anybody give any rate increases? Is it 1-3%, 3-5%?
Cooper: The last two years, we were able to do an across-the-board increase, 3-6% in most. This year, we’re having significant pushback in freight levels and capacity. There are targeted specific lines we’re able to push rate increases: Texas, Oklahoma, the middle corridor. They’re doing pipeline and natural gas production buildups. They’re sucking up a lot of flatbeds. Other than that, it’s tough going.
Gordon: In the competitive environment we’re in, it’s tough to push rate increases. As long as customers can get freight moving and not feel pinched, they can shop the market. But we have had success in going to customers and saying, “When we price your business, we price as price competitively as possible, but we assume it’s a perfect transaction, and if it’s not going to be, we need to talk about adequate compensation where we were detained at the dock, when you were using our trailers as rolling warehouses, or where we’re burning freight because you didn’t load it right.” The customer is more willing to listen to that kind of approach.
Long: We determined during the last few years that we needed to do a better job of analyzing bad debt or bad freight. We found out that we were able to be more efficient with other customers we serve, and as a result we were able to raise rates—but not at the rate trailer manufacturers are quoting for our equipment.
Q: What are your plans for fleet trailer replacement and/or expansion in 2013? What are the factors driving your decision to replace or expand the fleet?
Long: This year, we’re taking on about 800 new trailers. That’s a mix between of 53s, 28s and 200 liftgates. The next few years, we feel that won’t slow down. We will probably buy more trailers.
Enzor: This year, we probably will grow our fleet 300-500 trailers. Our replacement fleet would be roughly 2-3%. We’ll probably grow in the 5% range. Most of the businesses run through affiliates, which is like a franchisee. We just changed this year where we’re letting them buy trailers. We think that makes them healthier over the long run. Instead of us renting them trailers, it saves them money. They’re excited and buying a lot of trailers.
Gordon: For our growth, which is closer to 10% the last few years, it would be in the high single digits this year. To accommodate growth and replacement, we’re usually a 500-to-1000-trailers-a-year purchaser. One thousand would be on the high end when you do something opportunistic. Fifteen percent are reefer and the rest is dry.
Cooper: We run just shy of 2200 trailers. We do have one of the oldest fleets we’ve ever had at 73 months. So we have to make a decision about what we’re going to do as far as growth and replacement. This year, because of trade cycles, it’s kind of a light purchase year. But the third and fourth quarters will be relatively large for us.
Q: What has been the impact to your freight operations to accommodate HOS rules?
Long: We’ve seen some issues arise out of that and are addressing those as far as the way we run schedules. We have seen a change coming in the way we schedule our line-haul runs and have sleeper cabs as well.
Gordon: I’m most concerned about is the impact on the driver. For us, we initially modeled up to a 10% loss of product in some of our regional applications. The base of our business is with drivers getting home weekly and having more consistent schedules—those are the ones that are going to be impacted most because potentially they aren’t going to get their reset with new reset rule. They will have to start the week Monday and be in the teeth of traffic. The rule as proposed is ridiculous in terms of improving safety and certainly won’t improve the life of drivers. But if it takes more trucks, it’ll be awhile before we invest.
Q: There is much talk about the growing driver shortage. As a result, driver attraction and retention take on even more significance in the operation of your businesses. What are the most significant challenges you face today related to these issues, and what changes do you foresee the industry making in the next 24-36 months?
Long: We’re very fortunate in that we have good driver retention and pool. Our routes allow drivers to come home virtually every night.
Gordon: It is always a challenge. We hit a speed bump last year and for whatever reason, the phones stopped ringing for six weeks. The last six weeks of the year, our classes averaged about five to ten drivers, and we need about 25-30 a week. The last eight weeks, we’re up 100 drivers so it’s just been a roller-coaster ride.
Enzor: In our market segment, Dan Baker, being the leading trucking driver speaker, always says, “Get them rolling, get them paid, get them home.” Our turnover usually runs in the 40s. I think my competitors—a lot of them—are lower than that. One of the primary factors is length of haul, because we can get them home more. I also think tankers have more endorsements and tend to get paid more. So that helps us too. That’s why our turnover isn’t 100. It’s usually mid-40s. We really aren’t having a problem in the turnover or recruiting sides, particularly in the energy space. The rates in the energy space are probably double what they are in other segments. The open company trucks are easier to fill. The owner-operators are much harder.
Cooper: Our length of haul is 550 miles. We’re very blessed and fortunate that all of our trucks are filled. Our turnover right now is running in the high-70s. That’s up 18% from 2011 and 10% from last year. From my perspective, it’s hard to recruit flatbed guys. How many guys want to stand in Minnesota in February and throw a 120-pound tarp that’s frozen solid? It’s a tough job, so our guys make a little bit more. But they need to make a lot more. But until we get return on capital from an industry standpoint that’s going to be hard.
Q: As equipment manufacturers, we want to ensure that we are providing equipment that best meets your needs. Besides “lowering prices,” what do you view as the most important qualities of a manufacturer? And, what features and capabilities do you look for in the product offerings of your preferred suppliers?
