April 20, 2018
transportation report

Keeping on truckin', no matter what

Keeping on truckin', no matter what

It's a land grab for capacity in an ultra-tight market, and all ideas are on the table.

By Mark B. Solomon

Rays of sun are often found in even the cloudiest skies. In today's trucking industry, the cloud formations are dark and thick, as a super-tight capacity climate caused by shortages of equipment and drivers, compliance with new federal regulations, and an uptick in demand has sent rates soaring, truckers scrambling, and shippers and intermediaries groaning.

The sunray? This business has a knack for building better mousetraps.

Take P&S Transportation, a Birmingham, Ala.-based company ranked by industry journal Transport Topics as the country's fourth-largest flatbed carrier, with a fleet of more than 2,500 power units. Until seven years ago, P&S had one type of business: asset-based carriage. But co-founder and CEO Scott Smith wanted to add value to customer relationships. In addition, he wanted to mitigate the impact of the next capacity-tightening cycle, whenever it struck.

Smith hit on an unconventional strategy. P&S would offer select shippers a chance to take full or partial ownership in a separate and independent trucking company. The shipper would pony up a negotiated amount of capital. P&S, through its relationships with original equipment manufacturers (OEMs) and other sources, would allocate a specified number of trucks and drivers to the partnership. P&S would manage the operations and handle the certification, driver recruitment, insurance, fuel, and equipment maintenance. The shipper could tailor its truck and driver utilization any way it saw fit.

In periods of slack capacity, or when supply and demand are roughly in balance, the shipper could use the fleet for one-way irregular-route service, with P&S charging the prevailing per-mile rate. P&S, which also operates third-party logistics (3PL) and brokerage operations that are integrated with its asset-based service, would then find loads to fill the trailer for the next move in its network.

However, in brutally tight conditions such as the flatbed industry finds itself in today—consultancy DAT Solutions reported in mid-March that an unprecedented 88 flatbed loads were posted on its spot-market loadboard for every truck that posted—the shipper-owner could notify P&S that it wants to convert to dedicated contract carriage to assure it has adequate equipment and drivers. Because the assets are under the shipper's full or partial ownership, the conversion can occur within one or two days, according to D. Houston Vaughn, P&S's president and chief operating officer.

The key for the shipper, as in any dedicated relationship, would be to ensure sufficient volumes to create round-trip revenue. However, P&S can locate loads through its backhaul network for the return trip to the shipper's location, meaning the shipper would effectively pay just the rate for the outbound move, Vaughn said.

The model eschews the multiyear commitments that are a core part of traditional dedicated agreements, again because the shipper is also an owner or part owner, Vaughn said. Shippers can mix and match their fleet needs, using some of the assets for irregular-route operations and others for dedicated service. There are opt-out clauses for non-performance, and the shipper can sell its equity position back to P&S, he added.

"We are providing customers [with] the control and capacity assurance that comes with a private fleet operation without the cost burdens and the headaches of running one," Vaughn said in an interview earlier this month.

The model works best in the flatbed world, which has predictable volume flows because demand for commodities such as construction equipment, flatbed's bread and butter, is as much seasonal as it is economically sensitive (construction work generally takes place in the late spring, summer, and early fall). However, Vaughn said there's no reason the model couldn't also be applied to dry van operations. "It all comes down to knowing your customers, their freight, and their requirements," he said.

TRY EVERYTHING AND HOPE SOMETHING STICKS

Initiatives like the P&S partnership are not cure-alls for the capacity crisis afflicting all parts of trucking. Even Vaughn acknowledged that flatbed carriers are not yet doing a great job managing the problem. Yet it reflects the slew of ideas, some completely foreign to traditional trucking, being marshaled to cope with what some are starting to call the worst crunch in the industry's long history. "The market is looking for every option it can get its hands on," said Chris Jones, executive vice president, marketing and services for Canadian logistics IT (information technology) company Descartes Systems Group Inc.

