The economic-related aftershocks that followed Sept. 11 created a fork in the road for truckers. Carriers had a choice: they could either swallow and perhaps drown in the so-called perfect storm of insurance and fuel-price spikes; newly mandated emission controls; shrinking manpower pool; and a pile of overlapping, sometimes arbitrary, U.S. security regulations — or they could do something they haven’t done in years. They could ask their customers to pay for it.

Just over a year ago, the CEO of one of Canada’s largest for-hire carriers stood up at the Ontario Trucking Association (OTA) convention in front of colleagues, competitors, and perhaps even future employees, and told them all to raise their rates or risk being bought out by companies like his — maybe even squeezed out of the industry entirely.

“If you’re not passing these increases on, then you’re missing one of the best opportunities I’ve ever seen in my 37-year career,” Stan Dunford, CEO of Woodstock, Ont.-based Contrans Income Fund, insisted evangelically that day.

What he said next wouldn’t typically get a standing ovation from an industry that has historically accepted 5 per cent margins with a nod and a smile. But it did. He told them that if customers didn’t comply, the recourse was simple: Fire them.

It became clear that these carriers — from 15-truck flatbed fleets to 500-unit dryvan carriers — weren’t applauding the sermon as a new awakening. They were already watching other carriers and owner-operators flip upside down — their fear of causing tremors with customers ironically pushing them out of business. They too were noticing hidden opportunity in a emerging capacity crunch not seen since deregulation. Some of those carriers in the room with Dunford that day had already begun to leverage their new buying power — albeit slowly and quietly. What they were applauding instead was Dunford’s message that they didn’t need to tiptoe anymore. It was their turn to make some money and they need not apologize for it.

Roll the calendar forward a year to another OTA executive briefing, with another panel of natural-born industry leaders. The issues haven’t really changed — tight capacity, rates, drivers, and the opportunities that come with each are still trucking gospel — but this time there’re more parishioners nodding their heads in the pews.

Dual personalities:

The notion that capacity is mainly regarded as a truckload issue may slowly be changing. Not known to be in direct competition with the railways, LTL carriers have traditionally relied on intermodal transportation to boost their own capacity. But with the railways already operating beyond their own limits, and with services becoming more unreliable, the tracks are becoming a less viable alternative these days — putting capacity front and centre for LTL too.

Moreover, as the industry continues to mature and this swing in the free market begins to settle, freight trends between some major sectors are evolving, says Russell Gerdin, founder and president of Coralville, Iowa-based Heartland Express — one of the most consistently profitable truckload carriers in North America.
“Guess who’s now getting back in the truckload business?” Gerdin asks his Canadian brethren rhetorically. “LTL is. Why? Because there’s freight available for them. It’s that simple.”

Like parent U.S. LTL giant Yellow Roadway, which recently reported its truckload business has jumped by over 20 percent, Winnipeg-based Reimer Express CEO Alan Robison admits LTL is picking up some excess freight that truckload operations don’t have the capacity to handle.

“Our truckload business has also increased, and that’s not freight we went looking for either,” he told Today’s Trucking in an interview. “We’ve found that people who wouldn’t normally call us have been doing so this last year.”

Some of that freight shifting to other sectors is a result of truckload carriers who have begun shuffling their deck of customers, suggests Scott Johnston, president of the Yanke Group of Companies. “In our business we’ve tried to identify customers that are in synch with new HOS regulations, are committed not to have a detrimental effect on velocity, and [comply] with better accessorial recapture,” Johnson says from Yanke’s Saskatoon head office. “As a result, we’ve had to move away from certain business, and that may be now going to LTL.”

Johnston is confident that the freight shift to LTL will not in any way erode the new rate standards that truckload carriers are now trying to build.

Robinson accentuates the point, adding that Reimer, for one, is not actively trying to price traditional TL freight. “We handle it in the price structure we already have, which obviously means it’s going to be higher. But with the capacity constraints, customers at least at the moment, are agreeing to it.”

The $65,000 Answer:

More than any other factor, drivers, or lack thereof, will continue to drive the questions surrounding capacity, and in fact have redefined the term. It’s not availability of equipment or providers keeping a leash on transportation supply, but the pool of professional and stable manpower behind the wheel.

While steady demand and limited supply is undoubtedly driving up rates and making money for many carriers who have drivers at the moment, only a cynic would suggest that transport companies are perfectly comfortable maintaining the tight status quo for the long-term.

