Good times to work together
More than 250 delegates gathered at the third annual conference to hear that the industry is in its best shape for years. But there was worry that the current capacity 'crunch' could turn to 'crisis' if the right investments and productivity gains are not made
NEWPORT BEACH, 1 June 2012: Riding on the momentum of a car industry that has, in the words of IHS Automotive Consulting managing director Michael Robinet, been “running at a different speed to the rest of the US economy”, speakers and delegates discussed how the sector must increase investment and productivity if it is going to meet the demands of the region’s growing sales and production.
And with financing still difficult for buying car carrier trucks and trailers, a growing driver shortage, rail wagon shortages common in some areas–especially for expanding volumes out of Mexico–and operating efficiency generally poor, there were fears the vehicle logistics industry could fall behind or even limit the sales recovery.
Good sales in spite of bad economy
For the past half a year, the growth pace for the US and North American automotive industry has, in some measure, decoupled from that of the regional and global economy. Even amid weak job growth in the US, financial crisis in the eurozone, a ‘soft landing’ in the Chinese economy and other signs of volatility, sales have been strong. According to Robinet, the drivers of the growth have been demographics and an aging vehicle fleet. “With almost 2m new drivers added each year in the US, and a vehicle fleet older than 10 years old, this market almost has to grow,” he said.
A relatively weak dollar has also been prompting global carmakers, particularly from Japan, to invest in regional capacity and for North American carmakers to look more at exports.
Other factors helping the sector have been lower-than-expected inflation in the US and some stability in price of oil. IHS expects the price per barrel of Brent crude to stabilise over the coming years to around $114 per barrel–barring a geopolitical event in Iran, the Middle East or Venezuela, for example–while the price at the pump is actually expected to decrease with the expansion of alternative fuels such as natural gas.
Robinet’s forecast, supported by the outlooks from other OEMs and providers, puts 2012 sales finishing at their highest level since 2007 at around 14.3m this year compared to 12.7m last year, and moving to just below 15m in 2013. Robinet expects sales of 15.7m in 2014, when housing starts begin to recover in the US, and finally surpassing pre-recession levels at 16.2m in 2015.
Mike Riggs, chairman of Jack Cooper Holdings, one of the country’s largest car hauliers, is even more optimistic, suggesting that sales could reach 16m units in 2013 and climb to 17m units and beyond by 2014. “It would not be unheard of to get back to 17m units by 2014 and then stay there because we’ve been there before,” he said.
An anonymous survey taken at the event found that the audience was less optimistic than Riggs, but still fairly positive: 36% expected sales of 15m in 2014, while 42% expected 16m. Only 7% expected sales to reach 17m, while 14% were pessimistic, at 14m or below.
The US sales figures for May, released at the same time as the conference, were mixed, with strong gains compared to last May’s Japan-depressed volumes (Honda and Toyota were particularly strong in recovery), but with a selling rate that dipped below 14m for the first time this year.
Production and exports growing too
Robinet sees automotive production recovering strongly, forecasted to rise to 14.6m light vehicles in North America compared to 13.1m in 2011. With many US factories switching to three-shift production to increase capacity, and up to 1.5m units of new production forecasted to be added by new factories in Mexico alone over the next few years, Robinet believes production will reach 16.3m units by 2014 and expand further to 17.5m units by 2016. “The amount of capacity coming online, especially in Mexico, is frankly astounding,” he said.
Although import recovery has been strong this year, Robinet expects higher North American production to slow the growth of imports. While they will remain considerably higher than exports beyond the region, the latter are expected to reach 1.38m units this year compared to 1.17m last year and 0.74m in 2006.
North American production capacity levels are near record high and “completely maxed out”, according to Robinet, which he said could actually limit growth. Likewise, there were suggestions that a lack of outbound vehicle logistics investment could have a serious impact on delivery times and customer satisfaction, and in some cases even hold back growth, particularly for growing lanes like exports from Mexico. Whilst truck capacity was an on-going concern, there appeared to be even more worry over rail wagon shortages. The message to carriers and railways that cannot find the capacity or service was that they would risk losing out on a share of the industry’s success, be it as carmakers bought their own truck capacity or turned away from rail towards alternative options, such as short sea.
