view pdf - Proficient Auto Transport

WHAT'S HAPPENING IN...US ROAD
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ven before automotive production and vehicle
imports in North America shrunk 40-50% at the
bottom of the downturn in 2008-2009-to the
lowest levels since the Great Depression-several
car carriers had gone bust, most notably PTSthe second biggest car carrier in the United States-and Blue
Thunder.
Since then others have gone in and out of Chapter 11
bankruptcy proceedings. "Those that survived Chapter 11
are still around;' says Bob Farrell, executive director of the
Automotive Carriers Conference.
Allied Automotive, which had also been in Chapter 11,
has managed to keep its wheels on the road-but only just.
Although Allied was not available for comment, this spring it
was at the centre of a major issue for outbound capacity.
Allied, a union carrier, entered Chapter 11 in 2007. It was
given dispensation to pay drivers 20% less than the agreed rate
for a period of three years, allowing the firm to maintain or
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Michael Wysocki, CEO, United Road
ansport
k Lay, COO, Auto Transport Group
'Bi
e Us, chairman and owner Jack
Ooper Transport
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atrick O'Brien of Delavan IndUStries
teffon Perfect, founder, Enzed Carriers
reduce charges to its OEM customers. When the three years
were up, it wanted to continue the arrangement and the union
threatened to strike. Instead, it asked customers to pay more
and when they didn't, it pulled its trucks out of service for GM
and Chrysler, leading to significant delays and the subsequent
loss of a large share of that business-drivers have also moved
to other carriers. Allied is currently embroiled in lawsuits with
several carmakers.
It may get that business back if volumes begin increasing
again, but no matter how welcome signs of light at the end of
the tunnel may be to OEMs, suppliers, dealers and carriers, a
predicted upturn would lead to huge capacity problems.
"I think we're heading for a huge capacity shortage in the
fourth quarter of this year or first half of 2012;' comments
Mike Nelson, national manager of highway transportation
logistics for Toyota Logistics Services. "It's a tough dilemma
for the industry. The carrier base and driver pool are
Inability to pay a premium makes it hard to attract new
drivers, too. We are a niche industry and drivers have to be
trained to handle cars but there is no industry-wide standard
training program. We can't just take any driver."
"We would support a national training programme;'
emphasises Michael Wysocki, CEO at United Road Transport.
"Shortage of experienced drivers is a key issue. We have to
bring new blood into the industrY:'
"It is moving away from an employer's market to a driver's
market;' says Mark Lay, COO of Auto Transport Group. "Other
companies are picking up drivers who have previously worked
It's a tough dilemma for the industry. The carrier base
nd driver pool are dependent on automotive productio
I
he industry as a whole is down 4,000-5,000 trucks fro
2007. But as production increases, demand will increas
- Mike Nelson, Toyota Logistics
dependent on automotive production. The industry as a whole
is down 4,000-5,000 trucks from 2007. But as production
increases, demand will increase."
John Marion, vehicle logistics manager for BMW, agrees.
"More people are trying to secure capacity now. Not only is
domestic production increasing, but people are nervous about
the Japanese manufacturers trying to make up for their loss
of business caused by the earthquake, which could lead to an
influx of imports. The fourth quarter will be difficult:'
While talk of a capacity shortage may have reached fever
pitch earlier this year, a feared industry slowdown may once
again delay the proverbial crunch. Forecasters such as JD
Power and IHS Automotive have each shaved several hundred
thousands of vehicles off previous forecasts for 2011-to 12.5m
light vehicles-with expectations for 2012 now scaled back by
more than 1m units to 13.5m.
for the auto industry. This gives them more choice. It could
become a real issue."
According to Mike Riggs, chairman and owner of Jack
Cooper Transport, unionised carriers don't have a driver
shortage. "Our staff turnover is less than 5% per year;'
~
Driver shortage
In the medium to long term, sales are expected to climb
back to the 15m-16m range and unless action is taken, a
capacity shortage appears likely. The two main strands to a
capacity shortage-lack of drivers and lack of equipment-are
intertwined and as always, the cause ultimately comes down
to money: lack of money to pay drivers enough and lack of
financing to buy new trucks. The driver shortage tops many
carriers' lists of current challenges.
"Driver shortage is the number one issue for us;' says Kirk
Williams, president and CEO of Proficient Auto Transport.
"Car carrier drivers are normally paid more than other
freight drivers because they have to work harder: loading
and unloading cars is difficult work requiring expertise. But
because money is so tight, the pay differential is being eroded,
encouraging drivers to move to other areas of freight which
offer almost the same pay for easier, less stressful work.
"And as the average age of our existing workforce is rising,
we are losing many of our experienced people to retirement.
Car carrier driving is a niche occupation and the increasing average age of the
workforce, coupled with the erosion of the pay differential with other freight
haulage is leading to a shortage of drivers
FINISHEDVEHICLELOGISTICSOOCTOBER-DECEMBERIl
I 29
WHAT'S HAPPENING IN...US ROAD
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However many drivers a carrier has on its books, it needs the equipment to match and many companies are still finding it difficult to get financing for investment
he says. "Non-union carriers can reach a 50% turnover rate.
