Logistics Management Solutions Blog

Will 2012 be the year for intermodal?

All signs point to yes.

For starters, intermodal loadings have shown year-over-year gains for the past 25 months.  Of course it isn’t at the heights it reached in 2006, but this mode is racing ahead.  And, a host of industry factors will continue to fuel growth for, some say, the next three to five years.

We all know truck capacity is tightening as the supply of drivers and equipment struggles to keep pace with rising freight volumes.  Factor in changes to hours of service (HOS) rules and the FMSCA’s Compliance, Safety and Accountability program (CSA), and the over-the-road market gets tighter yet.  Of course decreasing capacity means increasing rates, so shippers begin to seek alternative solutions.

In years past, many shippers could not look beyond the highway to see intermodal on the horizon.  Intermodal service was questionable and rail infrastructure was weak.  Few shippers want to compromise their customer service to save money.  But today, shippers don’t have to compromise.

According to the Association of American Railroads, in recent years railroads have spent approximately $12 billion per year on tracks, signals and other infrastructure.  And last year, they invested more than $20 billion.  All of this was done in an effort “to grow and modernize the national rail network.”  According to many shippers, rail service is more reliable than ever.

And the trucking companies are right there, too.  It’s been more than two decades since J.B. Hunt and Sante Fe (now BNSF Railway) formed an unprecedented alliance that led the intermodal movement, and today truckload carriers are embracing this mode at a fervent pace.  Recently, we’ve seen a number of carriers adding intermodal capabilities to their offerings.

And why wouldn’t they?  They, like the rest of us, are here to serve the shippers.  Shippers are looking to secure capacity when the market is tight, and remain fiscally responsible as carrier rates and diesel fuel costs rise.  I haven’t even mentioned the environmental factor: Companies want and need to be in the black, but they want to be green, too. Add these requirements together and intermodal quickly equates to a “no brainer” for many manufacturers and retailers.

I am excited by the role intermodal will play in the coming years and I believe this mode is poised for significant growth – all signs point to it.

As of January 1, our roadways will be a little safer.

Late last month the Department of Transportation announced a final rule banning commercial truck and bus drivers from using handheld cell phones while operating their vehicles.  The rule, which was issued by the Federal Motor Carrier Safety Administration (FMCSA) and the Pipeline and Hazardous Materials Safety Administration, takes effect on the first day of the New Year. It is part of the DOT’s ongoing
mission to end distracted driving.

As you may recall, back in October the FMCSA banned texting by interstate commercial drivers. But, it wasn’t enough. Research demonstrates that, when using handheld cell phones, drivers remove their eyes from the road for an extended amount of time. They could be reaching for a phone or dialing a number – whatever it may be, it cannot happen behind the wheel of a large vehicle that is barreling down the highway at 65 to 75 miles an hour.

Enter the new ban.

However, the issuing entities understand the link between communication and commerce. Drivers can use hands-free phones, two-way radios, etc., but there will be restrictions. A few of our clients have asked for clarification regarding the ban, so we’ve compiled the following summary.

Who does it apply to?

• Interstate commercial truck and bus drivers
• All hazmat drivers

What does it ban, allow?

• It bans drivers from using handheld cell phones while operating a commercial truck or bus.
• Handheld phone use is banned while operating on a highway, including when a truck is temporarily stopped on the road. It does not include stopping on the side of the road.
• Drivers can use hands-free mobile telephones with a speaker phone option and one-touch dialing. These are allowable as long as the device is within the driver’s reach while he or she is in the normal seated position with the seat belt fastened.
• Drivers can use a handheld phone to contact law enforcement or emergency services for certain purposes, i.e. reporting an accident or a drunk driver.
• Two-way radios, or walkie-talkies, can be used for short periods of time when communication is critical for utility providers, school bus operators, or specialty haulers.

What are the penalties?

• Federal civil penalties of up to $2,750 for each offense.
• Multiple offenses disqualify drivers from operating a commercial motor vehicle.
• Commercial truck and bus companies that allow drivers to use handheld cell phones while driving face a penalty of up to $11,000.

What kind of impact will the new ban have on the New Year and beyond? Only time will tell. What are your thoughts?

What’s going on in the trucking industry is a bit unusual.

Our country’s economic foundation is shaky at best, but truck carriers are raising rates and standing firm on pricing. As we’ve experienced – not too long ago – in times of economic uncertainty freight volumes usually fall and rates drop as desperate carriers vie for business. But, this is not the case.

First of all, volumes are rising. In fact, on Wednesday the DOT announced that its freight transportation services index rose 4.4% year over year in September and reached its highest level in more than three years. All reports and analyses point to the fact that capacity is tightening; however, we must realize that this happens a lot faster now. Over the last few years many trucking companies have gone out of business and those remaining are struggling to put qualified drivers behind steering wheels. What’s more, carriers are hesitant to add capacity to their existing fleets.

According to a survey by Transport Capital Partners, 73 percent of carriers said they did not plan to add capacity over the next year or they were only planning to add 5 percent at the most. Can we blame them? Carrier operating costs are increasing, and the economic climate is cool and its forecast is unpredictable.

Mode wise, these conditions do not discriminate; both less-than-truckload (LTL) and truckload (TL) companies have raised their rates and, according to many analysts, they will do so again.

