Trucking: Moving Commerce

Public infrastructure as well as business costs impact operations for companies in this core sector
by Don Rodriguez

sectorOnce a semi gets up to speed on the open road, few things can stop its momentum unless it’s a car trying to edge past. Even then, it’s almost a sure bet who will keep moving if the maneuver is too close. “It’s not the smartest thing to cut off an 80,000-pound trailer,” says Tony Bradley, the new president and CEO at Arizona Trucking Association. And, despite the roadblocks a recession and plunging consumer activity have posed for the nation’s trucking industry over the past five years, Bradley knows the ongoing need for shipping and now a recovering economy will keep the big rigs on the road. “Without trucking, we’re not able to function,” he says.

Over the horizon, better days are returning for trucking. The Winter Trucking Report released recently by Utah-based TAB Bank showed signs of a slowly but steadily improving industry based on such factors as fuel costs and invoices. While TAB Bank provides alternative funding services to a variety of industries, like manufacturing, staffing and technology, the company’s first industry was transportation, and it produces a quarterly report on the trucking industry — an industry whose performance is recognized as a precursor to the economic situation of the country. By the end of January, diesel prices were at their lowest point since August as the nationwide average hit $3.911, calculated to the industry standard of three decimal places. Measuring its core group of trucking clients, the bank found sales volume at the highest point of 2012 in October, then decreasing the rest of the year as the post-holiday shipping season progressed.

For the past 17 years, Collin Stewart, president and owner of Phoenix-based Stewart Transport, has ridden the cycles of the economy. The saving grace for his company — which has a small niche business of shipping kit cars — is that his core business is carrying refrigerated food. “People gotta eat,” he says of the steady demand for meat, produce, dairy and other products. In fact, he actually sees business increase during the holidays because of the big rush to fill client orders. Typically, business trails off in the first quarter of the new year as companies deplete their stocks and start fresh, he says. But something different happened in the first quarter of 2012: No downward slide happened. People continued shopping beyond the holidays as the economy started heating up. “This time around, it’s steady for the first quarter but not as strong as last year,” says the immediate past chairman of the Arizona Trucking Association.

In the last five years, there has been a shakeout in the industry as some companies have closed their operations, Stewart says. The reasons vary. Some had problems meeting the federal and state regulations as they tightened, while the increasing cost of fuel made it tough for others to compete, he says.

A big reason some firms stopped operating has been the increasing prices of equipment that needs be replaced. For example, Stewart says, the price of a tractor is 15 percent more than it was five years ago. Sometimes federal mandates mean equipment that otherwise still works needs to be updated or replaced, he notes, pointing out that for trailers with refrigeration, pollution controls must be installed to meet standards set by the Environmental Protection Agency.

While other sectors of the economy can increase prices because costs or even demand are up, that can’t easily be done in trucking when customers can just shop around for a better rate from companies pricing low to stay alive. “Rates charged to customers have not rebounded as we’d like to see,” Stewart says. That means finding ways to cut operating costs and increase fuel economy, he says. Some companies have resorted to cutting staff. Stewart, however, has increased staff to its current 70 employees. “With our increased staff, that helps us become efficient,” he says. Efficiency in his industry incorporates the need for enough people working on a rig that no issues of time and safety would be at stake; if it isn’t back on the road fast, potential revenue starts decreasing on that truck plus competitors get the business. Also, engines, tools and other equipment could cause some serious damage on the mechanics if the team is short.

Looking at ways to meet the bottom line is a skill not limited to Stewart’s team. Bradley says the more than 300 companies that comprise the association’s membership are headed by “pretty sophisticated businessmen.” While some industries count the dollars, trucking firms need to measure shipping costs in tenths of a cent multiplied by the mileage that fleets must travel. “Add millions of miles to it and that adds up,” he says.

Another expense that comes up is the cost of accidents. For example, “when freeways shut down [after an accident], it impacts the [trucking] traffic in the Valley,” Bradley says. While driver — truck or passenger vehicle — error often is a cause, roads worn out by years if not decades of use can contribute to risky safety conditions. “You’d be hard-pressed to find any trucking company to say roads are up to par,” Stewart says.

Sometime roads just fall apart, as was the case when Highway 89 in northern Arizona recently split, causing some of the road to shift down and resulting in the highway’s closure. “The infrastructure is always a concern,” Bradley says. With an extensive background in public policy, he notes the highway user fees that pay for road construction haven’t been adjusted for inflation since the 1990s. Those fees are paid through the fuel taxes that every state driver pays at the pump. “Now that folks pay $3 to $4 a gallon, when is it good to talk about how we fund the roads?” asks Bradley.

According to Robert Samour, Arizona Department of Transportation’s senior deputy state engineer for operations, at least 80 percent of the highway system was rated as good or excellent condition during the agency’s most recent annual evaluation. Part of this was due to investing more than $125 million annually for pavement preservation. Yet, “various factors have created a ‘perfect storm’ of funding challenges,” he says. Arizona may find itself concentrating on preserving existing infrastructure as it joins other states to urge Congress and other policymakers to work on identifying more reliable and sustainable funding sources, Samour says.

Through it all, the industry is very much alive. An example is the membership level of the state association, which Bradley says is strong. “While always a good membership size, the goal is growth,” he says. With the need for trucking never ending, Bradley should get his wish.


Speak Your Mind