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These are challenging times for shippers. Driver, labor and truck shortages, port congestion, escalating freight and fuel costs, coupled with the lingering effects of Covid are making life difficult for shippers across the world. Here are a few coping strategies

1. Work in Partnership with Procurement to Create Alternate Sourcing Strategies for both Raw Materials and Transportation

Every day we read and see images in the media of containers sitting at ports, or offshore, waiting to dock at a port. We also read about embargoes and about carriers refusing to pick up or deliver to certain markets.

This is a time when Purchasing and Transportation must work together. It is no longer just a question of finding reliable sources of supply; it is also a question of whether goods can be picked up from or delivered to selected markets. Procurement and Transportation must communicate about alternate sources of supply, particularly about finding vendors in North America to mitigate supply chain bottlenecks and satisfy customer requirements.

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As we begin the new year, trucking companies throughout North America are facing the same challenge - - - finding qualified truck drivers. There are several forces shaping the supply of drivers.

The coronavirus is making drivers sick and some have not come back; the virus is also causing older drivers to retire. A surge in business volumes is being experienced in various sectors of the freight economy. Strong market demand and capacity shortages are encouraging more requests from shippers for committed capacity. Having done their homework, some of the biggest shippers are prepared to pay a premium to secure the capacity they need.

As increasing numbers of people work from home, and with the closure of many restaurants and stores, there has been a remarkable upswing in Ecommerce activity. Thousands of drivers have been added to the workforce to perform local deliveries. During this period, an estimated 30,000 drivers have been disqualified in the new U.S. Drug and Alcohol Clearinghouse.

Trucking companies are creating a range of programs to recruit and retain drivers. Roehl Transport (https://www.roehl.jobs) announced a new program to add truck driving jobs to qualified people who stepped away from their commercial driving career for other non-driving employment. “The Roehl Relaunch Program is open to former truck drivers who may have left trucking for positions in construction, manufacturing, retail, and other industries as well as current drivers in local trucking jobs who may not be getting the income they need . . . Drivers who complete the Relaunch program will be given credit for their prior experience rather than starting over at entry level driver pay rates.”

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The Covid-19 pandemic, and the response of the Canadian and U.S. governments and citizens to the virus, is clearly the major story of 2020. The pandemic did not just have impacts on the health of many Americans (i.e. over 11 million cases, 250,000 deaths) and Canadians (i.e. over 306,000 cases, 11,000 deaths); it also had significant impacts on our personal lives, business operations, and freight transportation. This blog will highlight the huge effect of Covid-19 on so many aspects of our lives; an upcoming blog will capture some of the other top freight stories of the past year.

1. Covid-19 – The Impact on our Health and Personal Lives

Millions of Americans and Canadians have been infected and continue to be infected at an escalating rate. Personal reactions have ranged from mild flu-like symptoms to significant health issues to death. To protect oneself from contracting the virus, many citizens have begun wearing masks and other PPE, limiting the size of groups with whom they interact and trying to maintain six feet or more of distance between themselves and others.

The lack of national strategies in Canada and the USA on testing, tracing, and quarantining have resulted in a protracted and extensive virus spread. Varying guidelines on mask utilization, industry sector lockdowns and re-openings, and varying leadership approaches have created confusion, fragmented responses, and disappointing results. Many citizens must stay home if they tested positive, if they had symptoms, or if they had to be quarantined. Many primary, secondary and university students are now participating in online learning rather than attending schools. The year is ending with at least two potentially effective vaccines, which will likely be distributed during the first six months of 2021.

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From a Freight Transportation perspective, the past two years have been among the most tumultuous in decades. Throughout 2018, an economic surge, a shortage of qualified drivers, and the implementation of the ELD mandate in the United States, created a shortage of freight capacity, particularly in the truckload sector. Shippers struggled to find trucks to move their loads.

To address these shortfalls, many shippers were forced to pay significantly higher rates, establish dedicated fleets and/or change their freight operations to become a “Shipper of Choice.” Rather than simply tender their loads, shippers were advised to become more “carrier friendly.” This encompassed a range of activities.

Becoming a “Shipper of Choice”

Shippers learned that they could improve their chances of securing needed truck space by giving carriers advance notice of a pending surge in business volumes. Another way to improve carrier relations was to help fleets keep their trucks on the road, rather than sitting in warehouse yards or at loading docks. To avoid carrier detention fees for long waits, shippers and receivers were encouraged to improve appointment scheduling and freight loading / unloading processes.

