Busy Doesn't Mean Big Profits
May 1, 2000 12:00 PM
Robert A Schurer has been a hands-on chairman during his year at the helm of National Tank Truck Carriers Inc. It was the culmination of years of involvement that included a five-year stint as NTTC treasurer in the early 1990s. Schurer continues to be a member of the NTTC/Chemical Manufacturers Association Interindustry Bulk Chemical Highway Safety Task Force steering committee.
He took his first step into the tank truck industry in 1974, when he was hired as financial vice-president at Transport Service Company, Hinsdale, Illinois. He was named company president in 1988. Before joining Transport Service, Schurer was with Arthur Young & Company for 11 years.
During a recent interview with Modern Bulk Transporter, Schurer discussed a wide range of issues affecting the tank truck industry. Topics included economic prospects for the tank truck industry in 2000, e-commerce opportunities, driver shortages, and shipper/carrier relations.
MBT: What was the state of the tank truck industry over the past year?
Schurer: After the windfall we had in the second half of 1998 with the rail problems, the first quarter of 1999 was slow. The third and fourth quarter of 1999, we were extremely busy.
I think customers were building inventory due to Y2K concerns. There was some rail disruption as a result of the Conrail breakup. We were busy at Transport Service, and other carriers were busy.
We weren't able to take full advantage of the opportunities due to shortages of drivers. Trucks were sitting. National Tank Truck Carriers did an informal survey, and found that about 40 carriers had 800 tractors sitting in November for lack of drivers.
MBT: How did tank truck carriers perform in 1999?
Schurer: I would say carriers saw flat to modest growth.
MBT: What is the situation today?
Schurer: I don't have an industrywide picture. The only thing I can tell you is that we were finding drivers in January and February. At Transport Service, we have already increased our driver count by about 25. We're filling up trucks.
What we need now is more business. January and February were slow. We're working harder to keep our drivers busy so we don't lose them.
We're telling our shippers that we've hired these additional drivers. Please help us keep them busy. I've heard similar comments from other tank truck carriers.
MBT: What do you anticipate for the rest of the year?
Schurer: A chemical industry magazine forecast a 5.8% increase in chemical shipments for the year. That's pretty good growth.
MBT: Will that translate to nearly 6% growth for tank truck carriers?
Schurer: It's very difficult to make an accurate projection for chemical shipments. There isn't a lot of specific science in the forecasts. Foodgrade on the other hand historically grows at 3% to 4%.
At Transport Service, our goal is 15% combined growth this year for the foodgrade and chemical divisions. That will come from existing customers, as well as some new business that we believe we have lined up.
MBT: What are the biggest problems facing the tank truck industry?
Schurer: Shortage of qualified drivers, retention of drivers, driver pay, pressure to hold or decrease rates, and increased costs in the face of shrinking profit margins. We have a challenge to meet the continuing high performance standards of our shippers with the current driver situation. I would say that this industry needs a rate increase.
MBT: How many more drivers are needed in the tank truck industry?
Schurer: The only information I have on that is what I've read in various publications. I saw in an article that the ATA (American Trucking Associations) said we will need 80,000 drivers a year for the next five years. If that's the case, we've got our work cut out for us. That's a lot of drivers.
MBT: What sort of rate increases are we likely to see this year?
Schurer: I think we will see rate increases this year, but they won't be blanket increases. We'll see selective rate increases. People will look at lanes of traffic, look at products, look at risks. Then selectively, talk to the shippers.
MBT: Will the increases stick?
Schurer: I would say they will, because they won't be overall increases. We need to continue to convince the shippers that the driver shortage is real, that we need to increase wages to keep and attract qualified drivers to service them and meet expectations. When you look at the food and chemical sides, the expectations are 98% and 99% ontime performance.
MBT: How many tank truck carriers know their costs well enough to set rates where they belong?
Schurer: I would say there are more that don't. Or they know their costs, but they don't know what a proper return is.
MBT: Are programs such as NTTC's Executive Strategies Forum giving people a better understanding?
Schurer: I think so, but we need to attract more participants. We have to educate people.
MBT: What is needed for rate increases?
Schurer: We can't talk about an across-the-board increase of say 5%. Carrier by carrier, we've got to look at lanes. We've got to look at products. For example, some products should carry a higher rate because they are harder to clean. We have to look at our accessorial charges and see if we can raise them.
