Truckload Productivity: Profitability and Capacity

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Truckload Productivity Profitability and
Capacity
Presented to National Industrial Transportation
League Highway Committee Summer Session August 2,
2005
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Productivity is the reason our country
continues to produce the strongest economy in
the world. Motor carriers have achieved
phenomenal productivity gains over the past 40
years Just to name a few ?Trailer size from
40 to 53 ?73,280lbs to 80,000lbs ?Satellite
communications ?Just in time delivery Yet
today shippers are experiencing capacity
problems unlike anything since
de-regulation. What do productivity and capacity
have in common? Profitability is fundamental to
achieving either.
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Old Trucking Wisdom

• You cant save your way to profitability.

If the margins on a load or a lane or an entire
book of business are inadequate, youll never
achieve that margin by simply cutting cost.
Similarly, the gains in capacity which
productivity provides will be inadequate if we
do not address the fundamentals of
profitability.
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Is Increasing vehicle size and weight the answer
for.
Productivity, Profitability and Capacity?
?Increase in weight or size is a long term
process. ?No industry consensus exists. ?Intense
opposition from many groups. ?ATA committee will
continue to move the process
along. ?Legislation at federal and state level
will take years.
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Productivity
What can we work on now?

• ?Equipment utilization
• ?Dwell time
• ?Empty miles
• ?Dedicated and continuous moves
• ?Hours of service rules
• ?Freight Scheduling

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What is driving truckload capacity?
We are experiencing a massive economic shift in
our industry, unlike anything experienced since
1980. Why?
?The deregulated free market has created a new
economy for trucking. ?80 of the impact of
any revolution occurs in the last 20 of
the process. ?Adequate capacity is the most
dynamic impact observed, primarily for
two reasons
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What is driving truckload Capacity? continued

• Solvency creates capacity. Inadequate returns on
• invested capital make the risk versus reward
  of trucking undesirable. Truckload carriers
  cannot continue to take

Aerospace risks for grocery store profit margins
2. Adequate quality and quantity of labor.
?Demographics for all labor are not favorable
and will worsen. Trucking
demographics are even worse.
The most recent statistics from FTR Associates
shows that we need 54,000 drivers by the fourth
quarter of this year.
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The State of the Industry
? Cost Pressures Are Shrinking Capacity ?
Escalating equipment cost ? Volatility in fuel
costs ? Skyrocketing insurance ? Driver
wages ? Hours of service ? Resulting in Demand
Exceeding Capacity ? Revitalizing economy ?
High level of bankruptcies ? Exit of Owner
Operators ? Industry consolidation ? Slower
growth ? Increasing rates
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Total Cost of ' 02 and ' 07 Engines
Cost and technical details for 2010 engines are
not available. Engineers tell us that 2010
compliance will be significantly more difficult
than 2007.
2010
Arbitrary timeframes coupled with significant
technology changes have pushed the burden onto
the motor carrier industry.
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Fuel Price vs. Bankruptciesa New Trend Emerging?
Most remaining carriers have a solid fuel
surcharge program but still impacted by idle and
unbilled miles.
2003 emissions regulations have eliminated all
MPG benefits gained in the 1990s
Fuel costs are the industries second largest
cost, and increasingly difficult to predict.
Sources A.G. Edwards ATA
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Fuel Surcharge
?The current state of fuel surcharges collected
by our industry, while improved from two
years ago, is degrading as the price of
fuel sets all time record highs. ?The cost
of inadequate fuel surcharges, incremental
deficiencies, empty miles/idle time, and price
volatility is having a much larger impact
today on carriers bottom line. A recovery
rate of 70 of the additional fuel costs is
above industry average. ?30 of 1.20/gal. over
baseline fuel is much greater than 30 of 20
cents/gal. ?Additionally, 2003 emissions
regulations have eliminated the MPG benefits
gained in the 1990s. Many carriers experienced
loss of .5mpg or worse.

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Do the Math
For example
Assuming rates based on fuel of 1.15/gal _at_
6mpg.019cpm. 2.35/gal at 5.5mpg
.043cpm. .43 - .19 .24cpm 30 of .24cpm
7cpm. Can shippers and carriers work together to
achieve a uniform equitable fuel surcharge?
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The industry has become more safety conscious,
but awards have continued to rise.

