Tank fleets becoming more optimistic
Apr 1, 2004 12:00 PM
JACK Schwerman's career in the tank truck industry started early. He puts it succinctly: “The day I was born, I was destined to run Schwerman Trucking. By age eight, I was at work on Saturdays airing tractor and trailer tires at our main terminal in Milwaukee (Wisconsin).”
It was a no-nonsense beginning for the man who now presides as president of the Milwaukee, Wisconsin-based Tankstar USA group that includes Schwerman Trucking Company, North American Bulk Transport Inc, Rogers Cartage Co, Wheatfield Trucking Co, and Bulk Logistics Inc. During the past year, Schwerman also has been chairman of National Tank Truck Carriers Inc.
He learned the tank truck industry by accompanying his father on business trips and by watching how he dealt with customers, employees, and industry issues. It was invaluable training, but it was just the beginning.
His real education commenced in February 1978 when he was sent to Texas to launch a new Schwerman Trucking operation. “I was 25 when I went to Texas and thought I already knew everything about the tank truck industry because I had grown up in the corporate office and big terminal setting,” he says. “We started from scratch in Texas and opened seven terminals over the next three years. That's where I really learned the trucking business.”
The next major transition came in May 1982 with the death of Jack's father, Fred Schwerman Jr. At age 29, Jack took the reins of a tank truck carrier that faced the challenges of deregulation, a poor economy, and significant floating debt at a time of 16% prime rates.
Jack discussed his experiences in the tank truck industry with Modern Bulk Transporter during a recent interview. Other topics included the outlook for the tank truck industry, new hours-of-service rules for drivers, and security concerns.
MBT: After what the tank truck industry has gone through over the past 24 years, would you still be as willing to move into the president's office and keep the company going?
Schwerman: Timing is everything. If we had the same circumstances in 2004, we probably would not have made it. In this world we live in today, no one looks beyond the numbers.
Back in 1982, we had the support of our bankers, our insurance company, and our vendors. They knew we were a family-owned company. My father rejected a Chapter 11 bankruptcy early on. He said we were going to pay our bills one hundred percent. That has been our approach — always has been; always will be.
We went through this dramatic change right after deregulation. It made us a stronger, better company. That's why we were able to weather the most recent economic difficulties better than some tank truck carriers.
MBT: Was deregulation good for the tank truck industry?
Schwerman: No question. It was great for the industry. Under regulation, it took us two years to get limited authority in Texas. A lot of money and energy were spent with lawyers.
If there was a mistake, it was that we went from black to white. We had too much change, too fast. Government still needed some control over the qualifications of new carriers entering the marketplace.
MBT: Would you encourage your children to enter the business?
Schwerman: Yes, but it will be their choice. This isn't an easy business. It's certainly gotten tougher. Still, I think it's a great business.
MBT: How would you describe the state of the tank truck industry at this time?
Schwerman: Improving. Business levels are increasing. We're seeing higher numbers of shipments. The chemical side has been very good. Capacity is limited now to the point that we can keep trucks loaded on just about any lane. That wasn't true for much of the past three years.
In past years, we'd see a week or two of improvement. We'd think the economy was on its way, but it would stall out again.
MBT: How do shippers describe the current business climate?
Schwerman: Again I'd have to say improving. Most are working off fairly low inventories, and they are seeing stronger demand for their products.
MBT: Are we seeing equipment shortages?
Schwerman: Yes. I think brokers especially are struggling to ensure that every load is covered. They don't have their own trucks and are dependent on the capacity that tank truck carriers have in place to handle their loads. They're much more accommodating and cooperative right now.
MBT: What sort of attitude do you see with chemical companies and other shippers?
Schwerman: Their attitude hasn't changed much. They think that there is plenty of capacity.
MBT: Are tank truck carriers turning down loads?
Schwerman: I think they are still able to cover everything. There is a lot of capacity out there.
MBT: Will ample capacity continue to be available through the rest of 2004?
Schwerman: It all depends on the economy. Is it for real? Has it really taken off? There is no question that just about every carrier brought down capacity somewhat over the past three years. If we do see capacity constraints, it will be in drivers, not equipment.
We saw Matlack go out of business a couple of years ago, and it had no effect on capacity. There was just so much overcapacity at the time. This past year on the dry bulk side, Chemical Express out of Texas shut down. It had a definite capacity impact on the dry bulk market.