On the road to trouble
According to Jack Cooper’s Riggs, the number of car transporters in the US market has been stagnant at 9,000, following a drop from 12,500 before the financial crisis. Despite sales growth, the number is not predicted to rise across the sector by 2014. The reasons, says Riggs, is that despite improvements in consumer financing in the automotive industry, banks are still reluctant to lend to car hauliers.
“I’ve never seen it more difficult to borrow money [for car haulers],” he said. “You used to be able to put 10% down, but now you need to put 40-50% down. You can count the number of carriers with 100 trucks or more on two hands, so this is an industry with 2,000 small competitors and most of them struggle to find lenders.”
Riggs estimated that the industry would be short of 3,500 trucks and trailers, which would cost $875m collectively. “Nobody in the sector has the money to pay for this,” he said.
Trains are under strain
There are some parallels on the capacity side for rail wagons (called railcars in North America). According to Linda Brandl, vice president and general manager for automotive at Union Pacific, the US wagon fleet was around 55,000 prior to the recession for a market of 16m-17m light vehicles per year. When sales collapsed in the US in 2008-2009, the railways eventually adjusted their fleet, eliminating around 7,000 (but with a larger amount in storage). The current level of available wagons to serve a market selling at a rate of 14m units is just shy of 49,000. Brandl points out that this number is still above the inflection point for demand prior to the recession, but the gap is closing.
But the perception among some OEMs appears to be that the situation is worse than that. Part of this has been because of a recent Canadian Pacific railway strike, which caused a massive backlog of cars, but beyond that disruption executives from carmakers, including American Honda, Toyota and General Motors, expressed a need to see more wagon investment. Christine Krathwohl, global director for logistics, estimated a current shortage in the order of 5,000-6,000 wagons. For GM, the situation appears to be approaching a near crisis level. Despite having global responsibility for inbound and outbound logistics, Krathwohl revealed that she has been spending about 75% of her time focusing on North American rail distribution for finished vehicles over recent months because of issues around delays and increasing dwell time, particularly in Michigan, Ontario and Mexico. At one point she said that GM had around 6,000 cars backlogged in Mexico because of rail shortages, which the company was unable to book as revenue until they crossed the border to the US.
“That meant that we were held back from hundreds of millions of dollars on our books, which drew the attention of our top management,” she said.
The total cost of restoring wagon capacity back to pre-crisis levels was estimated to be $2 billion. However, there are no such plans to expand the fleet at anything close to this rate. Dave Sellers, assistant vice president for automotive at TTX, the company responsible or allocating the pool of wagons across North America, said that the industry is currently planning to build 3,000 new wagons over 2012 and 2013, including 965 tri-levels in 2012, although this does not necessarily mean a net gain to the fleet, as some wagons are likely to be decommissioned as well.
A capacity crunch or a crisis?
A reader or observer at the conference could be forgiven for a certain feeling of déjà vu at this point–Riggs and other speakers made almost the same warning at this time last year, particularly with a view towards a “capacity tsunami” heading their way by the fourth quarter of 2011. “It didn’t happen,” he admits. “But that has lulled us into a complacency that it won’t happen.”
Riggs acknowledges that the current situation is not a crisis or tsunami, but more of a “crunch”. That was a view corroborated by some of the carmakers at the conference. Markus Gichert, manager for vehicle logistics at Mercedes-Benz USA, said that the current market was relatively balanced (although Mercedes currently uses a small amount of rail), but he was more worried about 2013 and 2014. Dennis Manns, vice president for logistics at American Honda, along with Nancy Davies, vice president of logistics at Toyota Logistics Services, both said that their companies had seen capacity struggles as their factories ramped up production this year following recovery from the earthquake in Japan and flooding in Thailand. GM’s Krathwohl was among those most dissatisfied in the current market. “I’m envisioning a scenario where hundreds of thousands of cars are sitting at ports because of railcar shortages by the end of this year,” she said.
But even for those carmakers less worried today, almost everyone agreed that the situation could get much worse over the next 1-3 years. “We see a lot of trucking companies that have started investing,” says Gichert. “But what keeps me awake is 2013 and 2014, when we could have a lot of problems.”
Mike Nelson, manager of rail strategy for Toyota Logistics Services (who recently switched from highway responsibility), said that Toyota was preparing to increase production capacity at several of its North American plants, and worried that the capacity increases that other OEMs had also planned–particularly in Mexico–would exceed the capacity of rail providers. “We’re already suffering with railcar shortages, and I shudder to think about what will happen in the next 24-36 months,” he said.