• Wrongful death verdicts
• (1994 2000) have
• increased 130.
• In 2001, 200 juries
• awarded more than
• 10M per case.
• Vehicular accidents
• account for 35 of all
• wrongful death suits.

Transportation companies have the highest risk
cost per revenue of 24 major industries.
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Which solution 97,000 lbs or 97,000 new
drivers?

We need to work together to create lasting
positive changes in the professional drivers life
experience.
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Workplace We could define
the workplace as 1/3rd terminal, 1/3rd over the
road, and 1/3rd shipper/receiver docks, meaning
two-thirds of the areas fall outside a carriers
control, and one-third is in the
shipper/receiver control. What happened to the
TCA / NITL Voluntary Guide to Good Business
Relations, adopted in September of 2000? Many of
the practices identified dealt with workplace
issues of basic amenities and courtesy.
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Industry image and respect for the profession
Do you know anyone raising their children to
become truck drivers?
ATAs communication and image policy committee
needs your help to promote a positive image for
this industry.
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Wages

• ?Pressure to increase driver wages will
• continue. Driver wages have lagged behind
• private industry for years, but are now
  trended
• upward. Average annual income 45-50K
• ?Pay will continue to be an issue affecting
• capacity until wages reach a level in excess
• of 70,000.
• ?Wal-Mart enjoys a 4 annual rate of driver T/O.
• ?Wal-Mart pays 72,000 per year.

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Quality of Life

• In an industry with 24/7 requirements, most
  truckload drivers are working 14/6 to earn a
  livable wage.
• Quality home time and the nurturing influence
  of a family are of paramount importance.
• Many are leaving the industry and say, Its
  just not worth it.

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Hours of Service has increased costs---could get
worse
? New rules took effect January 4, 2004 ?
Accident frequency hasnt changed, however
fatigue as a primary cause is trending
down. ? 3-5 impact currently ? Impact will
vary by load characteristics
New
Old
Driving Hours
10 hours
11 hours
On-Duty Hours
15 hours
14 hours (breaks included)
Off-Duty Hours
8 hours
10 hours
Hardest Hit --Inflexible appointments --Loading/
unloading delays --Stop-of loads

A reduction in average load/unload time reflects
a Positive response by the shipper community.
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Public Citizen et. al. vs. FMCSAConcerns
regarding the health of the driver will
generate additional H.O.S. changes by September
30, 2005.

• Areas of Concern
• Increase in max driving
• time from 10 to 11 hours
• Sleeper berth exception
• 3) 34 hour restart

• Possible Outcome
• Max driving time reduced
• to 10 hours.
• 2) More restrictive 8/2 split
• 3) Eliminated

Additional productivity impacts will occur.
Carriers will recover via price increases.
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Hours of Service
?The truckload industry feels that the
current rules meld the operational needs of
the trucking industry while protecting and
improving driver health and well being.
? 2005 codification attempt was not
successful.
? Additionally, the current data shows that
fatigue related accidents are decreasing.
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Owner Operator Population Continues to Decline
168,000
159,000
162,000
153,000
149,000
125,000
110,000

No carrier was able to significantly grow Owner
Operators during 2004.
Source Overdrive Magazine
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Transportation Prices and Inflation
Pricing for market share was Prevalent in the
1990s.
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Growth in the Labor Force Will Slow
Rate of Growth
Demographic trends will not only work against the
trucking sector over the next ten years, but all
sectors.
Source Global Insight, Inc. for ATA
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Driver Shortage Long-haul TL Drivers
Trucking Driver Shortage
Source Global Insight, Inc. for ATA
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Detention
Driver Shortage
Size Weight
Wages
Industry Image
Fuel
Equipment
Insurance
Productivity
Safety
Service
Technology
Inventories
Freight Rates
Profitability
Quality of Life
Capacity
Hours of Service
Surcharges
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National Industrial Transportation League
Highway Committee Summer Session August 2, 2005
Thanks