A lot of tank truck carriers are for sale. We're being contacted by carriers and by brokers. A lot of fleet owners would like a way out if they could find one, but many of the companies are not sellable. At some point the money runs out, and they shut down. We're going to see more carriers reach that point if shippers keep squeezing the rates.
MBT: Isn't it good if the tank truck industry shrinks in both number and capacity?
Schwerman: There is no question that we would benefit if the supply and demand equation tilts in our favor.
MBT: What are the key issues that the tank truck industry will face this year?
Schwerman: Two issues come to mind. One is the shipper bid process that must change. The Internet and online auctions probably work for commodities, but transportation is different. It's important to look at what we as carriers provide to our customers. It takes big investments in facilities, equipment, and manpower. It's hard to get excited about the bid process when you know that in three years or less, the contract is back up for grabs.
How can customers who use Internet auctions ask us to invest in new infrastructure to handle their shipments for just a two-year contract? If you have equipment available, you might bid aggressively, but it's not worth it to go out and invest money in a lot of these deals.
MBT: Will the Internet auction type of bid process continue?
Schwerman: It has to pass. Carriers must feel comfortable that the shippers will support them in a long-term business relationship. That's what we need to be able to replace equipment on a timely basis.
MBT: Will there be tank fleet failures this year of the same scope as Chemical Express in 2003?
Schwerman: That's a good question. Here recently, our industry has been in crisis management. We've gone from a driver shortage to insurance crisis. Now we've got the hours-of-service issues. We've gone from one crisis to the next.
However, if business takes off, we get rate increases, and capacity utilization improves, it can breathe new life into some of these struggling fleets.
MBT: What has been the impact of the new hours-of-service regulations?
Schwerman: For shorthaul carriers, the clock reset is a great idea. I give all the credit in the world to the people who came up with that. It really makes sense and was a welcome change.
However, the new hours-of-service rules do create time bottlenecks, though. We're finding these bottlenecks at loading, unloading, and at the tank wash. All carriers are focused on eliminating those bottlenecks, either by doing business differently or getting the customers to pay for a truck to sit.
MBT: How successful has the industry been in getting additional compensation for the lost productivity?
Schwerman: It's early in the process. Most are taking a wait-and-see approach, but additional compensation will be needed to offset lost productivity. That has to happen.
MBT: Are we at a point where carriers will walk away from business if customers are unwilling to bend?
Schwerman: There is no question that will happen. Some shippers are very understanding, and it's clear that they see the problem. Others are putting their heads in the sand.
MBT: Have the new hours-of-service rules affected the driver supply?
Schwerman: Yes. We've had a driver shortage for a while, but it is worse now.
MBT: How much of a driver shortage is the tank truck industry facing?
Schwerman: We're down 10% to 15%.
MBT: What will be needed to correct the problem?
Schwerman: We need to look at what sort of living the drivers are making. We need to put ourselves in their place behind the wheel of a truck. What attracts a driver, and what turns him off? We have to address the issues. This problem will be with us for a while. There's no big light at the end of the tunnel.
MBT: How are tank truck carriers doing with the new border clearance procedures for loads going to and from Canada and Mexico?
Schwerman: To the best of my knowledge, it's working well. So far, so good. An interesting point about Canada is that it does not allow a felon to be a truck driver. It's the number one factor that will result in a truck being stopped at the (US-Canada) border. It really restricts us on who we send into Canada.
MBT: From a social perspective, how do released felons work their way back into society if they are barred from jobs such as truck driving?
Schwerman: That's an excellent question, and we've debated it within our own company. This is something that has an impact on the driver pool. We don't hire felons at our company at this point, and the Canadian restriction does play a role in that.
We've had cases where truck driver applicants said they were convicted for writing a hot check or doing something else 25 years ago, and they are still paying a price for that. They're paying that price even though they've done nothing wrong since then. They'll never get a truck-driving job of substance.
It's a shame that the Canadian restriction lumps all felons together. Murderers and rapists are treated the same as someone who writes a bad check.
MBT: What is the significance of the drop in truck/car fatalities over the past year?
Schwerman: It just shows that we are a safety-conscious industry.
MBT: What are we likely to see in new tank security requirements in the coming months?
Schwerman: Current DOT (Department of Transportation) security initiatives remind me about 10 years ago when they came up with the idea to track every load of hazmat. Other than filling a computer with a lot of information, what does that accomplish?
MBT: Would we, in the United States, be safer with that type of tracking system?
Schwerman: Absolutely not. I don't think the cost would be justified. You can't protect everything, everywhere, for every minute.
