Overcoming Spring Freight Challenges
Growers can secure their spring plant shipments despite a failing freight market. Tim Higham, CEO of Interstate Logistics Group, shares his insights.
January 19, 2012
Here we are again, with spring upon us as well as the worst freight market in modern history. What do I mean by “worst in modern history?” In the trucking and logistics world that I live in, we are experiencing the toughest capacity crunch in more than 50 years. It is a perfect storm of driver demographics, government regulations, lack of financing and shippers willing to pay top dollar to move their freight. Let me explain.
Drivers are leaving the workforce faster than ever before. Many trucking companies are paying sign-on bonuses of up to $10,000 for drivers to change companies rather than allowing the truck and trailer to sit idle. Unused vehicles cost the trucking company money. As a whole, our workforce is getting older, and the drivers aren’t necessarily the youngest (nor the fittest) bunch.
Moreover, strict immigration laws and government regulations have virtually stopped foreign drivers from entering the business. These days it is impossible to hire over-the-road drivers without the proper paperwork and legal status. Sadly, many of the Hispanic drivers and foreign nationals are some of the hardest working people. They have a hunger to succeed for their families. Without access to this potential pool of drivers, the driver shortage will get worse for the next 20 years as the population in the United States ages.
I am not a big fan of government regulations that “sweep” across an industry wreaking havoc. Case in point: Recent changes from the Federal Motor Carrier Safety Association, the “safety arm” of the Department of Transportation, caused the average cost of a new truck and refrigerated trailer combo to rise from around $90,000 a decade ago to $135,000 today.
The reasons for the price jump include cleaner burning engines, safety equipment and an increased materials cost from steel, aluminum, rubber and other input components. I don’t know many pieces of equipment that cost 50 percent more over a 10-year span.
The government also keeps reducing the number of available driving hours for a driver under the guise of “safety.” In fact, the recent FMSCA regulations passed on January 2, 2012 mean available driving hours will be reduced by about 3 percent nationwide. Add this to the new DOT Safety Measurement System (SMS), and this pushes capacity shortages to around 10 percent. That means 10 percent fewer trucks and drivers will be available due to the government’s attempts to “make trucking safer.” Even without the new regulations, driver fatalities have decreased in the last nine out of 10 years.
Lack Of Financing
Imagine you have a truck and trailer, and it is at the end of its maximum natural life. For a truck and trailer, that is about 10 years, depending on miles driven (and its use). However, most owners will tell you that after five or six years, the maintenance costs rise so fast that it is better to trade the old equipment for new. Also, older equipment does not meet many of the latest emissions laws, which forces truckers to either upgrade or to buy new.
Unless you can pay cash, you likely need to finance your new equipment, whether buying or leasing, from a dealer or a bank. Financing is nearly impossible unless you have 30 percent cash to put down on each unit and a solid 5-year profitable operating record. And you aren’t the “mom and pop” operator that banks don’t have time for.
Many truckers cannot upgrade their equipment, so more and more are parking their trucks when they get too old to run efficiently – further reducing available trucks to take your loads. In our industry, we don’t foresee the financing picture changing any time soon.
Shippers Willing To Pay
When we talk to our growers, this is the conversation that has the highest “aha” factor for them. Simply put, the higher the commodity value being moved, the less important shipping costs are. For example, a shipper moving a trailer load of $150,000 worth of chicken tenders 1,000 miles is easily able to absorb an extra $1 per mile on the load (or .67% of the loads value). Spread across all those cases of chicken tenders, the extra $1,000 in freight is small. By the time you buy the package of chicken tenders at the store, this extra freight is so small that I don’t think my calculator will register the percentage.
On a load of plants, however, $1,000 in added freight charges may be the difference between a profit and a loss for you. So, as you can see, other shippers have a far greater ability to pay extra to “get the truck” without the blink of an eye – leaving fewer available one-way trucks for growers to access.
So, is there anything positive to say? Is Tim Higham being Chicken Little, saying the sky is falling? There are some things that may help the situation.
Customers are more willing to listen and to help with freight challenges. Plenty of large wholesalers and retailers have sophisticated freight departments that are fully aware of where capacity stands and how rates have been increasing. Rising input costs (of all kinds) need to be addressed openly and honestly in order for both parties to prosper. No buyer needs a bankrupt vendor. Ever.
The growers who continue to move freight with white boards, paper and, perhaps, a spreadsheet, will lose. You cannot run an efficient distribution program without embracing the technology available to you. The growers that are moving forward are those that become more efficient through the careful implementation of Transportation Management System (TMS) technology. Today, all you need is an Internet connection and a browser to access these TMS systems. No “propeller heads” required.
Pay Truckers – Fast
Many truckers are hanging on by a thread. If you are willing to give them an advance for fuel and to pay them the day the load delivers, you will be more likely to secure the truck – even if your rate is inferior. Let’s face it, multi-stop plant loads are not the cream of the crop when it comes to driver choice. It is a fact we have to live with. But, if a driver knows you will pay him immediately, it is likely he will give you a shot – and then come back for another load if all goes well and he or she is paid upon delivery.
Spring is hard enough for our industry without more trucking headaches. But, in the end, all the loads will get moved on some day by some driver at some price. The key to minimizing your chances of heart failure is being prepared today and taking the appropriate action. So, talk to your logistics manager, show them this article and help make your spring go more smoothly than the nursery down the street.
Tim Higham is the CEO of Interstate Logistics Group, the largest dedicated logistics provider to the horticultural market. You can eMail him at thigham@InterstateLG.com. Learn more at InterstateLG.com or call toll free at 866-281-1281 x1323.