Riggs anticipates that the capacity ‘crunch’ of today would become a ‘crisis’ again by the summer of 2013 if the right investments and productivity gains were not carried out. “I feel like a Cassandra, warning about the horse that will destroy Troy, and nobody is really listening,” he said at the beginning of the conference. “I see this as a level five event that is not so far down the road.”
Although the main capacity concerns were around rail and road, there were some issues expressed for ports, mainly in the southeast of the US and in Mexico, as both regions are forecasted to see big gains in production.
Congestion could become a wider issue for the load centre ro-ro ports in North America such as Jacksonville and Brunswick, according Steve Rand, CEO of port operator Amports, which operates terminals across North America.
“We are not completely full yet but it is getting there,” admitted Rand. “It takes a while to develop the requirements to handle this increase and there are ports that are not ready for this.
“Capacity is not sold out but it is getting tight in the good seats,” he said.
With Mexico on the rise, with the port of Veracruz now the largest port in North America for handling finished vehicles, and carmakers like GM and Volkswagen looking more to short sea solutions, there could be further capacity issues.
“When the [additional Mexican] plants come on line there will be some element of short sea because there will not be enough rail capacity. The circus is going to be too big for the tent in Mexico,” said Rand.
Stan Gabara, Pasha Group’s executive vice president, agreed. “We are not manufacturing enough railcars at the moment,” he said. “With production coming up and Mexico booming, we think short sea is a viable option. The railcars are going to be gone on longer distances [because of the shift in manufacturing locations], so now is the opportunity to be more creative. Take the capacity that does exist and relieve pressure off road and rail.”
The Jones Act, which restrict foreign-based shipping lines from moving domestic freight within the US, means there are just a few carriers able to do short sea shipping within the US. But there also hasn’t been enough demand to create the need for a good service yet. Marty Colbeck, from port processor AWC, said there wouldn’t be a good short sea service in the US until the OEMs come together to request it. “Short sea won’t happen until people come together and commit fixed volumes,” he said.
However, even if a viable short sea service could be developed, Rand pointed out that vehicles will still have to be delivered by rail or truck to and from the ports, so it does not altogether alleviate capacity concerns.
Mexican dreams and nightmares
The most pressing capacity concerns for vehicle distribution in the region centred on Mexico, including worries over rail and port capacity for short sea and deep-sea exports.
Mexico has become the focal point for much of the production growth in North America, with Mazda, Honda and Nissan planning to open new factories by 2014, and Audi planning to open its first North American plant by 2016 in the country. Meanwhile, Ford, GM and Chrysler are also increasing capacity out of their current plants.
Rail investments needed
But with volume estimated to increase by up to 1.5m units over the next 4-5 years, with most of that volume destined to be shipped north of the border, there was concern among OEMs that Mexico’s rail and port infrastructure would not be able to cope with the growth. “All roads currently lead to Mexico for automotive production,” said Mike Nelson from Toyota. “But I don’t think that the growth there is going to be so easy given the logistics constraints for rail.”
According to Tom Knipper, from American Honda, the increase in production will impact the pooled fleet of rail wagons, and the distance between plants and exports destinations will mean even longer distances moved for reloading. Scott Mize, from Mazda North America, said that along with a lack of wagons in Mexico, rail’s speed is slow because the tracks pass through many small towns, as well as because of congestion at ports of exit and border crossings. Both also pointed to higher than average damages and theft ratios, with security a major issue in Mexico.
While representatives from major railways in Mexico, Ferromex and Kansas City Southern Lines, both said that they were making significant investments in capacity and security, as well as getting good support from the government to help improve infrastructure, the challenge for rail seems significant.
VW's rail and short sea strategy
That is one reason why the VW Group, which has a large factory in Puebla, Mexico, with plans for an Audi plant in an as yet undisclosed location, has already made changes to its export patterns from Mexico. According to Joerg Schnackenberg, general manager for vehicle logistics at VW of America, the company decided to go out of conventional rail wagons and into AutoMax wagons (which have more flexibility for size and capacity) with KCS, BNSF and FXE railways to its ports in Houston and San Diego.