We have to get away from continuous-movement pricing on the hope that we might be able to find a load coming back. The result is that we take a beating on the outbound load if we don't find a backhaul. There is too much of that in our industry.
MBT: Should rates be calculated on risk?
Schurer: That would be a good way of doing it. I think higher-risk products should carry a higher rate.
MBT: What sort of potential does e-commerce have for the tank truck industry?
Schurer: There is little doubt that progress can be made with e-commerce. A surprisingly large number of tank truck carriers have web sites. However, those sites are being used primarily as marketing and sales tools and for communications.
At the Transport Service web site, we make it possible for customers to submit orders and request rate quotes. Drivers can fill out a job application online. We're also posting companywide job openings on the site. We're getting a few responses, not a large number.
MBT: What is the likely impact of load brokering sites, such as Bulknet.com and ShipChem.com that are now coming online?
Schurer: I would say we're likely to see more of that in the future. It's all part of the growth of e-commerce and the Internet. We're taking a wait-and-see approach to the ShipChem.com arrangement because we do a lot of business now with Eastman Chemical (one of the partners in ShipChem.com).
All of the people we've been dealing with are moving from Eastman to this new company. It's going to be a very interesting transition.
MBT: Why would a tank truck carrier want to use these services?
Schurer: If we can solicit loads from shippers on our own, I don't believe there is a value in these services. If the shippers outsource their business to these operations, then we will have to go there.
It's just like truck brokers. We try to stay away from brokers, but in certain situations we use them when we can't get freight from an area on our own.
I think these brokering and logistics web sites may achieve some success. I believe we'll see the smaller shippers using the sites as their freight department. Larger shippers are telling us that they want to continue to control their own freight.
MBT: Where is the tank truck industry going with the Internet?
Schurer: As customers expand their use of the Internet for marketing, distribution, and customer service, we will also expand our activity. We'll use the Internet for load tendering, load status, and overall communications.
As the Internet develops, tank truck carriers will benefit from what larger companies with more resources have done. They will share that information. They will help us develop better systems within our companies. That's important because we don't have the resources to do it all by ourselves.
The quality process is a good example. Chemical companies, such as Dow, put a lot of effort into it. Then they had people come and help us develop our quality process. The major chemical companies are helpful in that regard.
MBT: How can this industry use the Internet effectively for e-commerce now?
Schurer: At Transport Service, we're already doing a number of things. We're doing quick and accurate rate quotes. We've been using the Internet to create and change contracts. We're using it for a quick response to a nonconformance or corrective action request.
MBT: What is the state of relations between shippers and carriers at this time?
Schurer: I think they are good. I would classify them as very positive. There are probably some areas we need to work on.
MBT: Are the parties meeting more often today?
Schurer: I would say they are. We're meeting at least quarterly with all of our major shippers. We talk about major issues and their overall business outlook.
MBT: Is the attitude more partnership and less adversary?
Schurer: There is a little bit of both yet. Relations are very, very positive with shippers that tend to work with you as a partner. And then there are the shippers that will put their work out to bid every year or every two years. You'll never have close relations with those shippers, because you don't know if you will be hauling for them a year down the road. You always have the feeling that you are being beat on.
MBT: With the emergence of Internet services, such as ShipChem.com, are we going to see the transportation department totally disappear at the shipper level?
Schurer: I think you will see that at the small shippers. We'll have to have a relationship with the people at the various ShipChem.coms that are created. Only time will tell what sort of approach they take to shipper/carrier negotiations. Will their attitude be that they are just there to maximize profit for a single load? Or will they have relationships with carriers? I hope they will have relationships with core carriers.
Hopefully, they will go through a program to select core carriers that can handle the freight. Of course, economics will play a role in selection.
MBT: What can shippers and tank truck carriers do together to improve relations?
Schurer: We have to convince the shippers that they can't expect us to just step in and dedicate equipment and drivers during a crisis. Once the crisis is over, they expect us to just go away. Is there some level of business they can give us after the crisis is over? Is there some business on which we can competewith rail?
We need to do a better job of communicating operating cost impacts. Shippers have many of the same cost increases as we do, and they pass those cost increases along to their customers. We have got to be able to do the same thing.
