DALLAS, Texas - At the inaugural Commercial Vehicle Outlook Conference here last month, US fleet managers spoke of the devastation wrought on their businesses by the recession and how they intend to m...
DALLAS, Texas –At the inaugural Commercial Vehicle Outlook Conference here last month, US fleet managers spoke of the devastation wrought on their businesses by the recession and how they intend to move forward.
Reducing driver pay, laying off office staff, extending equipment life-cycles and rolling back executive salaries were a few of the survival tactics employed by fleets. Now that the worst has passed, fleets are in recovery mode. Tom Kretsinger, president and CEO of American Central Transport, described recent years as “the most challenging times that ACT has ever seen.”
He said the fleet saw business soften in July 2006. It looked like it may be bouncing back in the first half of 2008 when fuel spiked and “it just fell off the table.”
He said the company suffered “an incredible drop in volumes” and “rates we never even dreamed were possible.”
ACT reduced its fleet size by 25%, rolled back driver and office staff pay, governed its trucks, slashed its recruiting department and pretty much “everything you could do to get costs down.”
“In that environment, you’re playing catch-up because you can’t get those costs down as fast as revenue is falling,” Kretsinger said. Volumes began creeping up in the fourth quarter of 2009, he said, and the company has been working to restore rates, “successfully, I might add.”
Kretsinger said all the company’s focus this year has been on restoring rates.
“This year, the focus is rates. That’s all we’ve been doing, we haven’t brought on any new business,” he said. “The balance sheets have been taking on a lot of water over the past three years and we owe it to our people, our lenders and our owners to get recapitalized because I don’t know when the next downturn is coming, but I know what will happen.”
Max Fuller, co-chairman of US Xpress, said his company cut costs by more than US$40 million. Driver pay was reduced by about 10%, the recruiting department was cut and trade cycles were extended from four years to five. The company is now restoring driver pay as demand increases, but some of the cost-cutting initiatives will remain, he said.
“We are trying to keep the costs that were reduced over the last two to three years out of our system,” he said. Trade cycles, for example, will remain at five years, (600,000 miles rather than 400,000), even though the company has had to purchase seven new facilities to service its trucks over the past two years.
Fuller said his company is also enjoying success in restoring rates, which he predicted fell 12-15% across the industry and about 10% at US Xpress.
“Our company’s close to having that 10% drop that we had, come back,” he said. “A lot of utilization has come back and rates this year, I think are coming back.”
US Xpress is now in hiring mode, looking to fill about 30 management positions today, Fuller said.
Leo Suggs, chairman and CEO of Greatwide Logistics Services, said, “If there’s a silver lining to a recession, it’s that it causes you to look at every part of your business. Those that survived the recession came out much stronger than they went in.”
“Today, in our case, the biggest challenge looking forward is capacity,” said Suggs. “About 80% of our capacity is independent contractors and the lack of able-bodied independent contractors coupled with the price of the truck and the difficulty in getting financing creates a huge challenge in the marketplace.”
He said trucking companies will have to be more creative in finding ways to attract and retain drivers and hinted that setting up recruiters in Eastern Europe may be one tactic worth exploring.
Fleet executives at the conference also voiced concern about the rising cost of new equipment, driven skyward mostly by emissions requirements. Kretsinger admitted the approximately $10,000 up-charge on EPA2010-compliant trucks and engines is difficult to swallow at this time.
“You come out of (the recession) cautious, conscious of costs and better at cost control and when you first see the price (of the new engines), there is some sticker shock,” he said, noting ACT has extended trade cycles from three years to five. He also questioned whether an owner/operator can afford to purchase the latest generation equipment.
“I don’t believe an owner/operator can,” he said of the new technology vehicles. Suggs agreed, noting, “The owner/operator that can get the financing and afford the truck probably doesn’t need the job.”
The cost of new equipment was the main subject addressed by Jim O’Neal, president of O&S Trucking.
“The cost of a Class 8 truck is north of $100,000; that’s a problem and there’s a lack of innovative financing in the market,” he said. “And the residual value of those trucks that are $115,000 are not a whole lot better than the ones we bought for $80,000 not that long ago.”
O’Neal also expressed concern that new trucks are heavier, which eats into truck productivity.
“When you see productivity decline and you see inflation rise, you can head for the hills,” he warned. O’Neal also said “there is no practical fuel economy technology on the horizon that I can see” and that “many of the products we purchase today are still built on decades old technology.”