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How to Retain Truck Drivers in 2019

Posted by on in Driver Shortage

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Annual turnover of over the road truckload drivers is currently in the range of 95 percent. The cost of replacing a driver is approximately $8000. This high turnover ratio came during a year in which truck drivers in many fleets received multiple and significant bonuses and pay increases. This begs the question of how well many trucking companies truly understand the needs and requirements of truck drivers.

I recently had the privilege of hearing a presentation from Max Farrell and Andrew Kirpilani, Co-Founders of WorkHound (www.workhound.com). Workhound is a real-time feedback platform for frontline workers. Trucking companies that subscribe to the service request their drivers to submit feedback, praise, problems, and ideas through their smartphones. Workhound distills the data daily into actionable, ready-to-use insights that help manage and retain drivers. Drivers feel empowered, knowing that their feedback is acknowledged; the subscriber that listens to and acts on the feedback receives the bottom-line benefit of a happier, motivated team.

What makes Workhound’s approach different from other standard marketing research tools? The answer is that drivers that provide their feedback to Workhound are not limited to responding to a highly structured questionnaire that has built-in biases and specific agendas. Rather, drivers are prompted weekly to share their experiences, any experiences and observations, good or bad. They are free to write about any aspect of their jobs. The link to share their feedback is open 24/7 and the driver can use his or her smartphone to enter their insights. Eighty-seven percent of the drivers in the data base use a smartphone. Workhound continuously monitors the feedback and sorts them into twelve themes.

Companies that receive this feedback are encouraged to respond individually or collectively to the problems that are raised. Workhound’s trucking company customers have 60+ trucks in their fleets. They have a mix of tanker, reefer, dry van, flatbed, and expedited trailers. The data base consists of 77% Company Drivers and 23% Owner Operators.

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On Monday, November 26, 2018, General Motors announced that it will be closing five plants in North America in 2019, four in the USA and one in Canada. In addition to the closures, 6000 hourly workers and 8000 salaried employees will lose their jobs. “The actions we are taking today continue our transformation to be highly agile, resilient and profitable, while giving us the flexibility to invest in the future,” said GM Chairman and CEO Mary Barra. “We recognize the need to stay in front of changing market conditions and customer preferences to position our company for long-term success.”

The press release goes on to say that “GM has recently invested in newer, highly efficient vehicle architectures, especially in trucks, crossovers and SUVs. GM now intends to prioritize future vehicle investments in its next-generation battery-electric architectures. As the current vehicle portfolio is optimized, it is expected that more than 75 percent of GM’s global sales volume will come from five vehicle architectures by early next decade.”

Thirty-five years ago, I began my career in the trucking industry by working for a company that derived fifty percent of its revenues from the automotive industry. My company worked directly with these plants. I have had the opportunity to visit the GM Oshawa facility on multiple occasions. While there are only 2300 hourly workers that are employed there now, this is an iconic facility in the province of Ontario and in Canada as a whole. This plant has been a symbol to Canadians, for a century, of the importance of the automobile manufacturing and assembly industry.

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Over the past few years, one of the defining challenges in the freight transportation industry has been a shortage of qualified drivers. In April of this year, I posted a blog (https://www.dantranscon.com/index.php/blog/entry/what-are-trucking-companies-doing-to-solve-the-driver-shortage ) that examined the range of compensation tools and benefits that are being offered to recruit and retain drivers. In another blog (https://www.dantranscon.com/index.php/blog/entry/trying-to-solve-the-driver-shortage-try-paying-them-a-salary ), I suggested that some trucking companies should consider paying, at least some of their drivers, an hourly rate or salary. The following are some additional compensation schemes that carriers are employing and a few thoughts on the effectiveness of these programs.

Multiple Pay Increases in the same year

To stay competitive, some carriers are providing their drivers with multiple pay increases to ensure they stay on par with the competition.

Payment for Practical Miles

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The truckload sector of the freight industry is different from the LTL and small parcel segments in two significant ways. Unlike the other two segments, anyone who can buy or finance the purchase of a tractor-trailer unit and can drive the rig, can enter the industry. Freed from the requirement to build cross-dock facilities and/or buy sorting machines, the barriers to entry are low.

There are approximately 540,000 truckload carriers registered with the Federal Motor carrier Safety Administration in the United States. These range from 1 truck to 20,000 truck fleets. The majority have less than 20 pieces of equipment in their fleets. These companies are projected to generate $358.6 billion in revenue in 2018. The comparable Canadian number would probably be in the range of ten percent of these numbers. The truckload sector is about ten times the size of the LTL sector.