Finally, we need to make it clear that the driver shortage is real. It's not fictitious. They need to help us improve driver working conditions. What is the loading rack area like? Are drivers being treated properly at the loading rack?
MBT: How are shippers reacting to reports of driver shortages?
Schurer: I don't think they are reacting at this point. I think they are sympathetic, but they are not offering increased rates to cover higher driver pay. We raised driver wages in the latter part of 1998. We went to shippers to ask them if we could just pass along the increased driver wages, nothing more. We got negatives all the way down the line.
MBT: What will be the result of shipper resistance to rate increases to cover higher driver wages?
Schurer: In 1998 and 1999, we saw instances where tank truck carriers were turning down loads. There were delays in handling some traffic because of the shortage of drivers. Shippers won't address the need for higher driver wages until significant slowdowns result or the freight stops moving. Until then, they'll say it's pretty much up to us.
MBT: How can shippers help tank truck carriers use assets more efficiently?
Schurer: Shippers aren't helping the carriers like they could. They are putting more burdens on the carriers through the emphasis on cost savings.
They are reducing their own staffs and forcing the carriers to take over more of the shipper function.
They are reducing our hours of operation. We don't have 24-hours loading, and we don't have 24-hours unloading. It's all part of an effort by shippers to continue lowering their costs. Instead of opening windows for pickups and deliveries, they are making them narrower.
MBT: What has been the impact of the Conrail breakup?
Schurer: It was smoother than other rail mergers, but last summer we saw a rail-related increase in business. We're still seeing a few isolated increases in business. If history is a guide, we'll have more rail disruptions in the future. During those times, we'll have extra traffic. All we have to do is find enough drivers to handle it.
The shippers are so mistreated by the railroads. When shipments don't get through, the railroads offer no solution. The shippers come running to us in a panic, and we handle the volume. We did it last summer. We jumped through hoops.
MBT: What can the tank truck industry do to break the hold that the railroads have on shippers?
Schurer: I'm not sure that's practical. Each of us needs to work with shippers to find areas where we can compete with rail. We need to find opportunities that are economical for the shipper. It's all economics.
MBT: What sort of tank truck carrier consolidation are we likely to see this year?
Schurer: I expect that we will see more consolidation in the large to mid-size carriers. I think we might see quite a lot of it this year. We need to consolidate to be able to compete and keep our costs down.
MBT: How much worse is the driver shortage likely to become?
Schurer: I've been in this industry 26 years, and I would say that the driver shortage in 1999 was the worst that I have seen. DOT is considering a prototype program in which selected individuals 18 to 21 years old would be trained to be truck drivers. We'll be looking to see how well that experiment works.
One answer to the crisis, obviously, is better pay and benefits. We need to remove the image problem, and we need to do a better job of recruiting females and minorities.
One of our biggest problems is that we don't look at drivers until they are 21 years of age. We have to extract them from other industries where they may have been since graduating from high school.
Some organization-maybe ATA, maybe NTTC-needs to put a program together so we can start educating and attracting people to want to drive a truck. It has to be a grassroots, industrywide effort.
MBT: Industrywide, what is the average age of drivers today?
Schurer: I don't have a number for the industry. At Transport Service, though, the average age is 48.
MBT: Should we look outside the United States for truck drivers?
Schurer: I read recently that MS Carriers is working on an arrangement to bring in 2,000 Puerto Ricans to drive for them. It's probably more difficult for a tank truck carrier. However, we could probably train them if they speak English and know how to drive a truck. Our training is more technical and sophisticated than that of a dry freight carrier.
MBT: Can we overcome government opposition to bringing in foreign drivers?
Schurer: I think the government and the unions have to stop their opposition. We need to be able to try everything. No one solution is the complete answer. There should be experimental programs for Mexican drivers and others.
MBT: What sort of price increases are we likely to see from the insurance industry?
Schurer: Based on insurance industry presentations, it appears that in both 2000 and 2001 we will see increases of anywhere from 5% to 10% per year for liability and worker comp coverage.
I don't think the increases will put anybody out of business, but they are just another cost escalator in our P&L. Insurance is usually somewhere around 3% of revenue.
MBT: What is the likelihood that the insurance increases can be passed along?