For example, Miami-based Ryder Systems Inc. unveiled a program in late March matching businesses needing short-term tractor-trailer capacity with asset holders whose equipment would normally sit idle, the first time the asset-sharing platform popularized by hospitality site Airbnb has been deployed in trucking. A multiparty dedicated model has been developed in the last-mile delivery space allowing small to mid-sized retailers that otherwise can't justify their own networks to share space and technology aboard vehicles as long as each retailer's data is aggregated so it can't be seen by others. Jones, whose company is out front in the initiative, said large truckers are expressing interest in participating, particularly in areas where density is relatively low and assets are available.

Truckload carriers are looking to expand their presence in the multistop delivery market to offer a lower-cost alternative to traditional less-than-truckload (LTL) services. However, Mark Cubine, vice president, marketing and enterprise systems for Birmingham, Ala.-based IT firm McLeod Software, said the discussions are focusing on building dedicated agreements for these services. According to Cubine, in the new era of compliance with the government's electronic logging device (ELD) mandate, where drivers must now operate within their lawful hours of service rather than add a couple of hours to their runs and then fudge their paper logbooks, few truckers will commit to multistop routes that might take more than one day to complete without the assurance of dedicated agreements. Hours-of-service compliance "is the new definition of capacity," Cubine said.

The dedicated model, which many predicted was a solution just waiting for a problem, appears to be in full flower. Capacity is assured for a multiyear period, price increases are negotiated ahead of time, and good providers can find loads to fill backhauls so the customer—who in the traditional dedicated model pays for round-trip capacity whether the equipment is utilized or not—is shielded from a potential financial hit if it lacks adequate return volume. NFI, a Cherry Hill, N.J.-based trucker with a strong dedicated carriage footprint, is using the capacity crisis "as an opportunity to lock up good business," said Bill Mahoney, the company's senior vice president of sales. Mahoney added that NFI is marketing dedicated's value as it always has, but the difference today is that "it's taking less convincing" to get customer buy-in.

Another relatively new model is "volume LTL" or "partial truckload," which are options for shippers with loads that are too heavy or dimensionally outsized for an LTL trailer but are smaller than a full truckload. There are factors that could make partial truckload a more cost-effective buy than volume LTL, especially if a shipment's profile falls outside the optimal size for an LTL trailer. One caveat is that the program isn't suitable for moves of less than 250 miles because the short-haul may not be worth it for the carrier. However, in a cycle where capacity is as dear as can be, shippers may be willing to pay to make it worthwhile for the carrier, experts said.

BACK TO BASICS

Perhaps lost amid the crisis, and the innovations being developed to combat it, is the pressing need for shippers, third parties, and truckers to better manage the daily blocking-and-tackling. The capacity problem has been "festering for years," said Charles W. Clowdis Jr., a long-time transport executive and consultant who heads his own consulting firm. That's because many shippers grew complacent and negligent in a two-decades-long buyer's market and failed to make their freight "carrier- and driver-friendly" long before it became a current-day marketing slogan, he said.

Failure to move drivers on and off the docks within an hour or two, or even providing drivers with an attractive level of amenities to pass the time, has come back to bite shippers now that truckers and drivers can effectively cherry-pick their loads, Clowdis said. He estimates that the inability to address and resolve these basic issues is the cause of half of the current crisis.

Another long-timer, Larry Menaker, whose consulting firm specializes in dedicated service, said shippers shouldn't count on an endless supply of dedicated capacity. "There is only so much capacity right now. If carriers are offered new dedicated opportunities, and to meet those needs requires them to pull equipment from satisfactory volume, they may be hesitant to do that," he said.

Menaker added that the trucking industry's public line that the driver shortage is at the root of the crisis masks the hard realities behind why a crisis exists to begin with. "What seems less touted are reducing empty miles by matching loads better, increasing velocity of load count by reducing loading and unloading delays, and increasing velocity by matching loading and unloading schedules better," he said. "These factors require cooperation among various players who have infrequently shown willingness to do this in the past, plus it requires change, a very hard psychological barrier to overcome."

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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