To compliment VW’s AutoMax strategy, the OEM has a dedicated fleet of six ro-ro vessels that rotate with loads of European product from Emden in Germany between Davisville, Brunswick, and Houston and then to Veracruz. “At Veracruz the ships are empty and then we load them again with Mexican made cars that are being built for the US for ports of Brunswick and Davisville, which is 50% of the load and the other 50% is for European markets,” said Schnackenberg. “That is a good strategy for the East Coast.”
But Schnackenberg admits that Veracruz is already overcrowded, even before the increase in production, which could limit further use of the port. According to Knipper, the main ports for finished vehicles in Mexico–such as Veracruz, Lázaro Cárdenas, Altamira and Manzanillo–are all in need of extensive expansion to meet the future growth. “It could take up to two years to get these projects moving, and the capacity might not be available by the time new production comes online,” he said. “This is a very big deal for Mexico.”
OEMs and carriers called for a mix of measures to help stave off a capacity issue, which focus on improving efficiency on topics like empty miles and rail wagons a major topic–one delegate even referred to the industry as a “dinosaur” in terms of its inefficiency. But at the same time, most OEMs agreed in the need to see more equipment being added to current fleets.
Productivity improvements for trucking
Riggs proposed several measures that he believed could help the trucking sector to avoid any serious issues, which should be aimed first at productivity and efficiency improvements, and then towards asset investment.
Among his suggestions was a move towards a paperless delivery process for vehicle deliveries, including the use of smart phones and electronic tablets for communication as well as registering electronic signatures. He also called for better partnership with railways in terms of sharing information, and on lobbying together on regulatory issues.
But his main proposition, which he also floated in some form last year, was to create a kind of national load sharing database, where carriers could share information and optimise load and routes to eliminate empty backhauls.
Depending on how far the idea is taken, it could either be a shared resource to help increase efficiency, or a complete revolution in the way the sector is managed, where loads would be tendered online and pooled, perhaps through the management of an independent, neutral party.
Some carriers appeared wary of the idea of a database of loads from a competitive point of view–particularly one where Jack Cooper might have control. “A central database with all load information, which Mike Riggs controls, just not going to happen,” said Kirk Williams, president of Proficient Auto Transport.
But Williams added that further sharing information via IT tools to improve efficiency and decrease empty loading should be explored, which was an idea that most at the conference appeared to have an appetite for. Mark Gendregske, president of Allied Systems Holding, the largest car haulier in the US, revealed that the company would begin selling its available capacity for backhauls online for anyone–from OEMs to private consumers–to buy with a credit card. "We're calling this offer 'Super Savers', and customers will find space to ship cars for as little as $25," he told delegates.
Other efficiencies proposals came from IT providers at the event, such as Car Delivery Network—offering an Android-based system for creating an online network for load information—as well as Vehnet, which launched a cloud-based yard management system at the event.
OEMs, too, described actions that they were taking to improve efficiency. Mercedes-Benz’s Gichert and BMW North America’s John Marion both revealed that their companies had switched in recent years from enclosed to open carriers to gain extra capacity. Gichert also said that Mercedes-Benz had taken other steps, including a move to process vehicles at its port terminal on a destination basis to help carriers build the right loads faster. “We also allow our carriers, and encourage them, to co-load our vehicles with other brands,” he said.
Buy capacity–or the carmakers might start to do it
But there does not seem to be any substitute for equipment investment, either. “We’re working with our plants on things such as bunching production at our plants to get some of our smaller, far away dealers production built at the same time,” said Toyota’s Nancy Davies. “But for this market, there is no question, more equipment will be needed.”
Anecdotal evidence from the conference suggested that carriers have been investing in new equipment, but most agreed with Riggs that financing was a significant issue and investment was in danger of not keeping up with the market.
At least one carmaker has decided to take some of the matter into its own hands. Jon Schwartz, manager of network design for Chrysler Group, who admitted to facing growing problems coming on the road and rail side, said that Chrysler has taken a notable step in developing its own in-house fleet of car carriers.
Beginning the week of the conference, the company received the first trucks in what will be a 33-strong fleet running out of Windsor, Canada, just across from Detroit. According to Schwartz, the fleet will run from Chrysler plants in Windsor and Brampton to Detroit as well as to the port of Baltimore to supplement other carriers.