Revenue/Tonnage Growth in 2018

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Last week’s TruckWorld event at the International Centre in Toronto was a great opportunity to connect with old friends and get updated on the state of the freight transportation industry. It was clear from the huge attendance at the show that is a very good year to be in trucking. The negotiating leverage has clearly swung over to the carrier side. Shippers are being told to accept rate increases or risk losing their truck capacity to other manufacturers and distributors.

One trucking company owner summed up the state of the industry this way. The industry is facing four problems: drivers, drivers, drivers, and drivers. This caused me to reflect on what various trucking companies are doing to address this issue.

Signing Bonuses

Companies are offering from $2000 to $10,000 bonuses to experienced (one year plus) drivers.

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In last week’s blog, I highlighted the tight freight capacity being experienced across North America (https://dantranscon.com/index.php/blog?view=entry&id=310 ), and that it is likely to continue for another year or two. For shippers that are experiencing shortages of trucking or rail equipment, there is a series of steps that need to be taken to prevent service failures and loss of market share. Here is a link to some blogs I wrote on this topic last summer (https://www.dantranscon.com/index.php/blog/entry/shippers-need-to-become-more-carrier-friendly-to-minimize-freight-rate-increases and https://www.dantranscon.com/index.php/blog/entry/two-keys-to-maintaining-truck-capacity-this-winter ).

The following are some additional steps to take to become a Preferred Shipper.

1. Integrate a Freight Transportation Strategy into the company’s Business Plan

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North American freight markets are witnessing the strongest demand for transportation services in decades. Contract and spot freight rates continue to soar. The contract rate average revenue per mile rose 3.5 percent in 2017. Through the first two months of this year, contract truckload freight rates have jumped 15 percent per mile! “We’ve never seen numbers like this,” according to Bob Costello, the American Trucking Associations’ chief economist. So far in 2018, the total number of loads is up 5.4 percent compared with the same period a year ago.

Supply chains are also changing. The number of miles driven per load continues to decrease for full truckload carriers. The average miles driven per haul in the United States fell 34 percent last year to 524 miles, down from nearly 800 miles about 15 years ago. A changing supply chain is behind the decline, Costello said. Online and big box retailers have increased their number of distribution centers across the country, shortening distances for deliveries. The number of miles truckers are driving annually also has fallen and now stands at about 100,000, roughly 35,000 miles less than 15 years ago. Sales of trucks in the heaviest Class 8 weight segment continue to be strong as demand grows from both leasing companies and motor carriers.

CEOs are taking notice and are highlighting the impact of freight costs on their financial results. What are the drivers of this rapid escalation in freight rates? The industry is benefitting from low unemployment, booming housing starts and strong online sales growth, according to Mr. Costello. America is still feeling the impact of the three hurricanes last year and the difficult winter storms.

Truck fleets are also having difficulty supplying the needed capacity. Market demand indices show that capacity is very tight. The load to truck ratio in most parts of the United States is at a very robust 5.5. loads per piece of equipment. There are 10 flatbed loads for every flatbed driver. The impact of the ELD mandate has also contributed to driver shortages. The ELD mandate has increased the time to move loads from 1.05 days to 1.22 days on loads traveling 450 to 550 miles. Trucking companies are not expanding their fleet sizes since they cannot find drivers to fill their trucks. Even with the significant increases in driver pay, trucking networks are 100% full or higher. Truck fleets are allocating their precious assets to shippers that have speedy pick up and delivery requirements and pay compensatory rates.

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Recruiting and retaining qualified drivers has been a challenge for several years. Many young people do not wish to spend so many hours away from friends and family. The Hours of Service and ELD mandates make the job more difficult from a work enjoyment and compensation perspective. They cap the number of hours a driver can work and thereby limit their incomes. As the U.S. government ramps up its ELD enforcement efforts, this will likely encourage some drivers to find another source of employment.

The strength of the U.S. and Canadian economies is placing pressure on the limited supply of drivers. Employment levels in America are at record highs. Two sectors of the economy that serve as alternate sources of employment for drivers are manufacturing and construction. Both areas are also on a growth spurt. The rebuilding efforts after the two major hurricanes in the southern U.S. have provided an added boost in demand for people willing to work in construction.

The driver shortage problem in North America has been studied for years. “Blue ribbon panels” have been created to find solutions to this chronic problem. Some of the challenges are well known.

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During the Great Recession, the LTL freight industry experienced a “near death” experience as declining freight volumes, excess capacity and falling rates conspired to dramatically reduce revenues and profits. The LTL market shrank from more than $33 billion U.S. at the peak in 2006 to $25.2 billion at the recession's trough in 2009. As we approach the mid-point of 2015, the fortunes of this industry look much brighter. Here’s why.