Less-than-truckload:

Between July and September, several major LTL carriers rolled out General Rate Increases (GRIs):

• FedEx Freight – 6.75% effective 9/6
• Old Dominion Freight Line – 4.9% effective 9/6
• YRC Worldwide – 6.9% effective 8/1
• UPS Freight – 6.9% effective 8/1
• Conway Freight – 6.9% effective 8/1
• ABF Freight System – 6.9% effective 7/25

I think the title of Tuesdays’ Journal of Commerce article says it all – “LTL Rates Rising, But So Are Costs.” Labor, healthcare and material costs are rising and carriers need to recoup these expenses to ensure their survival. They are also trying to make up for recent years when industry conditions were not in their favor.

Truckload:

According to Transcore, September truckload pricing increased – average dry van spot market rates rose 2.3 percent compared to August and 3.9 percent compared to 2010. And in a recent survey, the firm found truckload carriers increased their pricing by 10 percent in the first half of the year. And it’s not just rates that will drive pricing up; Transport Capital Partners found more than two-thirds of truckload carriers plan to increase the use of accessorial charges.

Not great news for shippers, I know. But we can take solace in the fact that carriers are doing what they need to do to keep pace with rising costs and promote their sustainability, which will mitigate further tightening in the long term. Meanwhile, we will adjust – as we always do. In this business, there’s no such thing as business as usual.

I loathe cliches, but cannot help myself when it comes to voicing my opinion about proposed changes to the hours of service (HOS) rules. So here it goes: If it ain’t broke, don’t fix it.

Last week republican leaders of the House Transportation and Infrastructure Committee sent President Obama a strongly worded letter urging the White House not to change the current HOS rules, which have been in place since 2004 and are due for a revision on October 28.

There are many ways the final version could take shape, but most concerns center on the possibility of reducing drivers’ on-the-road time, which could include cutting drive time from 11 to 10 hours a day. Those in favor of changes cite safety concerns; those opposed cite the financial impact on our industry and the American economy at large.

Safety First

While many of my colleagues and I oppose a reduction in hours, we certainly are not adverse to safer highways and roads. I traverse our country’s roadways, as do my loved ones. However, data does not suggest the current rules compromise safety; in fact, since the current rules were put in place, our country has achieved unprecedented safety levels.

The American Trucking Association (ATA) says that since 2004
the truck-involved fatality rate has dropped by 36 percent – nearly twice as fast as the overall highway fatality rate. And here are the facts from the National Highway Traffic Safety Administration (NHTSA) and the Federal Highway Administration (FHA):

• Last year the U.S. traffic fatality rate fell to 1.09 per 100 million vehicle miles traveled – a new low in recorded history.
• It is estimated that in 2010 32,788 people were killed on U.S. roads – the fewest since 1949.
• The number of people killed in large truck crashes dropped 26 percent in 2009. The number of injuries in those accidents also dropped 26 percent.

The Cost of Change

Financially speaking, changes to the HOS rules are likely to result in less productivity for drivers and trucking companies, as well as additional administrative costs. These, of course, will translate into higher consumer costs. Upon assessing pending regulations, the White House said the proposed revisions could cost $1 billion.

Based on our current economic conditions, can we really afford to sustain such an impact?

Then there’s the traffic congestion and the impact on the environment. If daily driving hours are reduced, trucking companies would have to put more trucks and more drivers on the road just to deliver the same amount of freight. And won’t more traffic increase the likelihood of roadway accidents?

What Now?

The Federal Motor Carrier Safety Administration (FMCSA) has been working on rule revisions for the past two years and the late October deadline looms large. The FMCSA hasn’t said that it will reduce the number of hours, but many see this as a real possibility considering the amount of pressure applied by groups like Public Citizen and the Teamsters union. These organizations have taken FMCSA to court time and time again until 2009 when the agency agreed to revisit the HOS rule.

Regardless of whether changes are made or not, the FMSCA is likely to get sued again – either by the ATA or Public Citizen – and it will probably be a while before the HOS debate is settled. Meanwhile, all of this back and forth is costing everyone time and money. In my opinion, it’s like tinkering with the assembly of a perfectly good bicycle. You know what they say: If it ain’t broke. . .

In the past two days I think I’ve spent more time on www.weather.com than I have in the last two years combined.

Clicking through the interactive maps and reading the dire warnings to East Coast residents makes following Hurricane Irene both fascinating and frightening. Based on the facts, figures and projections, Irene has the potential to be a historical storm that could severely impact the entire East Coast.

Over the last couple of days we’ve received messages from our carrier partners – transportation companies keeping us informed of the storm’s progress. Today, these updates are arriving at a more intense frequency as carriers share details of their contingency plans and news of hub closures. There’s a general message in all of these updates: carriers are doing everything they can to keep freight moving while keeping employee safety a priority.

So what can shippers do?

• Allow as much lead time as possible for all shipments, especially those heading to the East Coast.
• Keep abreast of the storm’s progress and understand how it may affect your freight operations. Work closely with your transportation planners.
• Be flexible. Carriers are prepared to adjust delivery routes, reposition people and equipment, adjust hours of operation and consolidate loads bound for affected areas. As one carrier told us, do not expect “business as usual.”
• If and when a delivery delay is expected, contact your customers and keep them informed of the situation.
• Cooperate as much as possible with carriers. A storm of this magnitude compromises the safety of their staffs and the resilience of their businesses. Your understanding and flexibility will go a long way in regards to your current and long-term relationships with carriers.

Most importantly, stay safe. Remember, business is business but your safety and the safety of others is paramount. If you live in the affected areas, don’t shrug off the warnings; make a plan. Be proactive, be safe.