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The Road Ahead

by Jim Park
Untitled Document 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 regional work.

~ 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 strangle productivity.

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.

Human Resources
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.

Three 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 measures.

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 of business."

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.