Cooper: Just a good partner—somebody who understands our business model and customers’ needs. Somebody who invests significantly in R&D. Flatbed is very weight-specific. So I’m pleased to see how weights have come down the last eight to 10 years in trailers.
Enzor: I’m going to state the obvious probably, but you want good quality. We’ve seen a mix over our history. We like our partners today. And we do believe we get good quality from them. We also want a good warranty. You don’t want to fight over it. And you want good customer service. And I want to know they’re advancing their technology. It’s gotten better as they’ve gotten lighter. Really for us, we need some help on wheel-end technology. We still end up with problems with wheel-off, and they end up in cost in the business model. One of our biggest needs, because we move thousands of chemicals and can’t throw hydrogen peroxide behind latex, is you’ve got to wash out the tank. We would like the best material possible to not have pitting issues. As we evolve, we want to see better materials that are less susceptible to pitting. That’s a big, expensive item for us.
Gordon: We never buy on lowest price. We buy on best value. Those things sometimes run in tandem, and sometimes don’t. Our approach to business with customers is we want customers who recognize good long-term value and appreciate our service and safety we’ve built into our culture. Those are the same things we look for in a partner. We understand that as an industry, we’re pretty tough to serve because we’re all a little schizophrenic in what we want. We haul different commodities. Some need more cube, some need more weight, some need more security. I’m sure that’s a challenge for all your businesses because it’s a made-to-spec industry instead of just assembly line. But there’s reason for that in the ability to deliver customers’ products as cost-effectively as possible. We want folks who are creative and bring us solutions—people we can talk to about our crazy ideas in getting products to market more cost effectively.
Long: We have 78 locations and 27 drops. When we assign a piece of equipment such as a trailer, it gets loaded to a non-shop location and I have to pull it back into my shop to repair. Tractors too. When we have a tractor issue, we have to take it to a dealership, and it may sit there for two weeks because they don’t have the manpower and staffing to repair that equipment. The trailer side is not quite as bad, but there is delay time. I pay a good price for equipment, so it needs to be on the road making me money. The cost of ownership is what it’s all about. That’s from partnerships through warranty, availability of parts after we buy a piece of equipment. In the last few years, when we go to a pilot review, we’ll look at the product and once we decide that’s what we want and the equipment gets delivered, it’s not what we said we wanted. It frustrated us from that standpoint because we have to re-address issues. In the future, we want to look at forklift abuse. That’s a big thing in the LTD industry—more than truckload because we have multiple freight going in by multiple operators on the dock operation, and we’ve gone to puncture guard scuff liner on trailers and heavier flooring. We think the wheel-end assembly on these trailers ought to be more than five to seven years. Internally, we need to look at, “How can we assess the health of our equipment?” That goes for brakes, bearings, and overall tire pressure in tires. All of our trucks have satellite systems on them. If we can communicate that information back in real time, we can pre-judge or pre-select what we need to do to that equipment. Telematics is what’s going to drive us in the future to be more successful. It will allow us to make good, sound decisions based upon technology.
Gordon: We’ve relied on the drivers to catch a lot of stuff for us. You think about historically the old moss-back driver who knows equipment and understands equipment. That’s kind of gone by the wayside. So with CSA playing a more prominent role in our business and our safety metrics being more visible, we’re finding drivers oftentimes don’t know equipment as well and don’t have the financial incentive to report issues. So from a trailer standpoint, where we can get information about systems that are going bad back to us directly, that’s a huge benefit. If we have brake, tire, electrical, lighting issues, and can get information on that and can direct that work, that’s a big benefit, other than relying on drivers to have to pull everything through inspection lanes.
Enzor: I think the industry has done a good job on rollover technology and stability-control technology. That’s probably going to get mandated like everything else. It’s good technology. They’ve done a good job. It’s added expense and we have to raise rates to get a return, but I think that technology is going to be very helpful down the road.
Q: How have CSA regulations impacted your business thus far? How do you see them impacting your business going forward?
Long: It’s had an impact. We have a great score. To address issues coming out of CSA, we initiated three to four years ago, a mock DOT audit, where a law enforcement officer would come in and do an audit of our roadside inspections. Also placarding and load securement. From a maintenance standpoint, that allowed us to fine-tune our processes and make sure we accurately document those roadside inspections, and they were repaired in a timely fashion. Just recently, we had one of those and could see that we don’t have much that we needed to address. Yeah, there are still some things out there. I don’t understand when a trailer is overloaded how the tires could be at fault, but I get tickets all the time that say it exceeds tire capacity. So it’s an operational thing, but I’m getting blamed for that.
Cooper: It’s caused us to work on some of our processes. I think we were a good, safe carrier beforehand. The flatbed industry is so fragmented and ease of entry is so great that the monitoring system helps my position, because you don’t have as many renegade carriers. One of the things I’m concerned about is enforcement of it. We need tighter enforcement. If you’re going to have rules, you have to enforce them. But do it correctly. Manage and measure the right things. Some of the stuff we get written up on is ridiculous. With any new system, you’re going to have challenges and hiccups. But we need consistent enforcement and a little tweaking on what we’re doing.