DC Velocity - September 2016

Despite calls for collaboration,
truck shippers seen sticking to
the same old script

In recent years, trucking executives have preached to shippers the virtues of a more collaborative relationship to help supply chains run more efficiently and to provide relief to their hard-pressed drivers. The attempts at friendly persuasion have often been accompanied by a not-so-subtle message: Those who cooperate will have capacity available to them at competitive prices during periods of tight supply, while those who don’t may get left by the side of the road.

The pleas and warnings have mostly fallen on deaf ears.

Indeed, there are shippers that extend themselves for their carriers because they think that it’s the right thing to do and that some degree of behavior modification makes good business sense. Yet there remains a large body of shippers that have not changed their ways, knowing that with so-so freight demand and with capacity quite ample, they can continue to behave in their own best interests and still find wheels at good rates.

Tom Sanderson, CEO of Transplace, a large Dallas-based third-party logistics service provider (3PL), sees the landscape more clearly than most, and he’s blunt about the current climate. “The shipper is in control,” Sanderson said in a recent phone interview. Shippers willing to work with carriers in a loose capacity environment are doing so because they believe in operating in an equitable setting, he said. They are also buying capacity protection for when the next tightening cycle occurs, he added.

Efforts to force behavioral changes on shippers have
largely been fruitless, said Charles W. Clowdis Jr., manag-
ing director–transportation, Economics & Country Risk,
for consultancy IHS Markit, who has spent decades as a
trucking executive and consultant. “We’ve been telling
shippers for years to make themselves trucker-friendly, to
treat the drivers well, and to be on time,” Clowdis said in
an e-mail. Most shippers ignore the advice, he said. “They
just push for lower rates and better service.”
It is difficult, if not impossible, to quantify the impact
of shipper behavior. Perhaps the closest measure comes
from July’s index of truckload linehaul rates published by
freight audit and payment firm Cass Information Systems
Inc. and investment firm Avondale Partners LLC. The
index fell 1. 6 percent year over year, the fifth consecutive
month of year-over-year declines, the firms reported late
last month. Avondale analysts predict that pricing fluctu-
ations will stay in a range of - 3 percent to 1 percent for
the rest of 2016. The weakness in the core pricing metric
reflects a combination of sluggish demand and overca-
pacity that suppresses rate growth and keeps shippers in a
position of leverage.

Geoff Turner, president and CEO of Preston, Md.-based Choptank Transport Inc., a large broker, said he sees shippers playing both sides of the action. Some shippers stick to the rates they’ve contractually agreed to even though they can price their loads cheaper on the spot, or noncontractual, market, Turner said in an e-mail. However, there are customers “playing the rate game, passing freight out to the cheapest rate of the day—with no regard to long-term implications,” Turner said. Those customers are enjoying the short-term fruits of lower rates but will pay for it significantly when the capacity worm turns, he added.

CAPACITY TIGHTNESS SHORT-LIVED

The worm hasn’t done much turning in the past dozen or so years. Capacity tightened considerably in 2004–05 as construction boomed in concert with the demand for residential and commercial real estate. It tightened again in 2014, but that was largely due to capacity dislocations caused by the paralyzing winter of 2013–14, when many carriers couldn’t meet their commitments and shippers were forced to turn to the spot market for service. Other than those two periods, which were not triggered by what would be considered normal and sustainable economic growth, shippers have been in the driver’s seat.

“Concerns about driver shortages have been omnipresent, but those periods of prolonged tightness have been fleeting over the past 15 years,” said Benjamin J. Hartford, transport analyst for Robert W. Baird & Co. Inc., an investment firm.

Hartford and others believe the long-term supply picture will continue to deteriorate as the driver work force ages, fewer applicants enter the field, and regulatory compliance issues take truckers off the road. The most visible regulatory challenge is the federal government’s requirement that all fleets be equipped with electronic logging devices (ELDs) by the end of next year.

go figure …

$15,119

The projected increase in the average purchase price of one heavy-duty truck in 2027 compared with estimated 2017 prices, under final vehicle emissions rules issued last month by the Environmental Protection Agency (EPA) and the Department of Transportation (DOT).