Carriers Discuss Industry Challenges with Shippers

In one of the key sessions at the Warehouse Education Resource Council's (WERC) annual conference, C-level executives from different transportation modes shared some of the key challenges faced by their businesses.

In the truckload sector, Jim O'Neal, president of O&S Trucking, a full-service carrier based in Springfield, Mo., who was recently elected chairman of the Truckload Carriers Association, said the biggest current trend has been softening demand. "In the shorter term, the challenge is survival," said O'Neal. There have been 13 consecutive months of contraction, he noted. Marginal carriers will not last long in such a soft market. As companies close their doors, capacity will tighten.

O'Neal noted that no one knows yet if the absence of the usual surge in the fourth quarter of 2006 was an anomaly or not. He said that, because of hours-of-service regulations and road congestion, which costs 2% of GDP, productivity in his business peaked in 1999 and has been declining ever since. "It's all about miles per truck per day," said O'Neal.

On the subject of collaboration, he said that, as pressure mounts to drive costs out of the supply chain, shippers need to resist the temptation to take out frustrations on drivers. "The driver is someone's father, husband, wife. They want to drive that truck. They want to drive, not stand around and sit around," said O'Neal, adding that driver amenities at shipper facilities need to be improved.

With regard to the rail sector, J. Vann Cunningham, assistant v.p. of economic development for Burlington Northern Santa Fe (BNSF, Fort Worth, Texas), said that rail volume has increased 11% per year over the past 5 years. Despite some recent softening in building products, he said the industry's growth pace will continue in 2007, buoyed by strength in consumer products.

Cunningham acknowledged that road congestion, driver shortages and fuel cost issues in the truck industry are driving the growth of rail. But road and traffic congestion has implications for rail as well in the ability to locate and build new terminals, especially in high growth areas. He said in some regions of the United States, especially where some of the larger DCs are being built, BNSF is running out of places to put people and new facilities. Where it can be justified based on volume, they are willing to make new investments, he said, noting that every new intermodal facility costs $200 million and up to build.

Looking forward, Cunningham noted that transloading product from imported containers on the West Coast will become more constrained because of space issues, and more companies will have to look at options for moving containers further into the interior of the United States. While retailers may have had a distribution model based on outbound needs five years ago, today they need to have incorporate inbound issues in order to take advantage of truckload and rail efficiencies.

On a final note, Cunningham urged attendees at the conference to support Senate Bill 3742, which would provide a 25% tax credit for all new rail facilities and allow the sector to increase its investments to meet future volume demands.

In the LTL world, Patrick Reed, executive v.p. and COO for FedEx Freight (http://www.fedex.com/us/freight/main/) reviewed how much consolidation the sector has undergone in recent years. The carriers who have survived have been able to meet customer demands for quicker and more reliable deliveries, as well as providing better shipment visibility, by investing in new capital equipment and technology. He said consolidation in the LTL sector will continue, and customers' desires to see their shipments will expand globally back to Asia.

"Challenges are also opportunities for great companies," said Reed. "If you look at strategic planning and execution, the companies that do that in good, bad and ugly times, that's where you differentiate the good from the great."

One of the ways great companies differentiate themselves is by engaging employees, Reed said. "People do business with great companies because of the people, whether it's the truck driver, the back office or the corporate office."

On the topic of the nation's transportation infrastructure, Reed noted that U.S. highways can't handle current volumes, which is going to lead to very big problems five to 10 years from now. Partnership and collaboration are overused terms, he said, but he thinks the LTL industry needs to get together with the other modes of transportation and the large retailers, and figure out how to manage increasing volumes.

Richard Hoehn, v.p. of sales/supply chain for regional LTL carrier Averitt Express (Cookeville, Tenn.), talked about the long-term driver shortage issue. "Even though we see a slowing economy, the long-term outlook for professional drivers continues to be problematic," Hoehn said. To attract drivers, Hoehn said, the industry will have to increase driver wages, and improve quality of life, which will mean more time at home, less time spent unloading and loading, and providing new and clean tractors. To address the shortage problem, Averitt has made a focused effort to recruit non-traditional drivers, including females, Hispanics and people looking for a second career.

Hoehn agreed with FedEx's Reed on the issue of consolidation. "The industry is consolidating and it will continue to consolidate," he said. "It's encumbent on us to evolve, and become a single-source provider and to grow and to become more entrenched with the customer."

Hoehn said both shippers and carriers need to work together to force inefficiencies out of the supply chain. "We believe that the days of adversarial relationships between shippers and carriers are over. For both parties to win it has to be a partnership, a win-win situation," he said.

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