The industry has consolidated

Looking back over the past 25 years, only 4 of the top 50 carriers are still in operation. Over the past 10 years, there has certainly been a changing of the guard at the top. As noted in a recent Stifel transportation report, “Old Dominion has replaced FedEx Freight/Con-way Freight as the most profitable carrier in the industry. USF was bought by Yellow Roadway to become YRC Worldwide before it nearly went the way of Consolidated Freightways, Overnite became UPS Freight, Central Freight Lines went public then private, Vitran was sold in pieces, Saia sold Jevic (which then went bust), and Roadrunner acquired Dawes and Bullet to become the only national asset-light general commodity LTL carrier. The industry is more concentrated than ever . . . “

The report goes on to report that “the top-5 (U.S.) carriers have roughly 55% of the market. And those top-5 - FedEx Freight, YRC Worldwide, Con-way Freight, UPS Freight, and Old Dominion Freight Line - are all either historical disciplined pricers or have been burned in the past by their undisciplined ways or have no choice but to push price to improve margins.” The Canadian market is quite similar with TransForce, Day & Ross and Manitoulin dominating the LTL sector. Unlike the truckload sector, consolidation means more leverage and pricing power for the top LTL players.

Today’s LTL Carriers are leaner and meaner

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In a recent Stifel report, it was noted that the “mother” of all capacity shortages is expected to hit the United States in 2017 as a series of government regulations reduce the supply of fleet equipment by five to fifteen percent. Despite the efforts of carriers to raise pay, upgrade facilities and improve the lifestyle of drivers, annual turnover stubbornly remains at close to one hundred percent in many fleets. On the rail side, a huge upswing in the movement of energy products by this mode has had a deleterious effect on intermodal capacity and service. Wise shippers realize that trying to secure carriers on the spot market is a risky endeavor since this leaves them open to capacity shortages and rate volatility.

What can your company do to protect itself if there are capacity shortfalls?

Is your company ready for even tighter freight capacity? Will the integrity of your company’s supply chain be maintained in this ever-changing environment? What can your company do to protect itself if there are capacity shortfalls?

1. Bring your top performing carriers under contract

An important first step is to view your major carriers as business partners. As such, it makes good sense to negotiate formal multi-year contracts with capacity commitments and service guarantees. As you engage in these types of discussions, find out how your business fits within the parameters of their operation. Does your freight move on their primary traffic lanes? Do they have head haul or back haul in the reverse direction? Are you a valued customer?

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Over the past few weeks, there are a couple of items that have come to my attention that inspired me to write this blog. First, I had the pleasure of sitting in on the annual Masters of Logistics webcast, sponsored by Logistics Management. This is the 23rd year that these high quality researchers have surveyed a large sample of shippers and carriers to get a “read” on the current state of the industry. As always, the study produced a number of interesting findings. The one that caught my eye is the disconnect between shippers and carriers. The researchers labelled it a “tug of war.”

The results highlight that shippers and carriers, at this point in time, have conflicting business objectives. On one side we find freight carries looking to recover from the economic downturn and offset the rising costs of driver wages, higher fleet costs and regulatory changes. With capacity tight and drivers in short supply, trucking companies are seeking to maximize profitability.

At the other end, shippers are trying to reduce their costs while managing increasing demand uncertainty from all customer levels. “In fact, many shippers are asking for cost reductions at the same time that they’re asking for improvements in service,” says Karl Manrodt, one of the lead researchers. How do you reconcile these opposing views?

Some companies are coming up with white papers to educate the shipping public on the challenges that carriers are facing. Within the past few weeks I received two good ones, “Industry Challenges” from JB Hunt and “Truckload Capacity in 2014, What’s Causing the Capacity Crunch and What Can Shippers Do About It?” from DAT Solutions. These are useful, well written documents. They do help create an understanding of the issues being faced by shippers and carriers. They also contain some helpful tips on how to obtain additional capacity and secure competitive rates. Unfortunately, written documents have limited value.

The key to bridging the gap between shippers and carriers is face to face communication. As I think back over the years, the current “tug of war” brings back memories of 1999. Some of you may remember the concerns over Y2K and the worries that the year 2000 would bring a meltdown in computer systems throughout the world. As President of a large freight broker at the time, I remember the conversations I had with our top 10 carrier partners. While addressing the Y2K issue, we had an opportunity to discuss various aspects of our business relationship. This was very productive and is clearly what is required now.

