A survey of vehicle hauliers in the US reveals most are investing in equipment, drivers and technology, but many are concerned about costs and regulation.
The American car haulier industry has had a rocky decade. Even before the financial crisis struck the sector in 2008-2009, most of the nation’s largest hauliers had filed for bankruptcy. Several have since gone out of business, while others have merged or changed owners; Allied Automotive Group, the country’s largest carrier by fleet and miles driven, is once again going through bankruptcy. This consolidation, combined with fleet reductions and de-servicing, substantially lowered carrier capacity. Difficult financing, an uncertain business climate, low rates and higher operating costs have further held back investment in trucks and drivers.
Today, however, with US vehicle sales and production in their fourth year of increase and set to climb back to 15m units this year – possibly to 16m in 2014 – the vehicle haulier industry is cautiously optimistic. Finished Vehicle Logistics’ first survey of US carriers – with responses from around a dozen carriers of varying size – found that most companies are seeing growth in the number of vehicles they move and miles they drive. In response, most are investing in equipment and adding drivers.
A strengthening economy is the main driver of the sector, however carriers have restrained their investment for a number of reasons, including regulatory issues, equipment cost and price pressure from OEMs. Non-union carriers, in particular, appear to be facing driver shortages and the need to expand fleets, while the union carriers have larger pools to draw from. Allied, for example, still has more than 50% of its capacity inactive.
To maximise existing capacity levels, many carriers are investing in new IT systems, including electronic tablets that provide route optimisation and electronic proofs of delivery (ePOD). But the latest technology cannot replace the physical demand for drivers and trucks, and some providers expect capacity shortages within the next few years.
Jack Cooper Transport is among the carriers expanding most aggressively. Its owned truck fleet has grown from 1,500 units in 2011 to 2,000 units. Chairman Mike Riggs predicts that the company will add another 500 units in 2013 as vehicle production grows. Although Jack Cooper will still own fewer trucks than Allied, it has the largest active fleet in the US.
Nevertheless, Riggs believes the overall industry is heading towards capacity shortages. “Overall in the car carrier industry, there have been a lot of liquidations and bankruptcies, and not much new investment,” he says. “Contracts typically last two or three years but equipment is under finance for seven or eight years, so we need continued commitments from our customers. The price of $260,000 per truck is a significant investment and carriers are hesitant to commit.
“The good news,” adds Riggs, “is that [OEM] customers are acknowledging for the first time that they need to help.”
The capacity situation today is complex and our survey finds evidence of fleet growth, although it has not been distributed evenly among the companies surveyed. Overall, the survey finds that carriers will have increased their owned capacity by more than 24% between 2011 and the end of this year, however some companies will make only limited additions. A large factor in this equation is Allied. With more than 1,500 trucks on the sidelines, the company can handle an additional 2.6m vehicles annually with its unused equipment, says John Jansen, executive vice-president, customer relations. But the longer that those trucks sit unused, the more difficult it will be to reintroduce them into an active fleet.
A number of smaller carriers have been investing in more new capacity, including Covey Auto Express, Auto Carrier Express and JMN Logistics. Between 2011 and the end of this year, JMN Logistics will have nearly doubled its combined owned and contracted fleet size to 100 units, including an ambitious renewal of its existing trucks. Cindy Darnell, the company’s chief operating officer, says JMN’s fleet replacement will be completed by the end of 2014. “We keep in mind that it takes three to five months to receive a new truck,” she says.
Auto Carrier Express, based in Jacksonville, Florida, replaces its fleet at a rate of 10-15% per year and will expand its owned truck capacity to 70 trucks this year, from 51 in 2011, says its vice-president William Mauldin. It also contracts another 12 trucks. Despite this expansion, Mauldin is unsure whether the company will be able to keep up with growing volumes.
Pasha Distribution Services, which serves the southeast and the Atlantic Seaboard from New Jersey to Florida, plans to buy another 25 trucks this year after adding 22 last year. However, John Kreisler, senior vice-president, says the trend is toward under-capacity for both truck and rail carriage.
Driver shortages have held back fleet capacity for some providers. Kirk Williams, president and chief executive officer of Proficient Auto Transport, says that the quality of available labour for driving is sub-standard. “We need to spend a lot on training. Our costs have exceeded $10,000 per trainee,” he says.
