Saturday, January 10, 2009

Recession creates a load of problems for truckers

Cuts at firms are pushing more haulers into the ranks of independent owner-operators, spurring bidding wars for fewer jobs.

By Ron White

January 7, 2009

In early December, trucker Joe Rini learned that his own personal recession had just gotten worse.

One of his best clients called about a load of building materials that needed to travel to the Pacific Northwest, Northern California and Colorado -- normally a $4,400 job. Rini offered to do it for $3,400.

But before Rini's truck had arrived to pick up the load, the Cleveland-area customer of more than four years called back. Another trucker had offered to do the job for $400 less. Would Rini match it?

The answer, which was hard to spit out, was no.

"I didn't want to bid that low in the first place," said Rini, speaking from the road as he completed a trip from Ohio to California and Arizona and back to Ohio. "I start down that slope and I'm out of business."

"This has been going on a lot lately. People willing to bid so low just to get anything in their trucks," Rini said. "Finding loads in the areas you need has become a hair-pulling experience."

There are few occupations that feel every jolt along the nation's economic highway as deeply as trucking does. Every fuel price surge, such as when diesel hit $5 a gallon last summer, is an immediate hit that can turn a profitable run into a money-loser. The average American might not notice an auto plant closing or business bankruptcy. For truckers, such events represent another loss of steady work. And with so many industries cutting back, 2008 will go down in modern trucking annals as the worst year ever.

After October -- which is normally the busiest month on the road for the holiday season -- turned out to be the worst October for hauling cargo by truck in five years, the American Trucking Assn. reported a slight rise in business in November.

But the trade group's chief economist, Bob Costello, warned that "the freight outlook remains bleak."

A total of 785 trucking companies with a combined fleet of about 39,000 trucks went out of business in the third quarter, bringing the number of company trucks idled in the first nine months of 2008 to more than 127,000, or 6.5% of the industry, reported Donald Broughton, trucking analyst and managing director of Avondale Partners.

"Never have more trucks been pulled off the road in a shorter period of time than in the first three quarters of this year," Broughton wrote in his third-quarter analysis of the trucking industry.

That has pushed tens of thousands of drivers who had been on company payrolls out to compete for slices of the smaller cargo pie with the nation's independent owner-operator drivers, who were already struggling. It's the reason for the desperately low bids facing Rini of Grand River, Ohio, and other truckers.

"I would estimate that we probably lost work for about 100,000 drivers in the first half of 2008 when diesel hit that record high price," said Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Assn. "It's hard to know exactly because they don't report it anywhere. They just go away, and they haven't been missed that much yet because the economy has been so bad."

Worse, Spencer said, are all the regulations in what he calls the "supposedly unregulated" trucking industry that are making it more difficult for the average driver to survive. Spencer cited work-hour regulations that allow for 11 hours of driving followed by a requirement of at least eight hours of sleep, which many truckers find difficult to do all at once.

Spencer also pointed to post-9/11 security concerns and the commercial encroachment of land formerly set aside for rest areas and truck stops, making it increasingly difficult to find places around the U.S. where it's acceptable for a driver to park his rig for several hours.

In addition, more states such as California are adopting tougher environmental regulations that require drivers to use the newest, cleanest and most expensive rigs.

"Most of our members are trying to find a niche -- earn enough to stay in business this year," said Spencer, noting that the group's average member is 50 years old, has been driving for about 20 years, owns 1.8 trucks, has no medical insurance or retirement plan and clears about $40,000 annually after taxes.

Driver DuWayne Marshall of Watertown, Wis., found a niche more than a year ago when he got the chance to work directly for the five Brennan's Markets, headquartered in Monroe, Wis., instead of working through a freight broker.

"If I didn't have them, my business would be dead," Marshall said. "I'd be out there struggling for work just like everyone else."

When Brennan's and other customers saw Marshall's fuel costs spiraling out of control last spring and summer, running his costs per mile up from 53 cents to 93 cents, they were willing to pay a fuel surcharge to keep his truck rolling.

To compensate for the fact that even Brennan's orders were getting smaller, Marshall redoubled his efforts to find alternative cargo to carry, so much so that he expected to gross more than $300,000 in 2008 -- which would be his best year ever.

It sounds like a lot, Marshall says, until he starts subtracting.

There was $109,000 spent on fuel through mid-December, even after the collapse to about $2.40 a gallon from diesel's all-time record national average of $4.764 a gallon July 14. He's paying $2,580 a month for his $133,000, 2007 Kenworth W900 rig, $980 a month for the $74,000 refrigerated trailer he's paying off and $7,910 for the refrigeration unit. Insurance costs him an additional $850 a month.

And in the back of his mind is January and beyond, when he suspects there will be more layoffs and even more truck drivers out there looking to undercut his rates.

"If a plant closes and a guy has been hauling freight for them no longer has that business, the easiest way for him to find another haul is to cut someone else's rate," Marshall said, with only a trace of sarcasm in his voice as he drove north on California 99 to pick up a load of raisins, oranges and carrots for Brennan's. "It's the free-enterprise system at work."

In Long Beach, Ventura Transfer Co. has been in the bulk-products hauling business since the 1860s. The company hauls liquid cargo such as fuel additives, cleaning agents and solvents, and dry cargo such as various kinds of plastics, as well as some hazardous cargo. It also maintains its own rail yards for transloading, which is shifting cargo from one mode of transportation to another.

But 2008 was the first year in which the company, which owns 40 rigs, 100 trailers and uses both employee drivers and independent owner-operators, struggled to find new ways of earning money just to keep pace with 2007.

"We have put tremendous pressure on our salespeople," said Brian Oken, chief executive of Ventura Transfer.

"Gone are the days where you can own a trucking fleet and just rely on the demand of the marketplace," Oken said.

Ventura Transfer has begun repairing damaged cargo containers and markets itself as available to quickly transfer the cargo out of any damaged container and move it into a new box quickly enough to avoid shipment delays.

"We can't be a jack of all trades, but we can pick two or three new jobs and be really good at them," said Oken, who added that the new work has helped the company avoid any layoffs. "If we were in transportation only now," Oken said, "we would be dying.",0,5231456.story

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