J&M Tank Lines Inc in Americus, Georgia, had been in business 13 years when Harold A Sumerford Sr joined the company in 1961 as bookkeeper. He became president in 1964, and now serves as chairman of the dry bulk carrier. During the past year, Harold also has been chairman of National Tank Truck Carriers Inc (NTTC).
Harold gained an ownership stake in J&M Tank Lines when owner and founder Jimmy McClinton began selling him company stock in 1969. Following McClinton's death in 1981, Harold bought the rest of the company. Three sons have joined him in running the carrier, which remains very much a family operation.
During his 42 years in the industry, Harold has seen the tank truck industry go through tremendous change. He gained full control of J&M Tank Lines just as the industry transitioned from a regulated structure to deregulated. He has experienced first hand the pressures on family-owned tank truck carriers resulting from rate instability, soaring operating costs, and one of the longest recessions ever faced by the US trucking industry.
The past year as NTTC chairman was very rewarding, according to Harold. Speaking with Modern Bulk Transporter, he said an achievement during his term of office was negotiation of a new relationship between NTTC and the American Trucking Associations. Other topics included the economic outlook for the tank truck industry, security issues, and the impact of the new post-October 2002 diesel engines.
MBT: What is the current state of the tank truck industry?
Sumerford: Today, we have a number of problems, some going back several years. Fuel cost tops the list, followed by insurance rates. We're still experiencing a driver shortage. The future is still uncertain with regard to security.
MBT: Are these the toughest economic conditions you've seen for the tank truck industry?
Sumerford: I think it is. The recession hit, along with security, driver qualifications, fuel costs, insurance costs. Virtually every cost item has been impacted in the last couple of years. Revenue is down because of the recession. It's a pretty rough time, and hopefully we'll all make it through. Hopefully, the better times are on the horizon.
MBT: What sort of economic outlook do you see for the industry for the rest of this year?
Sumerford: We don't know whether the war with Iraq will be a benefit by generating freight or whether it will hurt us. Assuming there are no negative effects from the war, the economy should get better. J&M's revenues were up for the first three months of this year. Our revenue per mile was up and our deadhead factor was lower. Business activity is still spotty, though. What we're seeing is a situation where one shipper will be busy for a couple of weeks before slowing down. Then another shipper will get busy.
MBT: How is business activity in the construction-material-hauling sector?
Sumerford: Our construction hauling activity was up for the past six months. It usually slows down in the winter, but we had plenty of loads to haul. What's remarkable is that we had an unusually cold winter with a lot of rain. Throughout the recession, home building remained strong. Commercial construction was good.
MBT: How optimistic do the shippers seem to be about this year?
Sumerford: We have bid on quite a bit of business already, which is unusual for the early part of the year. Normally, most of our bid requests come in the fall or toward the end of the year. I think there is pent up demand, and business is getting better.
MBT: Is the economy improving enough to justify fleet expansion?
Sumerford: At present, my company is trying to hold where it is. Our trailer fleet is adequate for the business we have now. We're hesitant about buying new tractors right now, primarily because of concerns about the new engines.
MBT: How are the new post-October 2002 diesel engines performing?
Sumerford: We haven't tried any at J&M Tank Lines, but we will probably buy some trucks this year with the new engines. We're trying to keep informed. We won't know the lifecycle for these engines for several more years.
MBT: What do you hear from other tank fleets about these engines?
Sumerford: They are very concerned about shorter engine life. Fleets are reporting that fuel mileage is down, as much as a mile to a mile and a half a gallon. We don't yet know the resale value of these engines, but we can guess that it won't be good.
MBT: How are tank fleets handling high diesel prices?
Sumerford: I believe most of the fleets that are members of NTTC have fuel surcharges in place. However, that doesn't cover all of the increased cost. There is always a lag.
Higher fuel costs have had the greatest impact on owner-operators and small fleets. Owner-operators driving for fleets with surcharges should be benefiting from pass-through. Small fleets, though, may have difficulty collecting surcharges from their customers.
MBT: How is the insurance situation this year?
Sumerford: We are finding that liability, worker comp, group health, and virtually any other coverage you can name are increasing in price this year. We hear that liability insurance providers want higher deductibles, as well as hefty premium increases. Our group health is going up 15%, and that's not for the same level of coverage we had in the past. The coverage is a little less each year. Worker comp also is going up about 15%. Your safety record doesn't necessarily determine your rate anymore.
MBT: Do you see any indication that insurance rates are moderating and stabilizing?
Sumerford: No. Insurance providers are still exiting this market.
MBT: What's happening with driver supply and pay?
Sumerford: We're short a few drivers right now at our company, and we need to give the ones we've got more money. It's an industry-wide problem. We need to work with drivers better and give them more respect. We need to show them that they are an important part of the operation.
MBT: How do you do that?
Sumerford: In part, J&M Tank Lines does it through our safety program and with incentives. We offer incentives to drivers to stay with us. We try to have plenty of driver meetings during the year, and their families are invited to some of those. Every August, we have three big picnics company wide, and we have a banquet in the winter. Safety meetings are held quarterly. About 40 of our 200 drivers have qualified for our million-mile club.
MBT: Where will future drivers come from?
Sumerford: More drivers in the future will be minorities and foreigners. In the long run, we must increase wages to the point that we can attract people from other industries.
MBT: How much of an improvement is needed in driver pay?
Sumerford: It needs to go up an average of 12% to 15%, and even more than that for fringe benefits — group health, life insurance, and so on.
