Changing With the Times
by Jim Park
Oh-seven might go into the history books as a defining year in trucking. Not because of any spectacular failures or successes, or because of record numbers of trucks sold - or not - but because we seem to be on the leading edge of an awakening that we have to start doing things differently. This year could be the year it all gets rolling.
The cost of doing business has finally caught up with us here in North America. No longer can we get away with some of the inefficiencies we've built into our transportation system.
Take fuel prices. Historically, we've had it pretty good on this side of the Atlantic. But global demand for crude oil is tightening the supply and driving prices ever higher. Despite recent dips, analysts say prices are going nowhere but up in the long term. Instead of watching heating oil demand as we head into fall and winter, we're watching demand from emerging economies like China and India rise.
Events in even the nether regions of this planet send ripples around the world, and we've come to realize we have little choice but to search for more efficient ways of moving goods around the country.
Among the more interesting emerging trends is not the move to improve truck fuel economy - though there's still work being done on that front - but to make better use of the fuel that we burn. There are limits to the fuel economy gains that we might expect from better aerodynamics or improved drivetrain efficiency. Those gains will be incremental, and expensive.
At a recent Society of Automotive Engineers (SAE) conference on commercial vehicle engineering (where quoting or attributing the words of the presenters is not permitted) one of the truck manufacturer's representives spoke of fuel savings realized through better route and trip planning, using the example of a customer located in an anti-idling jurisdiction.
Drivers who had to deliver in certain idle-free areas were stopping outside those jurisdictions to sleep, often idling for the night, and then getting caught in morning rush hour traffic en route to the customer. For the fleet, it was a double whammy. A night of idling, and a highly inefficient trip into town through an hour or more of stop-and-go traffic.
The solution was to reschedule the deliveries around rush-hour, and to equip the trucks with auxiliary climate control systems. The savings were dramatic.
And there's much discussion going on surrounding the efficiencies of using bigger, heavier trucks - more freight moved per gallon of fuel burned.
The Canadian Trucking Alliance recently put forth plans calling for the expansion of the Long Combination Vehicle (LCV) network in Canada, and the American Trucking Associations is known to be actively pursuing heavier gross vehicle weights south of the border.
Recently, Matt Rose, the chairman and CEO of Burlington Northern Sante Fe Corp. - one of the largest railroads in the U.S. - was quoted by Transport Topics as saying his company would not oppose efforts to increase truck size and weight limits as long as the larger trucks pay higher fees to use the roads. In an historical context, that is quite a development.
A major U.S. retailer who presented at the SAE conference says his company is actively experimenting with different vehicle combinations while redefining delivery routes and re-aligning regional distribution facilities to reduce empty miles, all in the name of making better use of the fuel its 6,800 trucks burn every day. They're looking for a 25 percent overall gain in fuel efficiency by 2015.
What We're Up Against
In his annual address to the Ontario Trucking Association, OTA chief David Bradley said the Canadian economy is still pretty strong, and churning out what he says is "precisely the right amount of freight given current levels of [overall] demand." But he's predicting a flat year for growth because there are "too many trucks chasing that freight."
This is particularly true in sectors that are more susceptible to exchange rate fluctuations, or changes in consumer buying patterns, such as automotive manufacturing, and pulp and paper.
Bradley points to a situation a few years ago (2004/2005) where fears of restricted access to trucks because of demand had shippers whipping out their wallets with record willingness - just to secure transportation. Demand kept rates high, and that was good. But with softening demand created by a sluggish U.S. economy and trucks from slowing sectors plundering freight in other markets, Bradley says it will be hard to stay firm with rates.
"This is especially true when only a few short years ago, the industry was experiencing - for the first time in decades - a capacity crunch which in turn provided the impetus for concerted efforts to improve the rate structure."
But a survey commissioned by GE Capital Solutions and released in October, paints a slightly different picture. It reveals that driver shortages (69 percent) and excessive regulation (40 percent) are top threats to business performance in North America. These concerns, the survey concludes, are forcing trucking industry managers (92 percent in the U.S., 86 percent in Canada) to explore new methods for achieving efficiencies and additional cost savings.
