Road Scholar Transportation

(The following study results are provided by http://rwitrans.com/resources/whitepapers.asp)

Capacity issues resulting from the recent recession and ongoing driver shortage, the inability of many carriers to maintain temperature control of a shipment during extreme weather conditions, and increasing costs of conducting business were identified by individuals as the leading concerns they face as a shipper of temperature-controlled freight, according to a September/October 2011 study conducted by RWI Transportation.

All of the respondents had some experience in shipping temperature-controlled cargo, with the top five products being frozen foods, beverages, fresh fruit & vegetables, dairy products, frozen meat, and fish & seafood.  93% of those surveyed relied on trucks as their primary means of transportation.

As you can see from RWI’s graph on the right, 42% of respondents ranked capacity as their number one challenge, with 92% of participants classifying capacity as a concern.  In fact, 37% of these consider the issue to rank between significant and extreme.

Let’s look at most recent Morgan Stanley Freight Index which compares incremental supply/demand for truckload reefers vs. truckload dry van.

Graphs provided by Morgan Stanley. Click to Enlarge

As you can see from the graphs, the increasing index demonstrates tighter capacity, especially in the reefer business.

And what do you think the reason for this is?

One answer would be the recent recession, which took out 15-20% of capacity in the trucking industry.  In fact, according to Transport Capital Partners (TCP)’s 4^th Quarter 2011 Business Expectations Survey, carriers are resisting growing their fleets due to factors which include operating margins, low return on investment, and shortage of drivers.

According to the survey, over half of carriers participating in the survey (73%), acknowledged that they would not expand their fleets until their return on investment (ROI) improves, which they believe would be accomplished through better rates.

Low ROIs are a problem many carriers are facing due to the increasing cost of equipment, healthcare, and diesel fuel, as well as the difficulty qualifying for a loan, and despite rate increases, many companies are barely breaking even.

70% of carriers admitted that they do not have enough drivers to fill the trucks they currently do have, let alone invest in purchasing more. And with stricter rules and regulations, including CSA 2010, carriers who are investing in new equipment are doing so to replace old ones.

As RWI’s survey notes, within the past four years, the trucking industry lost 13% of its driver pool, causing a shortage of around 125,000 drivers.  And with generation x drivers retiring, the driver shortage is expected to continue.

To fulfill their capacity requirements, shippers are hiring additional carriers.  According to the study, 60% of those surveyed admit to having 10 or fewer carriers while 21% operate with less than three.

Shippers are also beginning to work more hand in hand with carriers to arrange loads that consistently ship on certain days of the week/month in order to arrange shipments and efficiently place trucks in those areas to cut back on costs and have the availability.

What steps are you taking to deal with capacity concerns?  Have you found your company reaching out to additional carriers for assistance?

Increasing costs were another challenge faced by shippers of temperature controlled products.

Take the price of diesel fuel which has reached new high levels since 2008, currently at a U.S. average of $4.05, which 74% believe greatly impacts their company since it takes more fuel to operate reefers.

Along with fuel, trucks are increasing in price as well, raising about 45% within a 10-year span and will continue to surge.

For these reasons, more shippers are choosing to shy away from purchasing and operating their own trucks and instead outsource.  76% choose this method of shipping for cost efficiency.

At the same time, trucking companies are coping with the increasing costs of doing business through rate increases.  In fact, “freight costs could increase by as much as 15 to 20 percent over the next two years” according to the National Shippers Strategic Transportation Council.

Shippers are already expecting changes in their transportation budgets with 57% expecting budget increases and 47% planning on increasing their LTL budgets.

And despite rate increases, many trucking companies are barely breaking, if that.

Just last week, Atkinson Freight Lines, a Bensalem, PA trucking company who has been in business for 127 years, was forced to closed stating the inability to compete with national carriers, fuel and toll increases, and other costs (http://bensalem.patch.com/articles/local-trucking-company-closes).

As one member of the transportation industry notes, “The problem is getting back or what’s called the backhaul. When a driver gets to his destination he still has to get back home. If he has no freight in his truck (deadhead) he has to pay for the return fuel. It used to be that they made enough to cover that. In order to stay competitive and in the black, many times they are turning down runs, it’s a no win. If they take it they lose money if they don’t they lose money” (http://www.linkedin.com/answers/business-operations/supply-chain-management/OPS_SCH/241122-471188).

That’s one more reason why shippers are working more closely with carriers to plan and schedule loads ahead of time.

Do you believe backhaul/fuel prices to be a main reason why companies are closing their doors?

The other main challenge shippers of temperature-controlled products are facing is keeping their freight temperatures regulated.

65% of those who responded to RWI’s survey stated that freight that underwent improper temperatures was the main reason why a load was rejected, while 90% stated that “it impacts their organization.”

And not only is the company impacted through the loss of the discarded shipment, but inspection costs, brand equity, and their reputation with the customer.

The problem is happening everywhere…carriers are being caught transporting food products at unsafe temperature conditions. Take last July when MSNBC revealed a series of trucks in Indiana delivering foods that surpassed the state’s law requiring reefers to maintain a temperature of 41 degrees or lower.  The trucks were transporting food products at 70 degrees, well above the limit.

If that’s not enough, authorities also caught a truck traveling to Indianapolis from Chicago with cargo that included meat, eggs, and produce, operating at trailer temperatures measured at 94.7 degrees, MSNBC’s TODAY notes.

As one driver explains, “Trucks have been known to set the unit at the recommended temperature, drive 5 miles down the road, and turn the unit off to save on reefer fuel” (http://www.wthr.com/story/15520564/hot-trucks-problem-getting-worse).

And when something goes wrong, it is not just the trucking company held responsible.  As one person comments, “The liability should be on the food distributor. They either own the trucks or contract with the trucking company. They should ensure that trucks are refrigerated and that the refrigeration units are in proper working order” (http://www.wthr.com/story/15520564/hot-trucks-problem-getting-worse).  It is up to the shipper to make sure that their freight is handled by a qualified carrier.

Take Road Scholar Transport, for example, who utilizes a system known as ReeferTrak, which can provide our customers with the temperature inside the trailer at any given time, even after delivery, as well as a record of any door openings and closures.  What do you believe the benefit of having your food inside a truck equipped with this technology is?

Capacity issues and increasing costs continue, not only for those shippers in the temperature-controlled freight business, but all those involved in the supply chain.

Here are some tips on how you can help prevent your business from being affected by the capacity shortage.

*Stop bidding out your business year over year.  No one gets used to the “players.”  Instead, establish and grow your relationship with a specific carrier(s).

*With that being said, work hand-in-hand with carriers to schedule routine shipments.  If a carrier knows that a particular lane will run a specific time each week or month, they can schedule backhaul, cutting back on costs for both the carrier and shipper.

*If you do not have a load that ships on a specific time of week/month, it is best to plan your lanes ahead of time.  Giving carriers a day or more notice can help them position their equipment efficiently.

*It is also beneficial to add additional carriers in cases where your primary carriers do not have the availability.

What challenges are you currently facing in the freight business?  What solutions do you see for these challenges?

Download a copy of RWI Transportation’s study at http://rwitrans.com/resources/whitepapers.asp.