Waiting Out the Storm

The list is one with which those involved along the supply chain are familiar: fuel costs, driver shortages, sustainability matters, congestion, labor negotiations, security, safety and governmental regulations, among others. Zubrod, too, sees little chance for recovery until the latter part of 2008.

That trucking is experiencing hard times should not be cause for celebration for shippers. While capacity issues haven’t seemed to be critical of late, all cautioned that since carriers are having to shrink offerings to match market demand with their bottom line considerations, when recovery does come the capacity crunch will be worse than any time in recent memory.

Several on the CSCMP panel pointed to the current state of the housing industry as a large factor the diminishing of freight. For some carriers loads of materials to serve the housing industry can run as high as 20% of all their freight. Looking ahead, even when the bottom of the housing market is hit, Tyler S. Ellison, senior vice president-global account manager for Schneider Logistics, feels that it will take an additional six to eight months for full recovery.

With fewer trucks required to move freight in the short run, fewer drivers are needed. While this may provide a slightly diminished demand for drivers, estimates are that when recovery does come it may take a full 24 months for re-staffing and to get drivers rationalized for their jobs.

While shippers can continue to shop their loads and try to maximize transportation budgets in the months ahead, carriers are reacting to the current situation in a variety of ways. Of interest are Less than Truckload (LTL) carriers who have generally been doing rather well over the past few years and are now experiencing the same problems as those in truckload and other modes.

In looking at market conditions, James D. Staley, president and CEO of YRC Regional Transportation at the time of this interview, noted that for his group of companies—New Penn, USF Glen Moore, USF Holland and USF Reddaway—business has been soft without a usual seasonal pickup. (Staley is retiring at the end of the year and has been replaced by Keith E. Lovetro.) The group is dominated by USF Holland that makes up some 60% of revenues for YRC Regional. Holland’s core market is in the Midwest where Staley points to a combination of housing problems, foreclosures and unemployment rates as taking their toll.

As it moves forward, although YRC Regional has not changed its capital expenditure plans it will be looking closely at that budget in 2008, according to Staley. “We have great regional carriers within the USF and New Penn brands,” he claims. “We need to continue working on how to present that to the customer in a unified way so the customer understands that the brand promise extends across each of the companies and the interaction with each of those companies is what the customer needs.”

Roy Slagle, senior vice president of Sales & Marketing, ABF Freight System, Inc., feels the economy is soft. The carrier has been reporting tonnage declines for the last three quarters in a row. However, that has not forced ABF to cut back on its purchases of equipment. “We have a philosophy of maintaining a very young road power fleet,” he notes. “The average age of our tractors is about 18 months. So we trade the tractors every three years and have continued on that pace. We have also invested in new trailers. We bought 2500 new pup trailers this year. Those are long-term investments and we have continued on that replacement cycle. We have scaled back primarily as it relates to labor. We adjust labor on a daily basis to meet demands, so we have made adjustments there.”

David L. Miller
Con-way Freight, Inc.
James D. Staley
YRC Regional Transportation
Roy Slagle
ABF Freight Systems, Inc

Slagle points out that the carrier hasn’t made changes in its long haul network, a system it has refined over many years to handle coast-to-coast freight. “What we’ve done,” he explains, “is add a separate network to handle regional business. We are now offering next day and second day service across a wide swath of the country. We’ve done so in response to our customer needs. They have demanded faster cycle times and a lot of their business has moved to a more regional focus. So we are responding to that market focus.”

David L. Miller, COO of Con-way Freight, Inc. is aware the freight market is soft at the moment. As with other carriers Con-way does a good job of managing its assets. “Because of the way we purchase our equipment,” says Miller, “we can adjust fairly easily by accelerating removal of older equipment or slowing that equipment down to make sure that we have capacity at all times. As it relates to our current conditions we are looking forward to meeting our customer’s needs and continuing to grow.”

Con-way has undertaken several initiatives to generate additional business and is very pleased with the results that it is achieving, claims Miller. Its Ocean Guaranteed is one of those products.

In describing what he sees as the company’s competitive edge, Miller says, “The shipping public does not necessarily think in terms of Con-way Freight being a regional, inter-regional, super regional and a national player. But we are the only carrier that provides services across the town, city, state, region and country from a single network. We go to more secondary and third tier markets on a direct point basis than anyone. Less than one percent of our zip codes in North America are not served on a direct point basis.”

In the view of YRC Regional’s Staley, there continue to be expansions of time definite and time critical services. “We’ve introduced those into the regional companies, even though intuitively you’d say there shouldn’t be a need for that,” he notes. “But there are a lot of customers that still want that time definite delivery by hour of day. So we are in the marketplace with that kind of offering. It’s indicative of a market opportunity. In the regional market we’re pretty much overnight anyhow. But even though we have 98% on time service within our regional footprint customers are still looking for time specific deliveries.”

Staley notes that YRC Corporate has made significant moves to offer a global supply chain solution, including purchase of an LTL carrier in China. “Part of that is offering the visibility of a shipment from the time of pickup no matter where in the world it is and giving that same visibility through the network. Because we’re regional carriers and part of that global supply chain, in the coming year we hope to introduce—or at least explain—to our customers more and more how we can be a solution to global supply chain issues when they are involved in Asian or European sourcing.”

ABF’s Slagle points to the carrier’s TimeKeeper, an expedited guaranteed product that he believes has helped to some degree in taking freight business from airfreight carriers. “We’ve been successful in demonstrating to customers that really it’s not whether the freight is on the ground or in the air,” he claims. “They want it by a specific date and maybe a specific time and as long as we’re able to do that reliably—and often at cheaper prices than pure airfreight— our customers have responded favorably.”

ABF has put a lot of resource into maintaining and upgrading TimeKeeper. “An interesting outgrowth of that,” says Slagle, “is that our customers are using the product to meet their customer requirements, particularly in the retail industry. Vendors are able to use TimeKeeper to avoid charge backs or fines or just to improve their scorecard.”

Con-way Freight is undergoing a complete reorganization in which it is essentially collapsing four general offices into one. “We’re doing this in a very short period of time in the hope with the plan that we are going to become even easier to do business with than we have been in the past,” explains Miller. “We believe this is going to allow us to be more nimble going forward. It certainly is going to enable us to take some cost out of our infrastructure.”

Despite the weakening market and challenges ahead for carriers, as they wait the arrival of better times they are making necessary adjustments to be prepared when the dark clouds roll away.

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