Last week, I had the pleasure of meeting with over 20 small, medium and large U.S. based truckload carriers and 3PL’s. It was an interesting experience.

I am pleased to report that the mood is more upbeat. For the first time in over a year, truckload carriers are seeing an upswing in volume. This appears to a result of two factors. First, there appears to be an increase in demand. Second, as reported in a previous blog, the supply side has tightened as carriers exit the market and park excess equipment. It remains to be seen whether this increase in business is a short lived aberration or indicative of a trend.

There is a new four letter “f” word in the trucking industry. It is called fuel. Every carrier is very focused on the severe impact that fuel costs are having on its operations. Carriers are monitoring their miles per gallon and creating programs to improve performance.

To offset fuel costs, carriers are searching for new mileage based fuel surcharge formulas that better relate driving distances to fuel consumption. They are fighting hard to secure these charges or walking away from non-compensatory business.

In addition, many truckers are taking steps to rein in excess fuel costs. These actions include the use of speed limiters or governors, efforts to reduce idling time, a careful focus on out of route miles, control of empty miles and addressing problem lanes where backhaul is difficult to achieve. In fact, in cases where backhaul is difficult to find, carriers are seeking and securing round trip rates. In some instances, the shipper must pay the full round trip rate or risk not finding capacity.

Several truckload carriers are changing their relationships with 3PL’s, particularly freight management companies. Accusing load brokers of retaining the fuel surcharges received from shippers and not sharing them with their carriers, some truckload operators have ceased doing business with non-asset based freight management companies. With demand increasing and with fuel costs so high, these carriers are seeking their own customers rather than relying on freight brokers for their business.

This is a trend that shippers should be watching carefully. With capacity tightening, shippers need to ensure that their freight brokers have a stable of loyal carriers that they can rely on. If the freight broker needs to go to the spot market or “load boards” to find carriers, this may be a signal to search out asset-based companies rather than have your freight sit on your dock.

As we come to the end of this “freight recession,” there are some carriers that won’t make it through the tunnel. This is what happened last week as one of my appointments cancelled at the last minute and indicated that they were closing their doors. One of the major contributors cited was a failure to secure a level of fuel surcharges to cover its fuel costs.

While it is regrettable to see long established carriers exiting the market, the good news is that the survivors appear to be adopting sound business strategies, are more knowledgeable about their costs and are more focused on their key customers and niche markets where they have density and profitable rates. They are managing their fuel consumption much more effectively than in the past. This will result in a healthier transportation industry that will benefit everyone.

Jevic Transportation was founded in 1981, a year after trucking deregulation in the United States. Its closure on May 20, 2008 came as a shock to the trucking industry, representing the largest failure of an LTL carrier since the departure of Consolidated Freightways in 2003. The Jevic demise can be viewed as another in the long series of trucking company failures in the very competitive northeastern United States freight market. Its failure was preceded by A-P-A Transport in 2002 and USF Red Star in 2004.

A closer examination of Jevic and its operations tells an important story, a story that should be discussed in the boardrooms of trucking companies throughout North America. Jevic had a unique and innovative business model. It was established by Harry J. Muhlschlegel as a carrier providing direct dock to door LTL transportation. It rejected the hub-and-spoke breakbulk way of handling LTL freight. Focusing on large (5000 to 30000 pound) LTL shipments, the idea was to cut order cycle times by as much as three days. The company grew rapidly as a niche player serving shippers seeking superior transit times on shipments that fell within certain weight breaks.

The paradigm of the business at that time was sound. The trucking company could reduce costs by eliminating break bulk terminals and the associated handling costs of unloading and then reloading freight onto specific schedules. The shipper enjoyed the benefit of superior transit times. Jevic grew its business to $350 million in revenue and employed 1500 people.

In recent years, Jevic began to have difficulties as it went through changes in ownership, going from the YRC Group to being part of SCS Transportation to being sold to private equity group Sun Capital Partners in 2006. Why did a concept that seemed so clever and innovative at the time fail?

The most significant change has been in the cost of fuel. The business model was based on a totally different fuel cost / labor cost paradigm. The business was based on a “cheap fuel” foundation. It made economic sense to run essentially an irregular route LTL carrier, making pickups and deliveries over a much broader geographic area than the more traditional LTL players since the costs of driving additional miles were offset by the reductions in terminal and labor costs. This business paradigm has completely changed in recent years.

With fuel becoming the largest operating expense in most trucking companies, the foundation of the business exploded. In addition to the large and irregular routes driven by Jevic drivers, they were forced to buy fuel at gasoline stations at market prices, which made matters even worse. As business deteriorated, Jevic reportedly deviated from their business model by taking shipments less than 5000 pounds.

While this series of events were unfolding a Jevic, its LTL competitors were bypassing some of their own breakbulk terminals and running more schedules direct to destination, reducing their transit times. With their competitors operating in more fuel efficient, condensed pick and delivery areas and being able to purchase fuel more cheaply, the underpinnings of Jevic’s business model collapsed as did the company.