A fifth (22 percent) of trucking businesses surveyed believe the driver shortage will impact their ability to deliver goods on-time to existing customers, and are concerned that the shortage will significantly impact their ability to service additional business.
The Other Big Question
The 2007 pre-buy is real, and it's costing hundreds of jobs in the truck manufacturing sector. Freightliner, Mack, and Volvo have sent lay-off notices to plant workers as a result of the downturn in demand for 2008-model trucks. International has issued layoff warnings. So far Paccar has remained silent on the matter.
Chris Patterson, Freightliner LLC's president and CEO, says the company will have to furlough a significant number of workers at its assembly plants early in the year - some of whom have been working six days a week through most of 2006.
"This is not a happy development from our standpoint," he says. "We have pledged to redouble our efforts, in partnership with others in the industry, to get the governments who impose these costs on truck buyers to provide some financial relief to our customers so that the economic penalty doesn't have such a radical effect on purchase behavior."
Patterson says an effective price increase of $8,500 to $13,000 on heavy-duty trucks with no positive impact on customers' profits is a big pill to swallow. He noted though, that the present equipment cannot run forever.
"Some customers who sought to extend their average fleet age, or kept one or two trucks past their ‘sell by' date in the last round of standards changes found that the rapid run-up in unplanned repairs cost them more in driver turnover, customer dissatisfaction, and basic repair costs than they were saving in monthly depreciation," he says.
If you're a little nervous about being the first kid on the block with an ‘07 engine (2008-model year), buyers will find a good supply of 2007-model year trucks (with ‘06 engines) on the dealer lots right now. Kevin Olson-Brooks of Co-Van International in Vancouver, and Bryce Taylor of Universal Truck and Trailer, Moncton, NB, both say they've been pre-buying too, anticipating a drop in demand in the early months of calendar year 2007.
"We have 120 trucks in stock now with the current engines, nothing with the new engine," says Taylor. "I think there'll be enough carryover engines that'll help all the OEMs for January and part of February."
Both report customers asking about fuel economy, costs, and maintenance issues - the cost of the equipment upfront, and the cost of the maintenance down the road - but report only marginal interest in actually buying one.
"There are a few that are asking specifically for a 2008 truck. They want to be environmentally responsible and want the lower emission truck, but not too many yet," says Co-Van's Olson-Brooks.
Doug Brandon, sales manager at Kenworth in Timmins, Ont. says we should start seeing 2008 product showing up on the lots about the middle of February. He says he's sold a few already to fleet customers, most of whom don't see the change-over as a huge issue.
"To most of the guys it doesn't seem to be a big issue," he says. "A lot of guys realize now that the DPF will only have to be serviced maybe once or twice in the time they own the truck. Guys are starting to educate themselves and realize it's not as big a deal as when they went with the EGR and twin turbo [in Oct. 2002]."
We'll have new HOS rules to contend with in the New Year, more restrictive and slightly confusing, but we'll get over that hump eventually. Fuel prices will rise in the long term, as will truck prices, and just about everything else. What about rates and wages?
If David Bradley's assertion is correct (too many trucks chasing the available freight), rate increases will be hard to come by this year. However, there are still plenty of people who believe that the diminishing pool of qualified drivers is making shippers nervous. Our guess is if you want a rate increase this year, you're going to have to earn it - or maybe learn how to make better use of your resources and learn to call the savings a profit.
Watch for more talk about LCVs here in Canada, and higher GVWs in the U.S. Cutting-edge carriers will probably be reassessing routing and trip planning to reduce empty miles and generally maximize the efficiency of their operations.
It is said that there are basically three kinds of people in the world: those who make things happen, those who watch things happen, and those who wonder what happened. Many believe we're in the early stages of a phase of industry evolution that will tighten the distinction between those groups - maybe separating them into just two: those who are on the way, and those who are in the way.
Depending on how you approach and manage 2007, you'll find yourself in one of those two camps. Next year could be an exciting one, or a daunting one. But when we look back on 2007, there will be few who recall its passing as just another year.