It's harder for unions to strike, too, as there are lots of nonstrike provisions in the contracts. But we have to pay more,
especially in terms of health and pension benefits, and we have
seniority issues:'
Union contracts include a lay-off list-who has to be laid off
first in times of trouble-and a seniority list, ensuring the most
senior driver gets the best jobs. This can lead to a situation
where a 'junior' driver sits idly by, while a job waits for a senior
driver to become available to take the load.
"Non-union carriers have more flexibility;' agrees Farrell.
"They can manage the workforce in a way they see fit. But
unions are becoming more flexible and pay packages are more
or less equal as non-union companies still have to compete for
the best people:'
Lack of equipment
There are, in any case, only three large unionised carriers left:
Allied Holdings, Jack Cooper and Cassens. And however many
drivers a company has on its books, it needs the equipment
create jobs and boost the economy. But we can't get financing
for it:'
Some companies are buying equipment but for the
most part, new purchases are not sufficient to make much
difference. "Carriers with a 700-strong fleet are buying maybe
20 new units;' says one industry source. "That's not enough:'
Auto Transport Group is introducing four new Cottrell
trailers and four Peterbilt tractors; six more vehicles are being
refurbished. Some are buying in greater numbers though.
United Road just ordered 175 new trailers and is looking to
get another 250 by the first quarter of next year, while Jack
Cooper has increased its fleet from 600 in May 2009, when
Mike Riggs took over, to nearly 2,000 today, with plans to
expand further through acquisition.
Others aren't so lucky. It could be that banks can't see a
return on investment because transport rates are not high
enough to allow borrowers to do anything except tread water.
"It costs $250,000 for a new truck and trailer;' Riggs points
out, "but this will only generate $200,000-$250,000 income in
a year. If a company is doing $100m in new business, it needs
We would support a national training programme.
Shortage of experienced drivers is a key issue.
We have to bring new blood into the industry
- Michael Wysocki, United Road Transport
to match. "The biggest problem for us is inability to obtain
financing for new equipment;' says Lay. "Everyone's really
skittish about providing any sort of finance, especially for the
auto industry. The market is tighter than ever. We are getting
deals through but it takes more time and effort. Banks want
more data; they're worried about the stability of the industry."
Owner-operators and larger car carriers are both suffering.
"We know one owner-operator who wanted a new trailer but
was told he had to put 35% down;' says Patrick O'Brien of car
carrier manufacturer Delavan Industries. "He couldn't afford
it. Our sales are down 50%."
Steffon Perfect, a former driver who was president of Car
Haul Co-op before stepping down this past spring, is trying to
get backing for a new cooperative company, Enzed Carriers.
"Enzed will be 100% employee-owned;' says Perfect. "This will
to spend the same amount on new equipment."
A rate increase would help. "If rates were better, it would
be easier to get new fmancing;' says O'Brien. "Rates are lower
than they were when the industry was deregulated in 1984/5:'
"The whole economics of the carrier/shipper relationship
has to be restructured;' says Wysocki. "Carriers have to be
adequately compensated to allow us to invest in our fleet and
in training and paying drivers."
Some believe rates have to go up by as much as 25%. OEMs
have a different view, although they admit a 'small' increase is
justifiable. "The capacity shortage isn't big enough yet to make
OEMs see things from our point of view;' says Kirk Williams,
"but it will happen. When capacity is not available, rates will
go up-and the OEMs know it is coming. One OEM admitted
it saved $lm a month with its latest contract; the OEM
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C4
WHAT'S HAPPENING IN...US ROAD
knows that is not sustainable for the carrier or the industry,
but it is prepared to take it while it can."
OEMs, in turn, think carriers aren't doing enough to help
themselves. "Driver shortages will contribute to capacity
shortages and equipment shortages;' says Toyota's Nelson.
"We don't see the carrier industry, or the American Trucking
Association, attacking this problem. They seem to think it
will fix itself-but we don't have the confidence that this will
happen.
"As an industry, we don't question what we've done to
attract drivers. There are virtually no young drivers: young
people want to sit behind a desk and play with computers.
How can we attract them to come drive a truck? We need to
bring in more women and people from ethnic minorities, too.
People want to be home at night-not an easy desire to fulfil
with truck driving. How can we address that issue?"
Problematic legislation
New legislation also has an impact on drivers. "We are greatly
concerned with the government's hours of service rules;'
Nelson emphasises. "And the CSA 2010 will have an enormous
impact on the carriers."
CSA 2010, short for Comprehensive Safety Analysis 2010,
was introduced by the US Department of Transport's Federal
Motor Carrier Safety Administration to improve truck and
bus safety. Although CSA is not new, the latest version has
introduced driver assessment for the first time.
"CSA used to rate vehicles and companies as part of a Safe
Start Program;' Farrell explains. "They were either satisfactory,
unsatisfactory or conditional. Now that a driver has a personal
score, it puts more responsibility on individuals: if their score
is detrimental, they won't get a job-which could increase the
driver shortage."