Auto Carrier Express’s Mauldin adds that it is difficult to attract drivers. “They are underpaid and they need to deal with all types of weather conditions and ground surface conditions.”
Donald Carney, CEO at Brothers Auto Transport, based in Wind Gap, Pennsylvania, says that the company’s driver turnover rate varies from 4-8%. Drivers tend to leave during slow periods, such as February and July, so the company tries to hire in January and June.
At US AutoLogistics, which serves the southwest and the southeast, driver availability is also under strain. President Richard Binkley says its driver turnover rate was 8% during the past several years but more recently has been 10% because of the growing market demand. “Instead of hiring experienced drivers, we have had to recruit and train OTR [over the road] drivers to become auto haulers, which is more challenging than it was in the past,” he says.
To help alleviate a shortage of drivers, Darnell says JMN Logistics has recently opened the Missouri Auto Transport Academy, which trains prospective staff. JMN also absorbs the insurance costs for contracted hauliers that own one or two units, which benefits drivers and has so far not increased JMN’s claims outlays, according to Darnell.
Robert Farrell, executive director of the Automobile Carriers Conference (ACC), suggests one factor that may contribute to the driver shortage is the recently introduced Driver Index, which is a part of the Compliance, Safety, and Accountability Program (CSA) of the US government’s Federal Motor Carrier Safety Administration. This scorecard for drivers may lead some to drive box trailers, which are less difficult to handle than car carriers and tend to result in higher scores, according to Farrell.
The driver issue appears to be more acute for smaller vehicle carriers than for some larger ones. Kathleen McCann, CEO at United Road Services, which has around 1,200 trucks in its fleet, says the company is generally able to attract and retain drivers as needed, although she admits that it is more challenging in some parts of the country.
There is less of a driver issue for unionised hauliers like Jack Cooper and Allied. While they might have a higher cost base, they have a larger pool of experienced drivers available. Jack Cooper has a waiting list for drivers and Riggs says that while the company pays a little more and provides a pension, it only spends limited amounts on recruitment and training and turnover is less than 5% annually.
For Allied, the number of company drivers on layoff is more than 80% of the number of active drivers. Cassens, the third unionised haulier, was not available for comment.
Poor forecasting and changing regulations
There are other issues straining capacity utilisation even for those carriers that aren’t short of trucks or drivers. Among the most consistently reported issues is the sales push at the end of each month and quarter, which leads to peaks and troughs. While this is not a new complaint among carriers, forecasting appears to have become even more inaccurate among some OEMs in recent years, particularly as recovery outpaces earlier expectations. Darnell points to an extreme example at one rail ramp where the original annual forecast was 3,300 units, but the actual number was 43,000 units.
Part of the issue might be the switch from a push market to a pull market among many OEMs. While this change has improved profits at many carmakers and dealers, it appears to have hurt some logistics providers. Kirk Williams says that when vehicles are sent in larger bulk to dealers, Proficient averages one or two stops per load; but as dealers increasingly order only a few cars at a time, it is common for one truck to make four to seven stops per load. “The revenue per mile is constantly shrinking for the carrier, with each stop reducing it further,” he says. “In addition, the service times required may be stricter than ever. Thus, it is a constant battle to try to build the best load with the fewest stops and the fewest out-of-route or low productive miles against very tight pickup and delivery windows.”
Many carriers also point to regulatory issues that could impact their business, in particular the planned changes to federal Hours of Service (HOS) rules. Starting this summer, the 34-Hour Restart Rule will be enforced, requiring drivers to have more down time. Since more drivers and trucks will need to handle the same number of vehicles, US Autologistics’ Binkley says that this situation will exacerbate the country’s limited capacity for car hauliers.
Kirk Williams believes that solutions to scheduling and capacity issues could be found in more cooperation between carriers and carmakers but he says there is a general unwillingness among OEMs to work together. “Vehicle manufacturers are unwilling to work with other OEMs or with carriers in order to reduce the numbers of empty miles and stops on a carrier’s route,” he says. “The industry remains focused on the lowest price instead of the need for consistency, dependability, low claims rates and overall quality. We need to work together to increase load factors, which would improve service through fewer miles travelled.”