The fleet, which was encouraged by Fiat-Chrysler CEO Sergio Marchionne (who had also championed the idea for Fiat’s in-house carrier, iFast, in Italy), is partly a response to capacity worries. “We have agreement with the CAW [Canadian Auto Workers] union in Canada to drive the fleet, and it’s not impossible that we extend this to the US, where we would need agreements with the UAW [United Auto Workers],” Schwartz said, adding that the company would eventually seek other OEM volume to fill backhauls.
Riggs acknowledged that Chrysler’s investment in its own fleet should strike fear into the hearts of many carriers. Toyota also has its own fleet that it has run for years and could also expand. Riggs stressed that carriers needed to make the right productivity improvements and investments if they don’t want to lose out on future business.
Getting smarter on the rail
The response for the rail issues had some similarities in that providers and OEMs were exploring ways to improve capacity utilisation in the face of investment shortfalls. UP’s Brandl pointed out that one way that the railways had done this already had been by increasing velocity. “Between September 2011 and April 2012, we are now moving about four days faster across the fleet, which has generated more capacity,” she said.
She also pointed to a strong effort across the railways to recertify old equipment and make the best use out of all of the available equipment today. Other measures included working closer with OEMs on equipment use. For example, a recent project together with Mike Nelson found that Toyota had been requiring a certain rail wagon within the fleet to be used for its vehicles based on what turned out to be outdated specifications. “So now we are no longer having to switch our railcars and that has saved us a lot of time and increased utilisation,” she said.
American Honda’ Scott Crail, manager of logistics operations, also said that his company had been doing all it could to help increase capacity utilisation. “We’re doing block train building, or building loads that can skip the congestion in Chicago,” he said.
Some of the issues around capacity shortages appeared also to be compounded by reloading inefficiencies. Krathwahl revealed that there is an allocation issue relative to GM’s share of the North American wagon fleet. “We have 17% less equity in railcars relative to our competitors, and yet we are the largest shipper,” she said. The issue was impacting GM across the reaches of its network, particularly with its northern plants in Canada and around Detroit, and its southern plants in Mexico.
The best way to get a rail wagon? Build one
But while productivity has a role to play, carmakers made it clear that they wanted to see investment. “Our complicated, in-house algorithms at Honda suggest that the best way to get an equivalent railcar of capacity is to build a railcar,” Crail said wryly. “In terms of efficiency, we’re now trying to get water out of a dry towel.”
Chrysler also anticipates that it will need to see more wagons in the fleet, particularly in the face of growing supply chain complexity. Schwartz pointed out that 4 out of 10 of Chrysler’s plants will skip their annual summer shutdowns this year, leaving less time for carriers and rail providers to make up for backlogs. At Jefferson, near Detroit, for example, Schwartz said that there were some difficulties moving from dispatching 77 bi-level rail wagons each day to 91 at the end of last year.
“Later this year we are going to move to 120 railcars per day as we move to three shift production,” he said. “Our rail providers ‘found a way’ last year, and that seems to be the theme so far this year.”
He also pointed to plants producing multiple model types requiring different sized rail wagons. Chrysler’s Belvidere plant in Illinois will now be moving the Dodge Dart on tri-level wagons, while the rest of its production will be moving on bi-levels. This would require even more coordination between managing the fleet of bi-level and tri-level wagons.
Short sea could emerge
In a similar way that Chrysler’s in-house fleet could take away business from carriers who have not invested to meet demand, Krathwohl sent a message that the railways would ultimately stand to lose business as GM and other carmakers find other solutions. Krathwohl said that she wanted to see short sea shipping become more of an option, for example.
“We need to see more short sea. The Jones Act [which limits foreign shipping lines from operating between US ports] means there are few companies that can do this within the US, but we actually made short sea shipping work just for distribution in Thailand, for example. So it could work here.”
From Mexico, short sea shipping is not a Jones Act issue and Krathwahl says GM is already using it and would like to see it increased.
Get to know your dealers
The importance of the dealer experience was a major issue at the conference, particularly an emphasis on educating dealers on the logistics process to improve delivery accuracy, inventory management and service levels. In the view of many carmakers and logistics providers, a good deal of productivity could be improved by extending hours of service to accept late night or early morning deliveries, for example.
Improving ETA for delivery
Robert Kuntze, director of distribution and logistics at Kia Motors America, recognised that greater accuracy on time of arrival at the lot was critical for dealers.
