Werner CEO Leathers: TL rates getting back to “equilibrium” after slump

The brief period of bargain truckload rates that shippers enjoyed earlier this year is ending as carriers have reduced capacity to adapt to the slight drop in freight demand in 2016’s first half.

“We’re getting back to equilibrium on rates,” said Derek Leathers, president and CEO of Werner Enterprises, the nation’s fourth-largest TL carrier. “It’s a simple reaction that when freight demand slumps, people park trucks.” Leathers recently spoke at the 30th annual meeting of the North American Transportation Employee Relations (NATERA) annual meeting in New Orleans.

The Great Recession reduced 18 percent truckload capacity. Truckload carriers have slowly rebuilt that capacity but the “bad news is we did it a little too much,” Leathers said.

Werner is committing $400 million in capital expenditures this year, Leathers said, to take advantage of the slump in heavy truck sales. At the end of this year, Werner will have an average fleet age of just 1.5 years, compared to 4 to 5 years industry average.

Sales of Class 8 trucks fell 50 percent in July. Leathers would not disclose the price Werner pays for a new truck but indicated volume discounts are available. A new Class 8 truck lists for around $140,000—before fleet discounts.

 Werner, 60 years old, is a $2 billion company, earning $124 million net income last year with 7,300 power units and 22,000 trailers. Correctly managing fluctuating freight demand is becoming more difficult because of the reduction of the so-called “peak season,” which used to occur between October and early December.

“I don’t know whether we will see a fall peak,” Leathers said. “Today that peak season is compressed.  With e-commerce, people do a peak season in two days.”

When Leathers broke into trucking 26 years ago as a dispatcher for Schneider in Charlotte, N.C., he was prohibited from taking vacation in October and November because that was when the peak season required all hands on board. That peak now is changing, and it’s causing planning and capacity challenges for asset-based carriers such as Werner.

 “We are increasingly asked to build a church for Easter Sunday,” Leathers said. “How do you prepare for peak season that is just right? Werner is 50 percent retail, so we are susceptible. But that’s that is fun part of job.”

Werner was founded as an irregular route TL carrier. But increasingly, Leathers said, shippers are asking for other solutions, including dedicated trucks on fixed routes, logistics solutions, intermodal, and other not-one-size-fits-all capabilities.

“In the end, we’re a trucking company but we’re evolving. We have to take on not just issues affecting trucking, but global issues as well” in the 120 countries Werner operates. “We have to evolve as organizations,” Leathers said.        

Large asset-based truckload carriers must adapt to changing shipper needs, Leathers added. That means developing solutions to a wider array of transportation problems to include greater use of different modal solutions even if those solutions require use of outside carriers.

“Increasingly, we’re being asked to solve problems,” Leathers said. “Those Chicago-to-LA dry van truckload requests don’t just happen as much anymore. We are asked to do more with mode neutrality.”

Leathers added that such solutions can be “tough,” especially when the best solution involves sending freight on a competitor’s trucks.

 “It’s nice when you can give them recommendations with your assets,” Leathers said. “But the industry is asking that you bring assets. But if recommendation comes forth, I love the fact I have 7,300 assets (trucks) to bring to the problem.

“But if my trucks aren’t the best choice, it needs to go air, rail, barge or any other logistics solution that’s out there,” he added. “You have to be able to do it globally. We’re increasingly being asked to swim upstream.”

Even in the best of times, trucking companies have net profit margins of 3 to 4 percent. “It’s a slim margin game so we want to make sure we manage our business right,” Leathers said.

Still, he remains optimistic that asset-based carriers such as Werner will be successful if they are managed correctly. “Models don’t haul freight. Trucks and truck drivers do.” Leahers said. “You have to place that bet in companies that haul freight.”