Today's trucking industry often makes news. Pundits talk about driver shortages, expansion due to new tax breaks, the imposition of electronic logging devices (ELDs) and more.
These are just a few pieces of a growing puzzle, and companies without solution strategies could be in danger.
The strategic value of the trucking industry is paramount to the success of our economy. Trucking moved some 10.8 billion tons of freight in 2017, which is about 70 percent of all domestic freight tonnage. It employs around 7.7 million people, of which 3.5 million are drivers and of these about 1.7 million are heavy and tractor-trailer drivers. It is an important industry for value creation in the economy, and the lifeblood of a large number of people involved in logistics in the U.S.
If it is so important, then the companies involved must, one assumes, have strategic plans to survive and thrive in this market. But then why is there so much focus on individual issues and not the overall strategy? Before we explore that question, the concept of strategic management must be understood. It is not a plan for the quarter or the year which is so common. It is a comprehensive evaluation of alternatives, which leads to long-term goals (five years or more) and the development of specific plans to achieve long-term objectives of profitability and competitive position, utilizing its strengths, minimizing its weaknesses, and to position it to seize as many opportunities as practical and to overcome external threats.
Let's look at the external threats or impacts the industry has to weather.
The trucking industry has known it is facing threats for many years. In 2005 the American Trucking Associations (ATA) was projecting a driver shortage of 20,000 for heavy trucks. Thirteen years later, they are projecting a nearly 60,000 driver shortage.
It is obvious that that number of truck drivers is a problem that has been known for many years and is increasing.
The implementation of the Compliance, Safety, Accountability (CSA) scores introduced by the Federal Motor Carrier Safety Administration provides a means to record the safety of a truck and its driver. Violations are allocated to the driver on a point scale, highlighting drivers more prone to issues. Less safe drivers have left the industry, which is a potentially good result, but which adds to the driver shortage.
There was a sudden and somewhat unexpected growth in the number of drivers required in the oil and gas industry with the delivery of large quantities of sand to wells for hydraulic fracturing. This is predominantly in South and West Texas, North Dakota and the Northeast, and utilizes a significant number of truck drivers in areas which are not the normal routes. This increase really occurred from 2013 to 2015 — and was a contribution to the sudden shortage jump during these years.
It is sensible to reward long-term drivers with the routes that suit them. In many cases this means the most desirable routes where they return home most nights. But the impact on a new driver of being told that they need to build up seniority over many years is not a great way to attract drivers who tend to be younger people and are often trying to look after a new family. Greater thought needs to be given to this seniority and scheduling to remove the negative impact for the new driver.
The ELD, introduced in 2017, merely provided an electronic record for existing regulations did remove some “flexibility” for drivers. It should not have surprised anyone in the industry, as it was discussed and only introduced many years after the regulations, but it seems to be an area of continued discussion. This is peculiar, as it should not have impacted companies and drivers who were complying with the regulations correctly, so continued reference and concern is somewhat misleading.
There is pressure to be more economical and have lower emissions. Old trucks cannot meet these requirements, and so the continual replacement of equipment becomes important and is an ongoing capital need.
The supply chain itself creates problems. There will always be a disconnect between the objectives of a warehouse or store, and that of a truck. Remember, logistics is defined as being efficient and effective from source to end customer, so companies that focus only on their own efficiency do not necessarily add value to the total chain. This is particularly true in warehouses and trucking. The warehouse wants to inspect all the goods before accepting responsibility. This takes time and is in direct conflict with the objectives of the trucking company, which is to move goods. Waiting reduces efficiency for a truck. Some warehouses exacerbate these issues with poor treatment of drivers — e.g., no break room and limited or poor restrooms. A method to address this should be part of the strategic plan for any major trucking organization, and warehouse companies.
There are obviously multiple other threats which each company faces, but these show the range and complexity facing the industry. Nevertheless, the prize of 70 percent of the domestic freight being carried by truck remains as a major opportunity.
The delivery of consumer packaged goods (CPG) to homes is increasing the delivery of parcels continuously, which make this a future area for expansion. The new Tax Reform Act led to a 15-percent surge in new vehicle purchases (December 2017) and these are safer, more efficient vehicles offering drivers greater comfort in ergonomically designed cabs. The Act offers companies substantially lower taxes which companies can use to improve their competitive position and improve driver standings; that is if they are long-term strategic thinkers.