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Thankfully, the first quarter of 2014 is behind us. The challenging winter across Canada and the northeastern USA and capacity shortages, brought on, in part by the weather, created a difficult environment for both carriers and shippers. Are we in the clear now? With the winter behind us and with the economy improving, can we expect freight supply and demand to come into balance? Here are some thoughts to ponder.

1. Climate Change will continue to produce Bad Weather

Because of its near-total dependence on petroleum fuels, the U.S. transportation sector is responsible for about a third of America’s climate-changing emissions. Globally, about 15 percent of manmade carbon dioxide comes from cars, trucks, airplanes, ships and other vehicles. A National Research Council report states that America’s transportation infrastructure is at risk due to the effects of global warming. Severe weather and rising water levels will impact roadways, railroads, and airports. Climate change will affect transportation primarily through increases in several types of weather and climate extremes. Climate warming over the next 50 to 100 years will be manifested by increases in very hot days and heat waves, increases in Arctic temperatures, rising sea levels coupled with storm surges and land subsidence, more frequent intense precipitation events, and increases in the intensity of strong hurricanes. The impacts will vary by mode of transportation and region of the country, but they will be widespread and costly in both human and economic terms and will require significant changes in the planning, design, construction, operation, and maintenance of transportation systems.

In other words, get used to it. The next winter may be worse than the last one.

2. Capacity Shortages May Increase and Get Worse

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At the January 21 Driving for Profit Seminar in Mississauga, Ontario, the number 61 was placed on the screen. Glenn Caldwell, Vice President of Sales for NAL Insurance, asked the audience if they knew the significance of this number for the trucking industry. As we learned, the number 61 represents the average lifespan of a professional truck driver in the United States, a number that is significantly below the national average for the rest of population (76 for an American male, 80 for a Canadian male).

One of the handouts at the Seminar was a 144 page report entitled Research on the Health and Wellness of Commercial Truck and Bus Drivers, Summary of an International Conference from the Transportation Research Board of the American Trucking Research Institute of the Federal Motor Carrier Safety Administration, published in 2012. The study focused on a range of issues and actions that can have an impact on the health and wellness of truck drivers.

Some Common Driver Health Risk Issues and Potential Actions

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The world of freight transportation is changing rapidly.  The signs are there and they are unmistakable.  Recognizing and responding effectively to these signals may help determine which shippers and carriers will survive in the years ahead.  Let’s examine the components of the new paradigm of freight transportation.

The Era is Cheap Oil is Over

The steep escalation in fuel prices this year is a harbinger of things to come for shippers and carriers.  This time there will likely be no major recession to bring energy prices down.  The sad fact is that 95 percent of transportation modes, passenger and freight, run on petroleum products and the likelihood of finding new sources of supply or of shrinkage in global demand is highly unlikely. In fact the use of petroleum in countries such as China and India is on the rise.

The result will be tighter truck capacity, greater use of intermodal rail services, the electrification of transportation systems, the relocation of factories and distribution centres and the slow shift to cleaner, cheaper fuels.  It will drive more LCV’s (long combination vehicles) or “turnpikes” and more triple trailer configurations.  This may be the impetus to harmonize our laws throughout North America to remove barriers to the movement of the most energy efficient vehicle combinations across our highways.   To curb use, many countries will have to begin looking at the Danish example of higher taxes on fuel inefficient vehicles and higher taxes on petroleum.  Get used to it.

The Driver Shortage is Real

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Some thoughts on the Driver Shortage Issue

Posted by on in General

This past week I had the opportunity to speak with some of North America’s leading truckers.  Other than the “head shots” in this year’s National Hockey League playoffs, the other number one topic of discussion on everyone’s mind is the issue of driver shortages.  I also had an opportunity to read what the Canadian Trucking Alliance labels “a new, eye-opening report” from the Blue Ribbon Task Force they established in 2011 to address the impending shortage of qualified commercial drivers in Canada. 

In this blog, I would like share a few thoughts on this hot topic.

The problem is real

There are some shippers who believe that this issue is manufactured by the trucking industry to help sell freight rate increases.  Let me assure my shipper friends that this is not correct.  Trucking companies all over North America are having difficulty attracting “qualified drivers.”  By this term we mean skilled professional drivers or people interested in becoming professionals. 

This shortage is being created by an aging workforce, lifestyle issues (e.g. having to spend time away from home), a lack of interest from women, the challenges of the work, the level and structure of the compensation and the fact that driving truck is not viewed as a profession.  The fact is that while there are millions of Americans and Canadians out of work, driving truck is not considered an option for most people.

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