We need a sensible strategy. We would do better to find effective means to disable a truck if it is hijacked by terrorists. It would be a start.
MBT: Should the federal government provide grants to help underwrite the cost of security systems, such as mandatory satellite tracking?
Schwerman: I'm not in favor of grants. We can't expect the government to bear the cost. Government should help industry by forcing us to pass our costs along to our customers. Security is everybody's problem, and the cost should be borne by the end user.
MBT: Is the tank truck industry at risk right now for a terrorist event?
Schwerman: The answer is yes for certain commodities and no for other commodities. Gasoline is high on the list.
Post September 11 (2001), initial concerns at DOT were focused on the truck drivers. DOT visited fleets to check on driver factors, and went away pleased that the industry's legitimate employees posed no risk. The real threat is in the hijacking scenario.
MBT: What are your thoughts on the Washington DC proposal to ban hazmat shipments inside the city out of concern about the potential for a terrorist attack?
Schwerman: We need to educate cities that consider this sort of move. Make them understand that just stopping hazmat shipments into a metropolitan area is not the answer. It's not a viable answer; it will not work.
MBT: Assuming implementation of federally mandated truck driver background checks begin in April, how much more constraint will tank truck carriers see on the driver supply?
Schwerman: It all boils down to time. If state and federal officials come up with a good system to make the background checks a fast process, it should have a negligible impact.
Drivers understand the gravity of 9/11. If the program is put in the right light, I think they will be very understanding of the process.
Our biggest concern is that we'll end up with a time-consuming process. If the background check procedures are seen as burdensome, the program will come unglued.
MBT: Will the background checks turn hazmat drivers into the elite of the trucking industry?
Schwerman: Any driver should be able to pass an FBI (Federal Bureau of Investigation) background check. I don't know that it should be just for those handling hazardous materials.
There is no question that hazmat drivers need to earn more, but they are not alone. All of our drivers need better compensation.
MBT: With rates stagnant in many cases, have carriers been able to make up any ground with accessorial charges?
Schwerman: Not really. Carriers must look at their costs and develop rates that will enable them to survive and prosper. Many of the carriers that are trying to exit the business right now got into trouble because they didn't do that. They didn't plan for future investment needs.
For example, over the past several years, many of us cut back or eliminated new truck purchases. We've reached a point where we have to buy new equipment. Our company just put in an order for new tractors, and we are amazed at the increased cost of new vehicles. Prices climbed 10% to 14% in the last five years.
Many carriers have equipment that has been in service a long time. They're just trying to ride through the tough period.
MBT: What is your impression of the truck engines built in accordance with the 2002 emission requirements?
Schwerman: There have been some issues. Some people gave the impression that these are brand new engines, but they aren't. In most cases, they were just modified to burn the exhaust gases. We bought some last year, and we've seen an impact on fuel economy. It is an issue.
One of the biggest challenges was getting the right settings for the engine computer. In some cases, we had trucks belching black smoke. Some of this was to be expected, because these engines have to be set for the specific application.
MBT: How well is the tank truck industry prepared for a national vapor recovery requirement on chemical trailers by the Environmental Protection Agency?
Schwerman: It's one more burden that we'll have to face. The tank truck business will become just a little tougher. This is different from the gasoline vapor recovery mandate, which could cause problems at the delivery locations.
MBT: What is happening with insurance?
Schwerman: Prices haven't softened to any degree but aren't getting any worse. Many carriers have controlled their insurance costs by reducing coverages and increasing deductibles. In short, the carriers have taken on more risk to keep insurance affordable.
MBT: Do you think the US-Mexico border will be opened this year to trucking?
Schwerman: Yes. It will be opened this fall. One reason is that this is an election year. The border opening has been postponed repeatedly, most recently for the environmental impact study, which is just about done.
MBT: With free trade being discussed as an election issue this year, has the North American Free Trade Agreement been good for the tank truck industry?
Schwerman: Yes. For example, it has allowed us to go in and out of Canada to a degree that we never could before. Border crossings are smoother.
MBT: What are your thoughts on the highway funding debate that is occurring in Congress?
Schwerman: At our company, we've always felt that the highway funding should be outside the rest of the federal budget. It should not be used as an offset for the federal deficit. We pay a fuel tax that should be used just for highway construction and maintenance. It should not be a political football. We need good highways, and we need a consistent program.
Part of the money should go into more rest areas for trucks. We need safe havens for the hazmat shipments to ensure security when the drivers are resting. We don't want to leave these trucks parked along the side of the road. They're just sitting ducks.
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