Allied’s Jansen puts some blame on carriers, suggesting they should coordinate with each other to better serve areas. “I am unsure whether the industry has ever been as inefficient as it is now due to numerous carriers serving the same area and increasing empty miles. A lack of industry coordination means that more trucks are hauling fewer vehicles.”
Creative operations and IT systems
There are signs that the industry is addressing some common issues. For example, Darnell says that Ford is considering deliveries in which cars can be driven to local dealerships a maximum of ten miles from ramps or distribution centres. JMN Logistics already performs this service in St Louis for new and some used cars.
US AutoLogistics, meanwhile, practices slip-seat operations, in which a driver works one shift and exits the rig for another driver to take it over. Binkley adds that high demand has also led dealerships to become more amenable to receiving after-hour deliveries, which OEMs are encouraging.
Perhaps most importantly, carriers have increased investments in IT systems, including greater use of portable devices and paperless administration. Allied is reducing transit time through a mobile onboard computing system from XRS corporation that allows drivers an easy interface through portable, handheld tablets. Jansen says the system is now on board 30% of its fleet and will be in all trucks by August. “This moves away from the black box in the truck. The drivers can access and do the same on their mobile phones,” says Jansen.
Brothers Auto Transport implemented a GPS satellite system last summer which enables it to direct drivers to their next pickups more effectively. Proficient has also been investing in more handheld technology for its drivers. “Our goal is to achieve dynamic optimisation with real-time handheld technology and paperless reporting. We are close to achieving it,” says Williams.
Jack Cooper introduced an in-house system last autumn that includes GPS tracking and route optimisation. “This will radically change the way to do business,” explains Riggs. “Our system maximises the number of cars on a rig and helps to increase the load factor on the return leg.” The company uses on-board portable electronic tablets to track shipments and take photographs of damage, among other functions.
Auto Carrier Express is developing a mobile dispatch using fleet telematics from XRS Corporation that it expects to improve efficiency in administration and overheads. An on-board recorder and GPS system tracks routes and hours of service, provides engine data and improves fuel economy. The system was to be in place by June. “We must do it in order to comply with FMCSA log standards that will go into effect in 2015,” says Mauldin.
United Road’s McCann says that the company’s IT system has helped its contracted carriers to improve their self-assignment of loads. The system has features that include mobile applications, customer interfaces and dispatch information to enhance in-transport visibility and reporting, while reducing paperwork.
Jack Cooper is also moving towards more ePOD. “When dealers accept PDF-format versions, it will reduce the paperwork,” says Riggs. “The multiple EDI formats that currently exist make deliveries inefficient. The challenge is getting all of the OEMs on the same standard. Dealerships have their own requirements, so we need the support of both. A paperless environment is also part of our efforts to reduce the carbon footprint.”
As a means of advancing the implementation of an ePOD standard, the ACC is working with the Automotive Industry Logistics Steering Committee (AILSC) and the Automotive Industry Action Group (AIAG). According to Bob Farrell, Chrysler will mandate ePOD as provisions in its contracts by July 2014. “So our backs are against the wall to do it,” he says. “It will improve efficiency if all of the OEMs agree to use it.”
The vehicle logistics sector faces inherent weaknesses that include the use of dedicated, expensive equipment and a captive, limited customer base. Some carriers have tried to overcome these limits during the downturn by expanding alternative businesses, including in used cars. About 40% of the units that United Road moves are used cars, for example. Last year, Jack Cooper acquired shipping agent Auto Export Shippers, based in Elizabeth, New Jersey, which ships used vehicles to Nigeria and Ghana, among other countries, and might expand to South America.
Although the percentage of used cars that Allied moves remains small, it has also been growing recently, particularly as the carrier sells more backhaul space online at a discount. “We are anticipating 20% growth in used car volumes this year, which provides us with the opportunity to fill backhaul miles,” says Jansen. “For the past 18 months, we have been posting empty lanes on the web at a deep discount.”
JMN Logistics has increased its capacity for moving used vehicles by using rollbacks, which are flatbed trucks that it uses to move up to four remarketed vehicles.
Although new markets and technology are important, the growth of the new vehicle sector in the US is propelling hauliers back to health. Despite worries over fleets and drivers, our small survey suggests that companies are adding both, including plans this year to expand fleets by 17% and drivers by 15%, respectively. Carriers that have both the right capacity and technology stand to benefit most from continued growth in the US.
