The Road Ahead
by Jim Park
As we go through the annual ritual of changing our wall calendars, we'll remember
2003 as a year filled with anxiety. Things were happening pretty quickly, and
we hardly had a chance to get our feet under us before the next wave of change
came along. Insurance and fuel prices kept us off-balance for much of the year.
The Loonie's spectacular rise against the greenback caused more than a little
concern as U.S.-exchange-based freight rates eroded before our eyes. Mad-Cow and
SARS did their damage too, and there was still more: homeland security, customs
pre-notification rules, the mess in Windsor
in other words, a long list.
As we head into 2004, it feels like we're walking through a shooting gallery.
On the other hand, the overall shape of the North American economy is actually
pretty good. By all accounts, 2004 should be a great year in some respects,
meaning that trucking will be hard pressed to keep up with demand.
That's partly because New Year's brought more than just a changing of a calendar
page. There's a real difference in the way many of us operate now, with the
phasing in of the new American hours-of-service rules on January 4. The new
U.S. Cargo Securement rules kick in at the same time. We're also bound to see
more confusing and burdensome rules coming out of the U.S. Homeland Security
administration. And of course the new Canadian HOS rules should debut in the
fall. For many, and despite a growing economy, the over-arching issue of 2004
may be simple survival.
Paul Vikner, president of Mack Trucks, told highwaySTAR recently that restoring
profitability to trucking is one of his biggest concerns. "Everyone should
be making a profit at this, but few really are," he said. "Drivers,
owner-operators, fleets, truck makers, all of us, we need to work to get the
margins back to where they should be so we can move forward. It's not a healthy
environment right now."
Looking long term, the 2007 emissions standards will force owner-operators
to look at trade cycles on their trucks -- now - unless you won't mind being
the first kid on the block with one of the first-generation 2007 engines.
Hours of Service
Industry applauded politely when the U.S. Department of Transport announced
the new regulations last April. We said it was a rule we could live with. There
was actually a huge sigh of relief because the new plan was nothing like the
dog's breakfast that the DOT had proposed a couple of years earlier. We let
our guard down. But
as the months passed and experts ran their models of the rules, the alarm bells
started ringing. The rules have gone from 'something we can live with' to 'the
most dramatic change to hit trucking since deregulation.'
"These new rules were written and formulated to improve highway safety
and save lives, but they'll also change the way the trucking industry does business,"
Thomas Marlow said at an HOS summit held in Atlanta in December. Marlow is the
Federal Motor Carrier Safety Administration division administrator for the state
of Georgia. "The consecutive 14-hour on-duty provision will turn current
trucking procedures on their head."
Experts are predicting a variety of consequences for carriers and drivers,
once the full impact of the new rules is more clearly understood. Pick-up and
delivery patterns may change, carriers may drop customers that needlessly delay
drivers, demand for drivers and owner-operators is likely to skyrocket, and
the list goes on. Here are a few other changes that may occur as a result of
the need to keep drivers doing what they do best:
~ LTL top-freight may become too costly for highway drivers to pick up and
deliver due to the potential for delays. Alliances between linehaul carriers
and LTL operations could bloom, leading to more opportunities for local and
~ Shippers will be encouraged to avoid live-loading of trailers and to avoid
delivery appointments that result in delays. More drop-and-hook freight may
result, but carriers so far appear reluctant to increase the number of trailers
in their fleets.
~ Calls for changes to U.S. weights and dimensions regulations may be heard
as the need to increase capacity becomes more obvious. Delays that limit driving
hours may prompt some to stick more freight onto existing trucks. Experts are
predicting a 15% reduction in capacity because of the more stringent rules.
~ Solutions to border security issues and the need for infrastructure improvements
will become higher priorities as congestion-related delays at key border crossings
But the most pressing concern about the new HOS rules will be on the human
resources front. Will drivers accept the rules or walk away from the industry
in numbers large enough to create a crisis in capacity?
American truckload giant Schneider National Carriers has done some math on
this issue, and the numbers are daunting. Schneider says in an average year,
the U.S. trucking industry adds approximately 20,000 drivers to the existing
roster of about 1.8 million. In 1994, the best year ever for expansion, industry
took in about 100,000 drivers. Assuming predictions for a robust economic expansion
in 2004 come to pass, Schneider estimates industry will need 60,000 new drivers
just to keep pace with demand, and that's before adjusting to new HOS rules.
Economists estimate the new HOS rules could drive demand for new drivers to
as high as 120,000 in the U.S. alone to make up for attrition, exodus, and lost
time. That's more than nine times the average annual expansion rate of the national
driver roster. If demand grows to that extent, we won't be able to keep up.
years ago, Human Resources Development Canada (HRDC) embarked on a detailed
review of the trucking industry's HR needs. That followed a prediction five
years ago that we'd be short 50,000 drivers over the next decade. The results
of HRDC's recent study suggest the shortfall in intake could now be as high
as 50,000 drivers per year.