Here are some of the lessons learned. Every trucking company needs to reevaluate its business model. With fuel being such a significant cost, the energy efficiency of a trucking company should fall under the leadership of a VP of Energy Conservation. This individual must be charged with looking at the company’s operations from a fuel conservation point of view.

Every lane must be evaluated in terms of contribution, freight density and energy consumption. Can the company continue to operate in some areas if its freight costs and fuel surcharges do not cover its operating costs? Can Sales secure additional profitable revenues in those lanes to make them compensatory or should the company look at focusing on other regions and corridors of traffic or other businesses (e.g. logistics warehousing etc.)?

Does the company have the KPI’s and management tools to monitor its energy utilization and conservation activities? Does it have the right types of trucks on very lane? Does it have data on miles per gallon on every truck, every day? Does it have a solid speed limiting program? Does it have accurate data on empty miles? Is it ensuring that its freight costs and fuel surcharges cover full operating miles rather than just loaded miles?

The American Trucking Association reported that there were 935 trucking company failures in the first quarter of 2008, a 142.9 increase over last year. Many more will disappear before the economy improves. To survive and prosper during this difficult period, trucking companies need to reassess their operating paradigms and learn the lessons from the trucking companies that fly too close to the sun.

“The freight recession is over,” stated Jon A. Langenfeld, a trucking industry stock analyst with Robert W. Baird & Company at the National Shippers Strategic Transportation Council’s recent annual logistics conference in Orlando, Florida. According to tonnage indices and demand trends, the freight economy is on an upswing. Much of the trucking market won’t feel the impact for another nine to twelve months.

This view is supported by a number of trucking companies and shippers with whom I have spoken in the past six weeks. Several interesting events have been taking place. They include:

• Carriers are deciding to no longer serve certain accounts (e.g. “firing customers”) and are allocating capacity to better paying accounts.
• Carriers are no longer providing capacity to certain freight management companies either on specific lanes or no longer doing business with these companies altogether
• Carriers are submitting freight bids on specific blocks of traffic and then pulling their bids
• Carriers are submitting rates on designated lanes of traffic and then not showing up to meet with the shipper
• Shippers are finding a tightening of capacity and are experiencing more difficulty covering some of their loads

The upshot of all this activity is that there is a “buzz” in the industry that has not been there for the past year or two. There is an optimism that this incredibly difficult freight drought is coming to an end.

While there is an (modest) upswing in demand, there is an ongoing downturn in supply as increasing numbers of carriers close their doors and as the number of trucks and drivers on the road continues to contract. In other words, an increasing demand curve is intersecting with a declining supply curve.

What will this mean for shippers and carriers? Almost everyone you speak to is predicting freight rate increases of 3 to 10%, one of the sharpest rate increases in years. These increases will begin to take effect in the third quarter of this year and become more widespread in 2009 as the balance of power begins to shift from shippers to carriers.

Recovering the high cost of fuel will remain a “tug of war” between shippers and carriers. With gasoline at $4 a gallon in the United States and $1.35 a liter in Canada, and rising quickly, fuel surcharges are becoming a very high percentage of a shipper’s freight costs. Both sides are wrestling with how to create a mutually acceptable formula. It is most important that shippers take steps to lock in rate stability and capacity with their leading, cost effective and most loyal carriers.

For trucking company owners and shareholders, they key is to survive the next six to nine months. For those that make it through, there will be good opportunities to significantly improve yields and share prices. Typically trucking stocks lead the market and are set to perform well as the freight recession comes to an end. It is time to move past the acrimony of the past couple of years and prepare for what could be a significant turnaround in pricing.

Over the past few weeks I have met over 40 trucking companies and freight management companies in the United States. These have ranged from companies with 30 trucks to some with 10,000 trucks. During this period I have spoken with between 60 and 70 sales management and executive personnel. As a shipper representative in many occasions, I have the opportunity to observe the effectiveness of many carriers’ sales presentations.

There are some carriers that “get it” and some that don’t. Here are a few tips on how to achieve greater sales success with your clients and prospects.

As a carrier, you should have an objective for every meeting. You should know why you are there and what you are seeking to gain from each meeting. With so many shippers staffed so thinly in the area of transportation management, and with these folks being so busy, you need to be very clear on your value proposition, particularly how you can help your client or prospect do something better and more cost effectively than it is being done today. You should be probing for problems and opportunities for which your company can provide a solution. You need to find that “hook” that separates your from the many commodity carriers and allow your company to sell more than just price.

