October 2000
October 2000
In conjunction with the September 5, 2000 rate increases FCA/NATC has released a new version of our rating Software, QuickRate for Windows Version 2. The new software is a complete revamping of our previous Windows version, which includes new or upgraded abilities such as:
Version 2 of QuickRate for Windows has been structured to accommodate
the following add-on modules, which will become available over the next
few months:
WHY
CAN’T THE TRUCKING INDUSTRY ABSORB FUEL COST 
LIKE OTHER INDUSTRIES DO?
The following article appeared in the October 23rd issue of Transport Topics
WE HAVE THE SAME KIND OF ISSUES
IN CANADA
By: Micheline S. Tansey
Fuel prices remain at the top of the list of challenges facing Canadian general freight carriers today. Because of geography, operational differences and the fact that Canadian fuel prices are higher than in the United States, fuel costs are an even larger proportion of total costs for Canadian carriers than for their U.S. counterparts. Current Canadian fuel costs are more than 65% higher than in June of 1999, and with fuel being 6% to 8% of total costs for less than truckload carriers and 17% to 25% for truckload carriers (the longer the average length of haul, the higher the fuel/total cost ratio), the impact is significant. After labor costs, fuel is the most significant cost component for general freight carriers.
After absorbing increases for a few months, the majority of Canadian carriers reluctantly implemented fuel surcharges, but the initial increases were a profit drain that is difficult to recover. Since the fuel surcharge programs were implemented during July–August 1999, our office has received many calls from shippers. The nature of their questions indicate many shippers do not fully understand why carriers must promptly recoup fuel cost increases. The majority of questions deal with: Motor carriers impose surcharges when fuel prices go up; why can’t they absorb fuel price increases just as many other industries do? And, why establish fuel surcharges and not simply take a rate increase and be done with it?
We explain that with razor-thin net margins, averaging less than 3 cents per dollar of revenue, there is little room, if any, to absorb fuel price increases, or any other cost increases for that matter. For Canadians, the current 65% fuel price hike results in a cost increase of 5%, or 5 cents per dollar of LTL revenue (with a 7.6% average fuel/revenue relationship). Without full recovery, that means a loss of 2 cents for each revenue dollar. Truckload carriers, for which the 65% increase results in a cost increase of 12% or more (with fuel/revenue relationships of 18% or more), it is even worse, since failure to recoup increased fuel costs means a loss of 9 cents for each dollar of revenue.
Fuel surcharges that fluctuate with fuel prices are the most efficient means to recover fuel cost increases. Over the years, experience has shown us it is the also the fairest when all customers pay their fair share. If carriers were to attempt to recover fuel costs through rate increases, thousands of rate agreements and contracts would have to be re-negotiated every time fuel prices move up or down. Surcharges are more practical.
Administering surcharges, nonetheless, adds to a carrier’s administrative burden, which gets costlier when customers resist, necessitating repeated contact with carriers’ personnel. To exacerbate this problem, carriers are now faced with increased customer resistance to general rate increases announced last September, because it has to be implemented while a fuel surcharge is in effect.
Many forward-thinking large shippers understand that motor carriers must pass fuel cost increases on to their customers if they are to provide ample transport capacity in the future. But many shippers also expect their carriers to postpone rate increases until the fuel crisis subsides. This is understandable, since their transportation costs have already increased substantially. However, while it may be possible to defer recouping increased operating costs during fuel crises of relatively short duration, to expect carriers to do so when the crisis persists for over one year is to jeopardize the future financial health of the carriers. It could well diminish their ability to provide service in the long term.
Canadian general freight carriers, just like their U.S. counterparts, are dealing with other very important challenges, including a severe driver shortage that goes on worsening and pushing up salaries, fringes, equipment, recruitment and training costs -- this is especially severe for the longer haul carriers. Also, fleet value continues to decline due to lower residual value of used equipment, yet carriers must make sizeable investments in new technology to remain competitive and meet customer demand.
In addition to all that, hours-of-service reform also looms in Canada, which will be sure to aggravate the driver shortage and increase operating costs.
Carriers that do not aggressively deal with these important challenges may, for a very short while, gain competitive advantage as they bypass rate increases while their competitors are raising rates. However, this advantage will be short-lived. As in all businesses, carriers must obtain sufficient revenues to be able to meet the future needs of their customers, who, rightly so, are constantly demanding higher and more sophisticated levels of service.
By: Dave Sirgey
FCA has scheduled a Tariff Advisory Committee (TAC) meeting for December 6, 2000 and a Comité Consultatif meeting for December 13, 2000.
These committees monitor economic conditions as well as the latest available statistics on the profitability of general freight carriers. They are attentive to issues affecting the industry’s performance as well as its ability to provide service in the future.