“It’s about selling quickly,” he said. “Dealers want to get the people focused on a car and knowing when it gets there is important. Speed of delivery is crucial.”
The situation was tied closely to managing expectations and William Mauldin, of Auto Transport Masters, noted that it was something to which the truckers had to be sensitive. “You have to live up to the promise. Our drivers play a huge part here. Where we see least friction is in the small pool of workers who become comfortable in their relationship with the customer,” he said.
Nancy Davies said that Toyota was making a concerted effort to improve the accuracy of delivery times for the dealer and was already investing in a new system. She asked dealers whether providing information on the progress of a vehicle further back the pipeline, even before it the car is built, would be useful.
Dealers showed less appetite for too much information, but wanted more simple updates about the build and delivery status of cars. Todd Kostrzewa, general sales manager at North County Hyundai said precision was not required six weeks out but certainly was within two weeks to manage customer expectations.
Anthony Clevio, operations manager for North America and intercontinental logistics at GM, revealed that the company currently works across a system that estimated delivery times based on historic transport data in the supply chain. However, the system does not provide updates if the vehicle faces delays by rail or because of weather conditions. “The next opportunity for us will be to make this a dynamic ETA that will update dealers with delays from rail or road, etc,” he said, adding however that there was so specific timeline for when such a system would be ready.
Extending hours of service
OEMs and providers called for greater flexibility in service and operating hours at dealers, even proposing a 24/7 scenario, something that tended to elicit a mixed reaction from the dealer community. John Symes, president of Symes Automotive Group, said his dealership group could not do it and was joined by Kostrzewa, who said it compromised the level of quality. But he added that there was room for negotiation on deliveries off hours in certain circumstances.
Linda Brandl said that 24/7 operations were something that dealers or dealer yards needed to get used to, noting that a number of North American production plants are moving to three shift patterns and limited summer shutdowns. As rail deliveries moved to round-clock-distribution to help alleviate a wagon shortage, she questioned whether dealers would be willing to make such an adjustment. “We are getting backups at the ramps because the dealers are not in harmony,” she exclaimed.
But there was a sense that players on either side of the forecourt fail to communicate with or understand each other, as their interests were more aligned than would otherwise be suggested. Kostrzewa, for example, also called for an improvement in the relationship between trucker and dealer to make the buying experience better for the customer. “It would be better if we can deal faster with the trucker because they can get back on the road. It would make everything faster for everyone,” he said.
Albert Gallegos, director of international affairs at the North American Dealer Association (NADA), said its surveys had found that 35% of dealers already have extended service areas, which meant beyond 7pm. He suggested that closer communication with dealers could lead to workable compromises. “If you could identify the ones that have these extended hours, you can then see if they have the right staff on site that can do the check in,” he said. “ I also expect that the hours will extend beyond even 7pm in the future.”
Honda’s Scott Crail also suggested that dealers might be more open to changing their hours if OEMs asked them to and made efforts to work with them. He revealed an effort to get dealers to increase their hours of service, which would help to clear congestion at destination rail ramps. “We had an Acura zone, for example, that simply told its dealers that they were all 24/7 unless they said otherwise. We only had two stores push back.”
Dealers need to be educated on logistics
Gallegos suggested that the first problem was that few dealers had time to really think about and understand logistics. “In our surveys we have found that the number one concern aside from sales among dealers is pressure from OEMs regarding investments in their facilities, while the second is related to regulation,” he said. “Logistics just isn’t a top concern for them.”
But he stressed the importance of educating dealers and encouraged logistics executives from carmakers and logistics providers to communicate more, particularly in forums such as the NADA conventions, which gather together thousands of dealers.
This position was born out by Larry Burns, director of parts and service at Scott Robinson, a Honda dealership. He suggested that carmakers and logistics providers needed to build better relationships with dealers, including key operational staff that work with truck drivers for deliveries, and that from this starting point more dealers might find ways to accept late or early deliveries.
Burns also added that he personally never understood how complicated the logistics processes was until he attended the conference. “I never knew how difficult and complicated vehicle logistics were and it is certainly something that I will transfer back to my staff and which we will share across our management,” he said.