Can your company supply more capacity in a specific area? Can you help the shipper with certain lanes that nobody else wants? Can your company provide superior service on some lanes? Can you help the shipper with backhaul moves and create round trips that other carriers cannot perform? Can you supply both intermodal and truck service? Does your company offer heavy haul service on some lanes and can you offer the shipper a lower cost per ton? You have to find those opportunities that allow you and your company to stand out from the rest of pack

You should be well prepared for your shipper meetings. If you are presenting a rate quote, it should be carefully scrutinized in advance. If you are presenting rates for multiple locations within a specific city, the numbers should be consistent. Your credibility and the quality of your company will be called into question if you present rates for multiple points within the same city and they vary by hundreds of dollars. You should be doing a spot check to make sure your Pricing Analyst inserted the correct mileage into your formulas so the correct rates are generated.

You should be able to answer some basic questions about your operation. You should know how many drivers are domiciled close to the shipper’s facility, how many loads a day your company can move to specific geographic areas, how many trailers you can spot, where you need backhaul and where are you fully balanced. You should be able to articulate to shippers your company’s energy conservation programs. If you cannot answer these questions, bring a knowledgeable operations person to the meeting.

You should be able to visualize how to take a particular shipper’s freight and link it with the freight from some of your other clients to create continuous moves and create additional capacity. You should be fully informed on what your company needs on a revenue per mile basis on key lanes so you can assess, on the spot, if your company is able to take on business on certain lanes. Since many shippers have their own fuel surcharge formulas, you need to be able to assess how these formulas compare with your company’s formula and what adjustments you need to make in your mileage rates to offer competitive but profitable rates.

You should conclude every meeting by summarizing the “take-aways,” what you plan to do between now and the next meeting and you should secure a date for that meeting. If you have identified opportunities where you can help the shipper and your service and pricing are in line, don’t forget to ask for the business.

In the last few years, the level of professionalism has risen in the ranks of sales management in many truckload carriers. With spiraling fuel costs and challenging economic conditions, the bar has been raised on what it takes to be successful. A heightened level of operations and pricing knowledge, strong analytical abilities and superior sales skill are essential to success in this very difficult freight environment.

The rapidly escalating cost of fuel has forced every trucking company in North America to reassess all of their business fundamentals as they pertain to fuel consumption and conservation. The use of speed governors and an increased focus on empty miles are helpful in allowing individual trucking companies to better manage their fuel costs.

While these micro level approaches are essential, it is clear that a much broader based macro approach is needed to deal with energy conservation and transportation strategy on a national or preferably North American basis. Here are some thoughts to consider. While some of these suggestions may not sit well with certain sectors of the transportation industry, they are in the best interests of the economies of the three countries.

1. Make a Harmonized North American Transportation Strategy a Priority of a Revitalized NAFTA Agreement

North American free trade is still an important element of the economies of Canada, the United States and Mexico. Even with the rapid growth in global trade, the three countries are still very large trading partners for one another and our economies are very closely linked. These three countries have a patch work quilt of regulations on such issues as truck weights and lengths that create cost inefficiencies and result in excessive fuel cost consumption. It is recommended that a set of tri-lateral initiatives be established to create a truly North American Transportation Strategy and make North America more energy efficient and competitive.

2. Speed up the Process of Moving More Medium and Long Haul Freight from Truck to Rail

There are clear energy cost savings in converting truck traffic to rail on longer lengths of haul. Providing incentives to the railways to increase investments in rail infrastructure and rail fleet acquisitions would speed up the process. The growth of rail transportation as a cost savings measure is a fact of life that we must all accept.

3. Increase the Allowable Length of Vehicles across North America

Currently we have a “hodge-podge” of regulations within and between Canada, Mexico and the United States on such issues as the use of doubles, triples and truck length in general. Clearly there is a need to agree on new vehicle length standards (e.g. 57 foot trailers) and harmonize these standards across North America. It is costly to truckers to purchase and maintain various types of tractors and trailers in order to comply with regulations in particular states and provinces. A harmonized North American policy would improve efficiencies and reduce costs.

4. Increase the Acceptable Weight per Truck

Discussions are taking place in the United States with respect to increasing the allowable maximum weight per truck from 80,000 pounds to 97,000 pounds. Advocacy groups such as the Coalition Against Bigger Trucks argue that such a move would increase wear and tear on the country’s roads and bridges at a time when it is difficult to find money for road maintenance. There is no doubt that costs for fabricated industrial steel and hot mix asphalt are on the rise as a result of increased global demand in China, India and parts of the Middle East. Increasing allowable vehicle lengths will likely have adverse effects on North American roads.

Nevertheless, the economics of increasing allowable truck weights are very compelling. It is estimated that increasing the allowable truck weight to 97,000 pounds would reduce truck vehicle miles traveled in the United States by 11 percent, cutting more than 10 million miles from truck trips annually and reducing highway congestion. The increase would save 1.9 billion gallons of fuel a year and result in a reduction of 6.5 million tons of pollutants emitted into the atmosphere a year.

We all know that it is difficult to get the various provinces and states to agree on matters of this nature, let alone national governments facing elections as is the case in Canada and the United States. Nevertheless the need is there and you have to start somewhere. Bold leadership is required during these difficult times to ensure North America has the most efficient transportation system in the world.