Items already on the agenda include:
By: Dave Sirgey
Both FCA and NATC recommended general rate increases to become effective September 5, 2000. The FCA increase was 5.5% across the board applying for all carriers that “flagged in” the increase. FCA increases are suggested amounts that require carriers to “flag–in”, in order for the increase to apply. The NATC increase was $2.00 – Minimum Charges, 5.5 on LTL, and 0% on TL (20M) rates.
The increases approved by major bureaus are as follows:
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Announced individual carriers increases include A-P-A – 5.9%, ABF - 5.7%, Consolidated Freightways – 5.85%, Con-Way – 5.9%, Old Dominion—5.4%, Overnite Transportation – 5.5%, Pitt-Ohio Express – 5.9%, Viking Freight 5.9%, Watkins Motor – 5.98% and Yellow Freight 5.9%.
Many carriers have also taken increases without making any announcements regarding the increase percentages.
TCA
and NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE ADOPT
VOLUNTARY GUIDE FOR GOOD BUSINESS
RELATIONS
FOR IMMEDIATE RELEASE
SEPTEMBER 21, 2000
Contact: Kristie Kehoe Director of Communications - 703/838-1950 or kkehoe@truckload.org
Guide Emphasizes Good Business Relations for Shippers, Receivers, Carriers and Drivers
The Truckload Carriers Association (TCA) and the National Industrial Transportation League (NITL) have jointly adopted a Voluntary Guide for Good Business Relations that, it is hoped, will emphasize reasonable and common-sense treatment of those involved in truck transportation.
TCA is the only national trade association whose collective sole focus is the truckload segment of the motor carrier industry. The association represents dry van, refrigerated, flatbed, and intermodal container carriers operating in the 48 contiguous states as well as Alaska, Mexico, and Canada. Representing operators of over 200,000 trucks, which collectively produce an annual revenue of over $20 billion, TCA is an organization tailored to specific truckload carrier needs.
The "Voluntary Guide to Good Business Relations for Shippers, Receivers, Carriers, and Drivers" identifies guidelines that the two groups believe are beneficial in governing the relations of the four primary parties involved in truck transportation. The guidelines are not intended to serve as industry standards or to create legal rights or responsibilities of any party, but to outline mutually desirable business practices to which responsible shippers, receivers, carriers, and drivers, should aspire.
"We're thrilled to have an agreement with the nation's premier shipper's association on a group of principles that we think will promote better communications and stronger business relations" said Bob Hansen, Chairman of TCA. Ed Emmett, President of NITL, agreed, saying "These voluntary guidelines are both ethical and good for business. I'm convinced that most League members already follow them, but it is important to stress the need for shippers and carriers to cooperate with each other."
The Guide addresses several aspects of transportation that have been sources of frustration and irritation, and sometimes present obstacles to the expeditious movement of freight and equipment. Examples of subject areas that are addressed include treating drivers and shipping and receiving personnel with courtesy and respect; assuring that safe practices are followed; fostering honesty, fairness, and openness in dealings between carriers and shippers, and expediting the movement of equipment.
More than 50 individual principles spell out specific guidelines, examples of which include quoting transit times that are compatible with drivers' hours of service regulations and prevailing speed limits, and maintaining reasonable hours for loading and unloading.
Richard E. Durst, President and CEO of Arctic Express, Inc., of Hilliard, Ohio, and Chair of the TCA management panel that worked with NITL in developing the Guide, was proud of the cooperation that took place over the 18 months that it took to develop the Guide. He noted that the project was initially undertaken to help improve the industry's driver turnover problem, which is exacerbated by the poor treatment that some drivers receive at loading and unloading docks. "There was no finger-pointing by anyone as to why any one of these guidelines might be necessary. We started out trying to help improve the driver's working environment, and realized that that only addressed one aspect of the relationship. It was natural to expand the reach of the guidelines so that everyone in the transaction knows what to expect, and so there will be as few surprises as possible."
Many of the loading dock conditions fall upon truckload carriers and drivers, but the Guide is intended to be used by, and to benefit, LTL carriers, flatbed haulers, movers, and other trucking niches. Mr. Hansen was optimistic as he contemplated the future opportunities the Guide provides. "This Guide shows that we have established a good cooperative working relationship between shippers and truckload carriers, and I think this is probably just the first of many beneficial projects that our two groups will be working on."
For further questions, please contact the Truckload Carriers Association at 703/838-1950 the National Industrial Transportation League at 703/524-5011 or www.nitl.org.