Other issues putting pressure on the vehicle logistics market have been a driver shortage and regulatory demands. With the average age of car haulier drivers in the US at 54 (and closer to 58 for union drivers), there is an on-going recruitment issue among carriers, which Riggs said was compounded by a growing pay disparity between car hauliers and other types of truck drivers.
Carriers also complain that recent regulatory issues have compounded this issue by adding further restrictions and penalties over driver hours and rest periods, for example. There has also been wrangling over weight variances and other technical issues.
Increasing safety standards and working time restrictions have been challenging some of the current norms across the industry. Charles Horan, director, carrier, driver and vehicle safety standards, from the Federal Motor Carrier Safety Administration (FMCSA), provided an update on the most recent changes that would be relevant to all carriers. The changes include certain restrictions on when a driver could begin counting his working week, the requirements for rest breaks, and setting definitions and stricter penalties for what would constitute an ‘egregious’ violation of the rules.
The hours of service regulations limit drivers to 60 hours over seven days, or 70 hours in eight consecutive days. Since 2004, a driver could restart the calculation towards the 60 or 70 hours following 34 hours off duty. Currently, there are no limits on the amount of times the restart could be used within a week or a month. But the new rule, which will come into effect July 1st 2013, will be that the restart can be used only once every seven days. The time from which the restart is counted must also begin between 1:00-5:00am.
According to Horan, the FMCSA has now also said that an egregious violation of the rules would be defined as driving three or more hours beyond the time limit of 10 hours for bus and 11 hours for truck drivers. Companies and drivers in violation of these limits will be subject to the maximum penalties even on the first offense.
These changes come on top of other increasing requirements for creating safety records and databases pertaining to the drivers’ driving record as well as other issues, including whether or not they have been drug or alcohol abusers.
Such changes have tended to face resistance among the carrier community.
Wayne Wagonner, of Wagonners Trucking, complained that drivers would need “a personal secretary to fill out all of their paperwork”. He, among others, believes that such restrictions will only make it more difficult to recruit future drivers. “If a driver faces the potential to be hit with a federal crime, it will scare many off of joining the profession,” he said.
Environmental costs and weights
There are other regulations that truckers say have increased their costs substantially. Kirk Williams, from Proficient Auto Transport, pointed out how regulations had driven the industry to reduce noxious emissions and particulate matter by more than 90% since just 2006. While he considered this a positive development, there are requirements to reduce another 3% by 2014 and yet another 3% by 2017.
“We’ve done almost everything that we could possibly do with technology and other means to get this down,” Williams said. “The upfront cost to the entire trucking industry to meet these and other regulations is $4 billion annually.”
Bob Farrell, from the Automobile Carriers Conference, pointed to other important regulatory issues that were hurting the sector. In the most recent highway authorisation bill passed in Congress, Farrell said that there were three important measures that had been relevant to the car haulier sector, but only two were passed. One was to increase the allowable truck length to 80ft (24.3 metres), and another to allow an overhang of 6ft. The measure that didn’t pass was to allow a weight variance of 10%, which was struck down. The lack of a weight variance means that drivers need to be much more careful in measuring their loads to avoid violation, which hurts efficiency.
Wagonner called on help from OEMs to lobby congress on their behalf on the weight variance issues. “We just don’t have the clout that the major OEMs have in Washington,” he said.
While the industry is facing high demands for investment in trucks and rail wagons, as well as the need to be more efficient, there were good signs at the conference that the industry is looking to work more closely together.
Anthony Clevio, from General Motors, revealed that the carmaker is now trying to share its forecasts and production planning information beyond the normal period of weeks or several months, but rather up to four years in advance. “The key message across all modes is that we don’t share enough information far enough out,” said Clevio. “We want to help our partners by providing information two, three or four years in advance. It doesn’t require more IT dollars, just more communication.”
It was a move welcomed by providers, including Linda Brandl from UP, who said that such information would help to plan asset investments and get capital financing.
The communication and collaboration in the sector seems to be moving in the right direction, perhaps supported in part by the good news in the sector. After all, it is an easier proposition to work together to handle more volumes than to collaborate to share fewer cars. Mike Riggs, who suggested the idea of a national committee early in the conference to work together on efficiency ideas, regulation and standards, said that by the end of the conference he was already sure that such an action would be possible.
“Judging on the reaction that I’ve had from everyone here, I’m more confident than ever before that we’re going to be able to make the adjustments necessary to deal with the increasing demand,” he said.