The driverless vehicle concept will arrive, but not for many years, so this is not a solution for the next five years or perhaps a lot longer and is discounted in this discussion.
An effective strategy is one which builds strengths unique to the company; that is, those capabilities which differentiate it from the majority of the other competing companies. The threats previously discussed merely spur leading companies to grow strengths to overcome them.
Let's put the driver shortage into perspective before we look deeper into strategy and building strengths. If there are 1.7 million drivers of heavy trucks, and we are about 60,000 drivers short in 2018, then we are short around 3.5 percent of the needed drivers. That is not a significant number in terms of all the drivers, but if something is not done this is going to increase considerably.
The industry needs to use its scarce resource of experienced drivers more efficiently. That means any company that is not planning its routes and the time of its drivers via optimization software (advanced transportation management systems or TMS) is not using its drivers efficiently. TMS data claims that efficiency improvements of 10 percent to 15 percent are the norm. But let's simply accept that this optimization software should be used to gain the full value of the driver, and that will reduce the number of drivers needed. The TMS discussed here is the advanced system that plans routes and driver times, not a spreadsheet or equivalent older system. And do not think that most companies have this capability. When an audience of logistics professionals (not predominantly CPG) were asked which of these companies had an active TMS in their operations, the answer was around 25 percent. And this technology has been around for more than 30 years! It is to be hoped these companies have processes and capabilities for the new technology TMS; otherwise they will face major problems.
Trucking companies need to know where their assets are. That means satellite tracking of every truck and trailer, so the location is known, and when and where the asset can be utilized to earn revenue. The history of maintenance, the time for repair and hence productive time for drivers is critical for all these assets, and this must be integrated with operations software so a comprehensive picture is formed. And these need to be monitored in real time so a repair or a problem is addressed quickly.
Even with the use of technology, we will need to bring new drivers into the business. This is a profession, and the great companies will train, nurture and make these drivers feel they are gaining a long-term capability. Many industries receiving truck deliveries want specific training in safety, dress and behavior — way beyond just a license to drive. Companies that create drivers with these skills will be the leaders.
Companies negotiating contracts should demand facilities for drivers to wait in comfort and to be treated with respect. A trucking company guarantees to deliver goods, but will warehouses guarantee to turn a truck around within a specific period to make the driver and the asset more productive? Contracts must be negotiated with charge scales including delivery wait times. Warehouses with long wait times and poor receiving processes must pay for the delays via higher rates. I have seen where a warehouse holds a truck for half a day, does not unload it and makes the truck return the next day. That sort of inefficiency means the warehouse must face a higher delivery charge. The cry will be that the competitive position is such that no company can afford to alienate the warehouse. That is not logical, as ultimately the trucking company is paying for this inefficiency.
Contracts must also be about consistency. Many companies think that the spot market offers them the lowest rates. It may do at certain times, but it ensures drivers are inefficiently utilized. Companies that undercut long-term contract rates are ensuring the use of more drivers in a completely unplanned manner, exacerbating the problem. Contracts that allow drivers to be utilized efficiently should be priced to eliminate general spot pricing issues.
Let us go back to the initial premise of this article. Trucking companies are facing hurdles. The ones that will survive long term are the ones which have a strategic management mindset. Their goals, plans and objectives will not alter every quarter. They will be focused on building long-term strengths. They will carefully watch the threats, but their long-term goals remain consistent. Leading companies are already planning years out.
As you consider contracting a trucking company, should you look at the lowest price as the sole criteria for decision making? The answer must be to look into the strategic management of the company and award the contract to the one with the clearest strategic management and the low (not lowest) price, and then to build long-term mutual goals into the contract to ensure continued improvement. This is the classic Category Management Strategic Partnership model.
The spot market must not be a major part of this logistics capability as this undercuts the reason for a long-term partnership. The simple fact of the industry today is that if nothing alters, then the surviving companies will control the drivers and demand much higher rates, which is not to the benefit of logistics and the economy of many companies. So, if your company is not looking at all these components of strategic management, and choosing companies that are adapting, building strengths and recognizing the scarce resource of professional drivers, will you survive as a low-cost logistics service to your customers?
John Vogt is president of WWBC.
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