MBT: How does the tank truck industry view the driver hours-of-service rules that were just announced?
Sumerford: There will be changes, but I hope they will be something the industry can live with.
MBT: With the hours-of-service changes and heightened security concerns, how likely is it that we will see onboard monitoring and tracking systems?
Sumerford: We may not need it, but I believe DOT is moving in that direction. It will probably be imposed on hazmat carriers first.
MBT: Is this something the industry will accept without resistance?
Sumerford: Some parts of the industry will accept it. Other parts are likely to resist. There are a lot of concerns. The equipment is expensive. Fleet managers are asking if the equipment will become a liability in DOT audits and in accident litigation. The concerns haven't been addressed yet.
MBT: What do you see as other key security issues?
Sumerford: Security-related driver background checks are an important concern right now, and NTTC is working with the regulators on this. We need to give them our full support to be sure that we get regulations we can live with. I believe we will see regulations on driver-related security this year.
MBT: Will the rules include criminal background checks by the Federal Bureau of Investigation?
Sumerford: That's something that we are still negotiating.
MBT: What is taking place in the area of cargo security?
Sumerford: NTTC has been working with the regulators on that, and we're going to hear more about the subject in coming months. NTTC has conducted an equipment survey of the membership to determine how many tank trailers and tractors are in use and what sort of costs we may be looking at.
MBT: How vulnerable does the tank truck industry feel toward terrorism?
Sumerford: From the perspective of a carrier that handles non-hazardous cargoes, we don't feel very vulnerable at all. Hazmat carriers are already so safety conscious that they've already done most of what is needed to protect themselves. I know they are talking more with drivers about security issues. We've all tried to make our drivers more aware. We're telling them to be more careful about where they park and the importance of not leaving vehicles unattended except in a secure location.
MBT: Do you see more tank fleets shutting down this year like CX Transportation, an $80 million dry bulk carrier?
Sumerford: I hope we won't see any more. I think some smaller carriers ($5 million and under) might exit the industry. These fleets probably are hardest hit by increased fuel and insurance costs. Hopefully, we won't see any more large carriers leave the industry.
MBT: What are your thoughts on statements by economists and others that there is still considerable overcapacity in the tank truck industry?
Sumerford: I think there is.
MBT: Will the fleet bankruptcies, such as CX Transportation, reduce that overcapacity?
Sumerford: In the short run it will. In the CX Transportation case, though, all of their dry trailers are being auctioned off. Some new small companies probably will be started up. Rates will remain under downward pressure. The only thing that would really help us would be to remove the failed fleet's equipment from the marketplace. I don't know how to accomplish that, though.
MBT: What will be the impact of the CX Transportation fleet liquidation on dry bulk trailer values?
Sumerford: Values could drop. Our best hope is that some of that equipment will be bought for export. Equipment that remains here in the United States will be back on the road soon.
MBT: What is the future for family-owned trucking companies?
Sumerford: They can continue to succeed, but they have to find their niche in the market. They must form personal contacts with their customers. Building personal relationships isn't as easy today, but it's still crucial. The carrier must know the level of service expected if it wants to hold onto that business. You have to give good service to get reasonable rates.
MBT: What is the benefit to the customer of using a family-owned company?
Sumerford: Family companies provide answers quicker. You don't have to worry about a committee making decisions. Over the years, I think family companies brought a lot of stability to the tank truck industry. They brought stable service levels. These were carriers that the customers knew they could depend on.
MBT: How difficult is it today for fleets of all sizes to obtain bank financing for new equipment purchases?
Sumerford: Banks are looking at transportation companies very hard right now. They are watching the condition of the industry.
MBT: Is there a fear that the bank financing could dry up?
Sumerford: It's very tight right now. If you can get bank money at this time, you're probably paying higher interest rates. Banks are not calling right now to ask us out to lunch.
MBT: What is happening with the relationship between National Tank Truck Carriers and the American Trucking Associations?
Sumerford: The NTTC board of directors has approved an agreement that is virtually the same as was struck by ATA and the Truckload Carriers Association. ATA has approved it at their committee level. Our members will vote on the agreement at the May NTTC annual meeting. Under the agreement, NTTC will pay an annual membership fee. Individual members of NTTC will not be required to join ATA. We need to be affiliated with ATA. They do some things that NTTC doesn't.
MBT: Who initiated the negotiations for this agreement?
Sumerford: Some NTTC members also belong to ATA. They have been working toward this for several years.
MBT: What else has the NTTC board of directors worked on over the past year?
Sumerford: Another important accomplishment was to extend President Cliff Harvison's employment agreement for an additional 20 months. Cliff is one of the best at what he does. Nobody does better at dealing with tank truck issues, such as hazmat, security, driver qualifications, and all of the other regulatory issues. We just feel we need that expertise right now.
MBT: What's being done to bring in new members?
Sumerford: The staff continues to work on ways to expand membership. We're doing a good job of holding our own.
MBT: What is it that would compel a tank fleet president or owner to join NTTC?
Sumerford: All they need to do is talk to an existing member to become convinced that NTTC is probably the best organization to support them in what they do. NTTC's biggest strength is in helping its members understand and deal with tank truck regulations. The organization has a strong staff. They know the hazmat rules inside and out, and they know how to protect the carriers. Small- and medium-sized carriers gain crucial support from NTTC, and they have a place to be heard. The organization also plays an important role in boosting safety with its annual competition. There are just so many good things that come out of the association. I think NTTC is even more important and relevant now.