No one is advocating unsafe drivers, but some of the
infringements for driver and vehicles are minor, says Farrell,
and if incorrect information is input into CSA, it is almost
impossible to get it removed. "If one strap or chain is loose, it
will earn a bad mark;' he says. "But we don't always agree with
inspectors about what is loose."
"It's not a case of a few changes;' adds Riggs. "There are
lots of changes. In a trial run to see how companies fared,
could complete a 500-mile (800km) trip and then take a rest,
but now that is not possible as it would almost certainly take
the driver over the permitted working hours limit."
The use of'soft ties' instead of chains helps with health and
safety, although it means investing in new vehicles. "Older
vehicles are harder to tie down;' Lay explains. "Drivers have
to stand on a ladder. Ramps come down lower with newer
models."
"There is a need for a trailer that provides a safe loading
environment;' emphasises O'Brien. "There are only two
manufacturers left in the US [Delevan and Cottrell] and we
are both building new generation car carriers."
Other legislation prevents better productivity. "There are too
many weight and length restrictions;' says Williams. "Trucks
were designed for lighter cars. Vehicles are heavier and wider
now. We cannot fill a truck because it would take us over the
weight limit per axle or in total. We end up having to make
more trips, which burns more diesel, adds to the wear and tear
on the highways and creates a bigger carbon footprint."
The Automotive Carrier Conference is lobbying the
government to try to get a weight increase. "We need
legislation that allows more productive equipment;' says
Farrell. "The existing weight limit is 80,000 pounds (36.2
tonnes). We want to get that increased by 10%, so we can fill
the rigs. When a driver drops the first one or two vehicles, the
weight comes back under 80,000 pounds anyway."
The ACC is also trying to change legislation preventing
Canadian hauliers from carrying vehicles from the southern
US to northern towns. "Vehicles come down to, say, Texas with
off-loads but can only go back north with cars destined for
Canada. We don't mind if they drop at Chicago or other cities
on the way-but the government doesn't allow it."
Moving forward
ACC members are looking at how they can increase
backhauls and cut empty running. United Road claims it
has an advantage because of its fleet size (1,000 vehicles
plus sub-contractors), number of locations (56 across North
America) and the fact that new vehicles only account for half
its business. "We move auction vehicles, prototypes and other
specials, too;' Wysocki explains.
t costs $250,000 for a new truck and trailer but this will
only generate $200,000-$250,000 income in a year.
If a company is doing $100m in new business, it need~1
to spend the same amount on new equipment (;2
- Mike Riggs, Jack Cooper Transport
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20% of carriers failed. In the past, if a taillight was broken, it
would cost you a $50 fine; now it goes on record and could
result in the vehicle being stopped. If a load is over-height or
overweight-even by a small amount-or there is a problem
with the mudflap, the inspector could pull the vehicle. And
where hours of service are concerned, in the past, a driver
Jack Cooper Transport is also looking at moving into new
areas. "Our focus has been on delivery, speed and capacity;'
says Riggs. "But 75% of our business runs empty. When one
of our owner-operator drivers found two auction cars to help
pay for a return load, we decided to try to find some of that
business, too. We're also looking at dealer-to-dealer moves
Convertible Trailer Manufacturing has launched a transporter that can be
converted from a car carrier into a flat-bed for carrying containers or other cargo
and hauling rental cars. Drivers like it because they're paid
for both halves of the journey and customers like it because
it produces better vehicle utilisation and therefore lower unit
costs. It also fits in with our green initiative:'
New developments like the convertible trailer could also
help. Convertible Trailer Manufacturing (CTM) unveiled a
new vehicle in September that can take finished vehicles on
one leg of the journey and then be converted into a flat-bed to
carry containers or other cargo. The unit is 53 feet long, 102
feet wide and weighs 24,000 pounds. It can carry six or seven
vehicles and up to 46,000 pounds of general cargo. Users
just have to make sure they are insured for carrying diverse
freight, rather than just finished vehicles.
"It's a wonderful idea;' says Williams, "especially if you are
picking up import cars at ports. You could take containers
when you go to collect the cars. There are still issues to
address with the convertible trailer, but someone is thinking
out of the box and that's what the industry needs."
OEMs could do more to help, too. While some are
considering switching part of their traffic to rail in order to
avoid the challenges being faced by road operators, carriers
believe they should be prepared to collaborate more. "There
is still a customer-vendor issue;' says Williams. "We have
some great contracts, but OEMs in general still think of the
carrier as a supplier, a vendor-not a partner. They develop
partnerships with carriers on the production side but not
for finished vehicles. For us, logistics seems almost like an
afterthought. We need to plan now for the expected increase
in car production. We'll. all lose if we don't work together to
support and promote the industry:'
But one OEM takes a different view. "Every year there's
always the same issues;' says BMW's Marion. "If we have to
find a different method, such as collaboration with other
OEMs to share vehicles, or to pay a little more, or develop
better communications, we'll do it. But we always manage to
move what we have to move:' 0
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