This decreased supply of drivers and the increased demand caused by the thriving economy is a major trucking industry challenge that is costing millions of dollars. Drivers’ wages are up over last year, in some cases by 15% or more and they are expected to increase substantially over the next year. Trucking companies are competing fiercely for qualified drivers, especially long haul drivers that are required to be away from home for longer periods of time. Drivers often opt out of the long haul runs after they gain experience due to the lifestyle challenges of a long haul driver. This can cause companies to have driver turnover rates of 150% or more. Customer demands for faster delivery times on long haul traffic also require expedited companies to use driver teams on their long haul traffic.
The driver shortage is not unique to Canada, a recent Transport Topics article titled Driver Pay on the Rise stated, “The booming U.S. economy has been a two-edged sword for trucking: the good news being that demand to move freight has never been higher thanks to rising pay levels and nearly full employment: the bad news being that fewer people seem ready to drive trucks at existing pay levels.”
Recruitment and training costs are skyrocketing as companies battle the driver shortage and driver turnover. The Quebec Trucking Association recently asked the provincial government to open new driver training schools. Companies are also using a variety of incentives to attract drivers. Companies are purchasing equipment with more driver comforts such as bigger bunks, electronic transmissions, electric mirrors and doors, and super quiet refers. These features are adding 5-10% to a base cost which has already increased to approximately $100,000 per tractor. Driver recruitment incentives of $500 or more are also being offered to current drivers.
The increased emphasis on safety is also expensive. Zero tolerance often requires computerized maintenance and policing procedures in order to ensure compliance. Driver safety incentives are also used to reward drivers quarterly for accident free performance.
The impact of the driver shortage will also be felt by shippers in the form of higher freight rates over the next year.
Transportation Consulting Group (TCG) has changed its name to Transportation Costing Group to better reflect the specialization in which it excels. Mr. Ken Manning, President of TCG, stated that “while we began TCG in 1982 as a general consultancy, by the end of the 1980’s we had evolved principally into a consultant and developer of Activity Based Costing (ABC) systems for the transportation industry. By the end of the 1990’s, we were almost exclusively a software developer of ABC and related systems.
Fortunately, our specialization in ABC has led to the recognition of TCG as the premier provider of such software by the motor carrier industry.” TCG serves over 50 LTL and Truckload carriers in the US, Canada and Great Britain.
Mark your calendar, the NATC Annual Meeting is scheduled for Saturday, February 24 to Tuesday, February 27, 2001 at the Treasure Island Resort, Daytona Beach Shores, Florida.
Scheduled meetings include the NATC membership, Board of Directors and the General Rate Committee. All NATC members will receive additional information regarding the meeting.
If you have any questions regarding the meeting, contact Karen McSheffrey at ext. 218 or Email her at karenm@natc.com
This is the title of an excellent paper prepared on the challenges faced by the U.S. Truckload Carrier Industry. The paper was prepared by Laurie T. Baulig, Esq. Partner, Scopelitis, Garvin, Light & Hanson, P.C. www.scopelitis.org.
Baulig’s introduction states,
“The economic outlook for trucking in the 21st century presents a classic "good news, bad news" scenario. The goods news is that the trucking industry will benefit from greater reliance on surface transportation as the economy becomes ever more dependent on just-in-time delivery. With a booming economy, customer demand for real-time tracking of shipments, and an improved safety record, it is no wonder that the trucking industry now accounts for over 80% of all freight transportation revenues and will continue to be the preeminent transportation mode well into the 21st century.The issues discussed in Ms Baulig’s paper apply to a large extent on both sides of the border. The paper was commissioned by the Truckload Carrier Association and can be found at www.truckload.org/justintime_whitepaper.htm.The bad news, however, is that the trucking industry, and in particular, the long-haul segment of the industry, will face significant human resources and regulatory challenges in 2000 and beyond. These challenges include:
Discussed in more detail below, each of these challenges will most certainly change the way the industry interacts with its customers, especially with respect to the handling of freight by drivers and operations at the dock. Indeed, the common thread among all these issues is that the truckload carrier industry simply cannot continue to allow its drivers to bear the responsibility of loading and unloading freight. Otherwise, the "just-in-time" buzzword of our booming economy will be replaced by a more unsettling -- and costly -- phrase: "just in time . . . to wait."A serious shortage of qualified truck drivers that will likely continue well into the next century; OSHA's new forklift (and other powered industrial truck) training regulations, which will be virtually impossible for truckload carriers to comply with; Issuance of new federal ergonomics rules by the end of 2000 that will add tremendous new burdens and costs to all employers, but especially for those engaged in manual handling operations; and New Department of Transportation hours-of-service rules that will likely reduce the maximum number of hours of driving time and result in significantly lower productivity.