“Look, we’re going to have at least another good year of trucking because there’s no drivers,” Gerdin says. “But you better be out there getting your share of the rates and getting drivers for the future to ensure you’ll be here two years from now.”

Robison also warned against complacency, agreeing that carriers leveraging solely on capacity will pay a price down the road. “Those that take advantage of it and do nothing else are going to be in trouble,” he says. “Not looking for more drivers and increasing capacity every day is a dead end. That’s the business we’re in and we better stay in that business.”

So the age-old question arises yet again: How does the industry get drivers? The only recourse, especially for truckload, is to show them the money, the panelists say.

But not only are carriers countering other competitive trades for reliable operators, they’re also rivaling other sectors within the industry. While team long-haul LTL fleets face many of the same recruitment hurdles as truckload, the flexible lifestyle and higher rates that are associated with a short to medium-haul regional LTL operation will continue to attract the handful of the most desirable drivers in the labour pool.

“[LTL] is saying it’s tough to get drivers, and look at what they’re paying,” warns Gerdin. “If that’s the case, can you imagine the mountain that we have to climb then? The guys that are going to even want to drive a truck are probably going to drive an LTL truck first, and they should.

“In the past 10 months, we’ve raised rates 25 percent to truckload drivers, plus 7 cents a mile extra. Do you know how many drivers I’ve gained since Oct. 1?” Gerdin asks dryly. “Seventeen. You think I’m happy?”

If truckload wants its share of competent drivers, it needs to launch a new rate system that will eventually be more in line with regional-haul LTL, says Gerdin.

“You better not think of rates in terms of what you have to pay to attract drivers, but what you have to pay to keep them,” Gerdin says. “Then you have to go another step up to get new drivers. And when you do that, you’re going to run right into the wages of LTL, which is washing us all out. So now you have to go a third step.”

Hundreds of miles north of the border in Verchères, Que., Jacques Dulude, president of AGD Verchères, has aggressively launched his own competitive recruiting package. Twice the company increased driver pay last year, totalling 13 per cent — not a modest hike for a mixed TL and LTL carrier with only 18 trucks. “That was a risk that is paying back,” Dulude said. “The next step is to review the whole company’s benefits plan. Those [increases] have been a big help in competing in the market.”

Stan Dunford said at the 2004 OTA exec briefing that last year was the first time in his career in which he told the managers of Contrans’ subsidiary fleets to hike driver pay without preemptive consideration to customer rates.

“Our philosophy in each of the divisions was to tell the guys they can pay drivers and owner-operators anything they want. It doesn’t matter to me,” Dunford explained. “But here’s the catch: I’d say to them ‘you must go and get it from the customer first.’ Well I don’t need to go on about how that put the brakes on a lot of increases for a lot of years. Now for the first time, I changed that philosophy. In order to retain the guys we’ve got, we have to look at increases in advance of getting it from the customer.”

The OR room:

While there seems to be a maturing in the trucker-shipper relationship, Dunford says much work still needs to be done in educating customers that the way the two industries make money is quite different. “How many times have customers said ‘look if I give you another 25 per cent in freight, how much lower can I expect the rate to be?'” Dunford asks. “Now that’s a guy who doesn’t understand how we make money in trucking or he wouldn’t say something like that.”

Those that have been able to reach customers, attain rate increases, and recoup accessorial charges, have generally seen their operating ratios come down from the traditional plateau of 95 per cent or so.

However, all the panelists at the executive briefing and carriers contacted by Today’s Trucking afterwards, stressed that this is no time to be sheepish about profit. “We shouldn’t be doing high-fives with 5 per cent margins and 95 OR,” says Johnston. “There’s no reason we shouldn’t have 10 per cent or more. That’s the message that needs to shake the very ground we as an industry walk on.”

The question about OR that every fleet owner operating in this new environment needs to ask himself is not how many trucks he has, but what he does with each and every one of them, says Gerdin, whose company achieved a remarkable operating ratio of 78 per cent last year.

“Common sense is that you don’t give that shipper another truck unless you get something for it,” he said to the group of Canadian truckers nodding in unison. “Operating ratio is about you, and totally you. If you let your sales force tell you how they have this great account and you need to go buy a new truck for it, well you got that thing in reverse.” He pauses.

“This isn’t very hard. It’s A to B and back, go collect, and hope you don’t have a wreck. That’s it.”

78 folks. Who’s going to argue?