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Capacity Crunch Changes Relationships Between Carriers, Shippers

September 11, 2014

By Deborah Lockridge

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Paul Newbourne of Armada, left, and Craig Brown of Maverick Transportation talk about the capacity crunch. (Photo: Deborah Lockridge)
Paul Newbourne of Armada, left, and Craig Brown of Maverick Transportation talk about the capacity crunch. (Photo: Deborah Lockridge)
INDIANAPOLIS -- Partnership. Collaboration. Shipper of Choice. These were the buzzwords at this week's FTR Transportation Conference as truck and rail providers, shippers and others discussed the current capacity crunch and what's ahead for the freight transportation industry.

At this conference and many others over the past couple of years, analysts have talked about a looming driver shortage to end all driver shortages, driven by demographics, increasing regulations and other factors.

It appears that time is here.

In a discussion moderated by FTR's Noel Perry, fleets, logistics providers and other panelists were asked about the state of trucking companies this year.

Craig Brown, vice president of sales for Maverick Transportation, said that volume-wise, the Arkansas-based flatbed carrier is only up about 1% year over year because they have not been able to add capacity due to the driver shortage.

Scott Arves, president and CEO of Transport America, echoed Brown. He said volume increases are suffering because of the difficulty in getting drivers -- up only about 3% year over year.

However, he said, "One of the key measurements we look at is percent of freight we have to turn down on a daily basis. Our turndowns are up about 30% year over year. That's indicative of us not being able to meet all demand of the existing customers or the customers you didn't have before who are desperately looking for capacity."

Paul Newbourne, senior vice president of operations with logistics provider Armada Supply Chain Solutions, said their volume is about flat, partly a factor of improved utilization to reduce the number of loads by better leveraging capacity on the vehicle. "The biggest challenge is on short lead time capacity."

Donald Broughton, an analyst who tracks the large publicly traded carriers as managing director at Avondale Partners, said he's seeing stronger demand, "but maybe not reflected as much in the overall volumes because they're unable to get the additional drivers or grow the fleet."

What you are seeing, he said, is shorter and shorter deadhead runs, and higher and higher rates. That's mostly seen in the spot market -- and for shippers who don't have good relationships with core carriers.

Shippers misbehaving

While rates are going up, they are generally going up more for shippers that "don't behave well," that are "transactional," said the panelists -- the ones who try to get the cheapest rates out there, who make drivers wait unreasonable amounts of time to load or unload, etc.

This capacity situation has led to what Perry called "one of the hallmarks of this era -- increased discrimination among carriers."

"What we're seeing from a customer standpoint is we're up with our core customers, our primary customers, but the secondary shippers want more capacity and we haven't been able to deliver on that front," said Maverick's Brown.

Broughton noted that "the thing we're seeing widely happening is the discernment of 'I'm not going into that shipper because it will take too long to get loaded, or I'm not going into that receiver because it will take too long to get unloaded." The new hours of service rules and the increased use of electronic logs ahead of the proposed mandate are playing into this, he said, but it's also "because demand is so strong they can do it."

This is a big reason why the spot freight market has been booming, Perry noted, as shippers find their regular carriers don't have available capacity and are putting loads into the spot market.

Arves pointed out that younger freight planners and purchasers may never have experienced a cycle like this, since the last pronounced driver shortage was eight years ago.

"A lot of discussion has been selected price increases, and that's migrated to increased use of dedicated," he said. "And a final sign the apocalypse might be close -- the transactional customers are breaking out the P word, partnership. Frankly it's been a long time since we sat down with a lot of transactional customers and talked about partnerships."

For instance, Brown said, "we spend a lot of time with shippers talking about eliminating driver irritants and waste – reducing bottlenecks at shippers, for instance. We've done a lot of collaborative work with shippers."

Arves, noting that "we like certain predictability," explained that, "We segment our customers, we have for years. Gold customer were there for us during the downtimes, who quite frankly may have left money on the table, and we feel a tremendous amount of loyalty to those folks."

Newbourne said Armada's business model has been built on collaborative approach, focusing on optimizing truck productivity and lanes. "Only a small portion of our network has come under scrutiny for rate increases. Those have been very lane-specific, and it comes down to behavior -- too long to load/unload etc. Our strategy is to continue to work on driving productivity to mitigate rate increases."

Detention Pay

Increasing detention pay in contracts may seem like a simple answer, but it's not, Arves said. "Even when we're collecting detention, there's the amount of anxiety it causes for the driver, the temptation for a carrier not on elogs to turn the other way and say 'figure it out.' I don't think we ever get made whole when a driver sits."

Broughton said even just the numbers don't add up: "You get paid detention after two hours and get $60 an hour. By the time you look at the truck and trailer, forget the driver, you've got $150,000 worth of capital sitting out there and your'e going to get paid $60 for three hours. You can't run a Weedeater for that."

Brown also noted the administrative headaches to collecting detention pay, where there's invariably a lot of I-said-you-said back and forth. "It's often a real dogfight.

"I don't want to get paid detention," he said. "I want to eliminate detention."

While savvy shippers understand what's happening in the market and are working to become "shippers of choice," Jim Tucker, president and co-owner of freight transportation brokerage Tucker Company Worldwide, noted that there are many smaller ones out there who are going to get a rude awakening the next time they put out an RFP for bids.

"There are a great deal of our customers, especially smaller customers, have no idea wha't going on. A lot of them think they're going to put an RFP out next year and they're going to get better prices."

They're going to be very surprised.

Comments

  1. 1. Nick [ September 12, 2014 @ 12:54PM ]

    I saw this coming two years ago. I noticed more and more loads in the load boards not being taken. Also during that time I worked for a mega carrier and found that they really didn't care what their drivers thought or said, they would take any load out there. Now there is a noticeable decrease in the number of their trucks on the road. Drivers just don't want to work for them. If you really want to fix the driver shortage, you need to make it a LOT easier for a guy to buy a truck. Not a lease deal, those rarely work out well for the driver. If I have an O/O contract with a reputable carrier there is no reason I shouldn't be able to walk into any dealer and drive out with a truck without having to drop thousands of dollars I'm not going to earn extra making 35 or 40 cents a mile. Get me in a truck where I can make some REAL money and I'll put a dent in the driver shortage tomorrow.

  2. 2. Josh Bales [ September 14, 2014 @ 07:46PM ]

    Yeah, right. There is no driver shortage. I work for Maverick, what a joke, 1800 mike's per week, every week still 30+ hours left on my clock. No driver shortage here, just a shortage of miles

 

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