There are an estimated 225,000 working truck drivers in Canada at present,
with about 15% (34,000) of that population expected to retire over the next
five years. A report produced recently by the Canadian Trucking Human Resources
Council, A Review of Truck Driver Training Schools, claims that as many as 9000
people earn a class A/1 licence through a school each year. Overall, about 30,000
new class A/1 licences were issued in Canada in 2001. At that rate, we should
be able to keep pace with the number of drivers who are expected to exit the
industry through retirement and attrition. Whether the growth we experience
in the near future will be what we've predicted, and the attrition rate remains
what we expect, is anybody's guess.
With the new HOS rules now in effect, all bets are off.
If Schneider's estimates for increases in the number of trucks required to
maintain current productivity are close to accurate, we'll fall well short of
our intake requirements. What is rarely discussed when calculating future demand
for drivers is the amount of work that gets done in the background, and therefore
remains unaccounted for. A study done in 1998 for the Truckload Carriers Association
in the U.S. suggested that somewhere between 33 and 43 hours of work per driver
per week go unaccounted for. Called waiting or wasted time, it has to be assumed
that under the new rules, that time is going to reveal itself by limiting the
remaining available driving time for drivers. Under the new rules, it'll become
much more difficult to make wasted time disappear.
So, from a human resources perspective we have a triple-witching-hour effect
about to befall the industry: projected intake will not meet projected demand;
the anticipated reduction in productivity will create more demand for drivers;
and the potential exodus of existing drivers caused by the anticipated reduction
in personal earning potential could create additional strain on the industry.
And at the same time, a fourth factor is becoming a concern: the tightening
of driver supply due to stricter qualifying conditions from the insurance industry
and the need for invasive criminal background checks and security clearance
Ian Levine of Pardons Canada estimates that as many as 1 in 10 commercial drivers
in this country could have difficulty gaining access to the U.S. because of
some past criminal background issues. That could shrink the pool of cross-border-qualified
drivers by an additional 8000-10,000 people.
And with the insurance industry limiting the intake of new drivers to only
large fleets, or to those with training and driver development programs in place
[see 'The New Regulators?', The Roundup, page 8], it could mean additional difficulties
for the recruiting departments.
The Good News
As odd as it may seem, there may be good news in all of this. If capacity is
stretched to the limit, the willingness of some carriers and drivers to work
for less than fair market value might diminish. It's a supply-and-demand sort
of thing that could make it considerably easier for carriers to hold the shippers
to rate increases, payment of various surcharges, and more respect for drivers'
time at their docks. With a surplus of freight to haul, carriers could afford
to be more selective in what they agree to haul.
Speaking to a delegation of shippers at a recent gathering of the Canadian
Industrial Transportation Association, Ontario Trucking Association CEO David
Bradley warned shippers that rate increases were inevitable.
"We simply can't afford to do business like this any more," he said.
"There's no way around it. Truckers rarely do things in unison, but this
time we're seeing a change in that mindset. To put it bluntly, tighter capacity
will put pressure on rates."
And carriers who have been unable to get their increases to hold due to competitive
pressures may soon see their efforts begin to bear fruit.
Dave Sirgey, president of the Freight Carriers Association - a group that monitors
economic conditions in the industry and advises carriers on setting rates -
says Canadian trucking companies have been digging deep into their pockets to
pay for things they never would have anticipated prior to 9-11. Things like
securing terminals and equipment against theft; delays at congested border inspection
stations; the costs to participate in pre-clearance programs established by
Canada and the U.S.; drivers and potential new hires who fail security screenings;
as well as a host of upcoming pre-arrival notification policies mandated by
American customs and immigration agencies.
Eric Gignac, vice-president of operations at Transport Guilbault in Quebec
City, says his company was one of the first carriers in Quebec to implement
security surcharges, but he ran into much resistance at first. His response:
Gignac told customers to pick between security surcharges or border wait-time
fees, which he quantifies daily through his fleet's GPS system.
Gignac is disappointed more of his competitors aren't implementing surcharges
by now. Many seem to have backtracked in hopes of attracting more business.
Sirgey isn't surprised. "There's no doubt some carriers will refuse to
ask for surcharges or increases as a marketing ploy," he says. "But
these costs will only continue, and those guys will just market themselves out
There's no doubt that 2004 will be an interesting year. Whether we see any
advantage resulting from the tight market conditions remains to be seen. And
one would guess it's entirely dependent on how willing we all are to keep making
the same old mistakes.