Schurer: I think that will have to be done on an individual carrier basis. Some carriers will experience higher increases, while others will be less impacted.
MBT: How are fuel costs impacting the industry?
Schurer: It's a major impact. I think fuel prices may have peaked, but they are going to stay high.
MBT: What is the status on fuel surcharges?
Schurer: To my knowledge, all tank truck carriers have implemented fuel surcharges. The percentages vary by customer and by region. They are sticking. It was not an easy task to obtain fuel surcharges. They were by no means automatic. We had to go after them aggressively.
MBT: What do you anticipate for new hours of service regulations?
Schurer: Without a doubt, DOT's decision regarding hours of service will have the potential to reshape or restructure the economic stability of the entire trucking industry. Given today's driver shortage, it's obvious that any significant reduction in driving hours will mean that some loads just won't get to their destinations.
We've heard about the possibility of a 10-hour rest period. If you're on the road, that's a long time to be off. What is the driver going to do for 10 hours? A lot of drivers sleep in the trucks, and they don't want to sit in one place for that long. They get bored.
I would hate to see DOT implement a rule that will invite violations.
MBT: Will the new rule mandate onboard computerized logging?
Schurer: That's what DOT is talking about. I would think that would be challenged in court on privacy issues. NTTC will have this on the agenda at every meeting for the foreseeable future. We want to educate ourselves about the technology. What is out there? What can it do? What should it do? What shouldn't it do?
MBT: What will be the impact of the Environmental Protection Agency's effluent guidelines?
Schurer: Since EPA's effluent guidelines have not yet been published, it is too soon to predict a cost impact. Obviously, if EPA's initial proposal is adopted, we would be looking at some staggering numbers-about $85 million initially, plus another $10 to $15 million per year in operating costs.
So far, NTTC has spent about $350,000 in consulting and attorney fees, showing the EPA that many of its assumptions about the industry's waste streams were in error. Some bad science was used in EPA's analysis. Hopefully, EPA will see that it has vastly overstated the issue. If not, it's off to the courtroom.
I might add that this is yet another example of how NTTC members are spending a lot of money to benefit the entire tank truck industry, both members and nonmembers. I hope nonmembers will give more thought to joining.
MBT: What sort of activity do you think is likely on sizes and weights?
Schurer: Right now, it's unrealistic to consider meaningful changes in the size and weight laws. The public doesn't want larger trucks, and that's all there is to it.
MBT: What's going to happen on chemical vapor recovery?
Schurer: We're getting more demand from chemical shippers. It is growing. We expect to see a nationwide requirement from EPA. I would hope we get an industrywide standard for the systems. NTTC, the Truck Trailer Manufacturers Association, and the Chemical Manufacturers Association are working on a solution.
This effort demands the cooperation of chemical shippers and consignees. We believe we will get the cooperation needed to develop a standardized vapor recovery system. Absent cooperation, we'll see chaos, which none of us can afford.
MBT: What is the NTTC position on eliminating wetlines on petroleum cargo tanks?
Schurer: Certainly, the association is aware of efforts by the National Transportation Safety Board and the DOT's Research and Special Programs Administration to "cure" the problem of wetlines. In terms of some of the hardware and operational restrictions being contemplated, I hope the cure isn't an overreaction.
MBT: What is the NTTC position on third-party inspections of cargo tank repairs?
Schurer: NTTC will strongly oppose third-party ASME inspections. The current system of Part 180 inspections and testing is working well. Tank truck safety has been enhanced nationwide. Until we can be shown systematic failures or shortcomings in today's system, our opposition will be uncompromising. The taxpayer pays DOT to enforce hazmat regulations, and DOT can't farm out that important responsibility.
MBT: What are your views on the higher registration fees now being requested by RSPA?
Schurer: I don't mind paying a higher fee if the money is going to be used to train emergency responders. The reality is that the money is being used for other things, and that is totally wrong.
MBT: What is the latest on the NTTC/ATA situation?
Schurer: Under current circumstances, it is doubtful that NTTC will integrate into the new ATA. I am hopeful that both organizations will continue to work in harmony. Neither organization has ever duplicated the services offered by the other.
NTTC is the only national organization that focuses on the issues that are unique to the tank truck industry.
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