June 1, 2008
enroute | Intermodal

Endangered species

endangered species

Economic and regulatory pressures are making it tough for port drayage drivers to earn a living. If they turn in their keys, who will haul the containers?

By Toby Gooley

Drayage drivers are the unsung heroes of our nation's import-dependent economy. They wait in long lines to pick up and drop off the millions of ocean containers that pass through U.S. ports each year. They spend long days shuttling containers between ports, intermodal terminals, and shippers' premises.

Most are owner-operators who work as independent contractors for small, locally owned trucking companies. Typically, they bear the cost of operating and maintaining their tractors, and they have no health insurance or pensions. Many are immigrants whose legal status is not always clear. And if anecdotal evidence is correct, more and more of them are turning in their keys, parking their trucks, and walking away from what has become a pretty shaky way to make a living.

These hardworking drivers are becoming an endangered species. If enough of them decide to get out of the business, something else will become endangered: ready availability of service at prices exporters and importers are willing to pay.

Hard times
Like everyone else who buys or sells transportation services these days, drayage drivers are trying to cope with unfavorable economic conditions and regulatory changes. One of their biggest worries is the cost of diesel fuel. An early 2007 survey of drayage drivers serving the ports of Los Angeles and Long Beach found that fuel costs ate up more than one-third of independent owner-operators' gross incomes. At the time of the survey, diesel was $2.87 a gallon; with prices now exceeding $4 a gallon in Southern California, that percentage unquestionably is far higher now.

Because drivers typically are paid by the trip, port congestion can be an enormous drain on income. A 2007 study of drivers at the Port of Seattle found that a local one-way haul paid $40 to $50 on average, and round trips were about $80. To make any sort of living at those rates, drivers need to make at least a couple of round trips daily. But just a few years ago, drivers in LA/Long Beach were lucky to make two turns in a day.

The situation has improved considerably, thanks in part to the PierPass appointment system, and night and weekend hours at container terminals. "Productivity has improved by approximately 50 percent since PierPass and extended gate hours went into effect," said Rick Wen, vice president, business development for Hong Kong-based container line OOCL, in a recent address at the Coalition of New England Companies for Trade (CONECT) Annual Northeast Trade and Transportation Conference. At that event, which was held in Newport, R.I., in March, he predicted that port congestion was likely to ameliorate even further as the U.S. economy slows down and import volumes decline. But long wait times could return if LA/Long Beach dockworkers and management continue to disagree over proposed changes in labor scheduling, or if they fail to sign the next labor contract by the July 1 deadline.

Port congestion has had other consequences for companies that hire drayage drivers. When container traffic shifts away from congested ports and spikes in other parts of the country—as it has at East and Gulf Coast ports and inland intermodal parks in the past few years—there may not be enough drivers ready to go to work when shippers and carriers need them.

In rural Chambersburg, Pa., for example, carriers are desperate for drayage drivers at the intermodal rail terminal that opened there last year, said Ken Kellaway, executive vice president of RoadLink USA, North America's largest intermodal company. Speaking on a panel with Wen, Kellaway said that carriers are trying to get people off their farm tractors and into trucks. Shifts in port usage patterns have made planning and scheduling difficult for drayage companies, he added. "Where do we need more trucks and drivers? The East Coast or the West Coast? We don't really know because [demand] keeps changing."

Regulatory burdens
Federal, state, and local regulations are adding to drayage drivers' frustrations. The Transportation Security Administration's Transportation Worker Identification Credential (TWIC) program, now being rolled out at ports nationwide, is almost certain to push thousands of drivers off the docks. TWIC is designed to limit port access by requiring anyone who works at or conducts business at a port to have a biometric identification card that includes detailed information about the holder. Only U.S. citizens are eligible for the IDs, which require a background check and fingerprinting.

So far, said Kellaway, the TWIC acceptance rate for drayage drivers is 96.7 percent. That sounds good—until you learn that an estimated 20 percent won't even apply because they know they won't pass. He and many other industry observers predict that upwards of 200,000 drivers nationwide will drop out of the business for that reason alone.

The regulatory pressures just won't let up. In California, current and proposed clean air regulations are likely to burden owner-operators and small trucking companies with so much additional cost that they may not be able to afford to stay in business. The Clean Truck Program, included in the San Pedro Bay Ports Clean Air Action Plan (CAAP), requires a phased implementation of new or retrofitted low-emission tractors by Jan. 1, 2012. Few owner-operators— or small truckers, for that matter— can afford to pay or borrow $50,000-plus for a new tractor or even $15,000 to retrofit their current vehicles. Although grants and loan programs are being developed to help defray the cost of updating an estimated 16,000 vehicles, they may not be enough to bridge the gap.

The clean air plan also requires drivers who do business at Long Beach to be either employees or contractors of port-approved trucking companies, known as "Licensed Motor Carriers" (LMCs). The Port of Los Angeles will adopt an even more restrictive policy. LA will require all drivers to be employees of approved carriers that own the tractors—no contractors allowed. Port of LA officials say their approach will ensure a more stable, more economically viable workforce with compliant vehicles. But there's a potential fly in that ointment: An economic impact analysis of the Clean Truck Program found that so many owneroperators would quit if forced to give up their independence that a significant capacity shortage could result.

To someone who often doesn't make a whole lot more than minimum wage and typically has neither health insurance nor a pension, the costs and hassles involved in hauling containers simply aren't worth it. By Kellaway's estimate, the average drayage truck generates $100,000 annually, but the driver clears just $7 an hour. The 2007 Port of Seattle survey bears that out: Respondents worked 11 hours per day to earn an average annual income of $31,340 per year, after deducting truck-related expenses. A similar survey of drivers in Southern California came up with an even lower figure. (See the sidebar titled "portrait of a drayage driver.")

Struggle for survival
Although the pressures and problems are greatest in Southern California, similar scenarios are playing out nationwide. Is there any remedy? It's difficult for even technologically sophisticated companies with strong service networks to get premium rates, so raising drivers' per-trip rates is not an option, Kellaway said. RoadLink, which formed its network by consolidating many of the larger regional intermodal companies around the country (including Kellaway's own Boston-based company), is instead trying to help drivers reduce their costs. Those initiatives include help with vehicle financing, using RoadLink's technology to reduce empty miles, and creating a buying cooperative for fuel, tires, and parts. All together, he estimates, those initiatives cut drivers' annual costs by anywhere from $2,000 to $5,000. Whether such programs will be enough to keep drivers in their cabs for the long term is uncertain.

And it's not just the drivers who are an endangered species. The small trucking companies whose employees and independent contractors serve importers and exporters also are disappearing. Most of them, Kellaway said, are "mom and pops" that have no succession plans—"their kids don't want to take over the business."

The potential loss of drayage capacity as small truckers close up shop and independent drivers park their trucks permanently is a genuine threat to international supply chains, Kellaway argued. "Intermodal drayage companies [do business with] multibillion-dollar companies, and every single one is dependent on small local drayage companies that don't have long-term prospects for survival," he said. "We've got to figure out how to correct this ... or the current business environment could force their extinction."

About the Author

Toby Gooley
Contributing Editor
Contributing Editor Toby Gooley is a freelance writer and editor specializing in supply chain, logistics, material handling, and international trade. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.

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