With US car carriers facing ongoing troubles with low margins and in obtaining financing, the prospect of an upturn in North American production and imports has led to capacity shortages. Marcia MacLeod looks at the obstacles currently facing the major players.
Even 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 PTS– the 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 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 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.
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. 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 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,” 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 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 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 to spend the same amount on new equipment.” A rate increase would help. “If rates were better, it would be easier to get new financing,” 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 $1m a month with its latest contract; the OEM 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?”
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, 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 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.”
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.
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 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.”