Relentless rise in trucking fleet costs adding pressure to rate increases in both TL, LTL arenas
May 09, 2012
Shippers need to brace for sharply higher trucking rates because of steadily rising truck fleet costs that range from rolling stock to drivers to fuel while productivity levels are under threats from increased government regulation, top carrier officials are saying.
Trucking fleets are facing at least 4 percent rise in overall costs this year, fleet executives told shippers at the National Industrial Transportation League (NIT League) freight transportation policy forum on May 8.
If a shipper is not paying at least that much more in freight rates this year, carriers say, they ought to be prepared for such hikes soon.
The cost of a new Class 8 truck has risen about $40,000 to $125,000 in the past five years, executives said. Fuel is up about 400 percent in the past decade. Health care costs are rising in double digits. That caused one trucking executive to joke that the pharmaceutical and health care industry is the only one in America getting double-digit rate increases every year.
Trucking is facing the most stringent regulatory agenda since deregulation 32 years ago. Truck drivers are facing more scrutiny under the government’s CSA (Compliance, Safety, Accountability) initiative. Driver hours of service may be cut. And there are other headwinds such as higher fuel costs and tire, insurance, technology and equipment costs.
“I don’t know of any regulation that is adding capacity,” said Bill Graves, president and CEO of the American Trucking Associations. “They all add cost to what we do. A slightly less robust regulatory agenda would not hurt right now. Maybe we need a regulatory timeout.”
Driver hours of service are scheduled to change July 2013. Even though drivers may still be allowed to drive 11 hours a day, it is likely the government will require drivers to take at least 30 minutes more mandatory rest time a day. That would affect the so-called 34-hour restart, which allows drivers to restart their work week after 34 hours consecutively off duty.
“The change in the 34-hour restart is a huge deal for us,” said Dan England, chairman of C.R. England, Salt Lake City, a major truckload carrier.
He said that would add between 5 and 15 percent more costs in England’s large dedicated fleet operation.
HOS changes will result in about a 3 percent decline in productivity, according to Eric M. Starks, president of FTR Associates, a leading freight forecasting firm. That means about 75,000 to 100,000 additional trucks needed to haul the same amount of freight.
Starks is predicting a driver shortage of as much as 250,000 by 2013, depending on when the government fully implements HOS changes.
Trucking executives say they are committed to operating safe fleets. But changing demographics is making the hunt for qualified drivers even tougher than before.
“We take safety to the utmost degree,” said Scott Dobak, president of Roadrunner Transportation Services, Cudahy, Wis., a light-asset truckload and LTL carrier that uses owner-operators and independent drivers that will do nearly $1 billion in revenue this year, said the driver capacity is the biggest issue facing trucking.
CSA has “certainly changed the way we approach the market place,” Dubak said. Roadrunner has a 40 percent driver turnover rate (compared to a 100 percent industry rate).
“Even before CSA, we had a big decision to make in deciding which drivers we could use and which we could not,” Dubak said. “It is a big piece of what we’re looking at.”
Real driver wages are down about 10 percent over the past decade, according to England.
“Driver wages have to go up,” he said. “We simply can’t afford to pay our drivers what we’re paying them now. They have to be increased.”
Approximately 75 percent of Roadrunner’s freight is delivered by other, smaller, “mom-and-pop” carriers for the final mile. “They are under great cost pressures,” Dubak said.
Owner-operators, who are nearly always paid by the mile, are threatened with reduced take-home pay if there is any cutback in available on-duty driver time.
“I think they will try to charge more, but it’s a question on whether that can be achieved,” said Carl Bentzel, representing the Owner-Operator Independent Drivers Association (OOIDA).
He said the “overriding” issue facing owner-operators is cost containment. He said OOIDA figures show the average owner-operator spends 230 days annually on the road for an average take-home salary of $38,000 a year.
He said the typical truck driver is “being paid less than minimum wage,” working 70 hours a week. Because they are paid by the mile, drivers are exempt from overtime pay.
“The biggest expenses we face by far are capital costs, which are increasing,” he said. “Fuel costs have risen nearly 400 percent in the past decade.”
Those cost pressures are even greater on smaller fleets, which have less ability to pass on fuel surcharges than the giant mega-billion-dollar carriers.
Smaller truckers—those with less than five trucks—provide 80 percent of the intercity freight movements in this country,” Bentzel said.
In 2001, diesel cost $1.30 a gallon. This year, diesel is costing $4.14 a gallon, a nearly 400 percent increase.
“More of a driver’s earnings are going to capital costs and variable fuel costs,” Bentzel said.
Rob Estes, president and CEO of Estes Express Lines, Richmond, Va., a $1.9 billion LTL carrier, said the things that keep him up at night include how to maintain a linehaul network of 200 terminals at a time when demand is spotty because of economic uncertainty.
“Those trucks have to run whether they’re 10 percent filled or 90 percent filled,” Estes said. “CSA is important to us, getting the cowboys off the road,” Estes said. “But the way it’s being implemented, we’re worried about it being nitpicked and not getting it right.”
Michael A. Regan, president of TranzAct Technologies, a suburban Chicago-based technology company that works with shippers, said CSA is risking the hard-won efficiencies of corporate supply chains because of tightened truck capacity.
“They assume because they’ve always been able to get trucks in the past, they’ll always be able to get trucks,” Regan said. “That may not always be the case going forward.”
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