Doing more with less is a familiar tune in the transportation and logistics industries these days, whether you're the supplier, the customer, or both. Although signs of a strengthening U.S. economy are giving businesses some hope, the trucking industry has its work cut out for 2004.

Some of the bigger issues weighing in include the newly implemented Hours-of-Service federal regulations, escalating costs driven by rising insurance and fuel prices, among other items, as well as on-going industry consolidation and increased competition.

New Hours-of-Service regs are a 'big deal'

The new Hours-of-Service regulations, which stipulate how much time a truck driver can be behind the wheel, became effective just after the first of the year. Despite what appears on the outside as a minor adjustment to a driver's hours, the significance to the industry is being compared to such things as the advent of the 53' trailer and deregulation of the industry, which occurred in 1980.

Tom Nightingale, company spokesman for Green Bay, Wisconsin-based Schneider National, the largest truckload carrier in North America, says it's not only the trucking companies that will be impacted. "The new regulations will require an unprecedented level of cooperation between the shipper, the consignee, and the carrier. Furthermore, the cooperation has to be geared towards treating the driver's time as a precious resource."

The original HOS regulations were enacted in 1939, yet reform of the HOS regulations has been under consideration by the Federal Motor Carrier Safety Administration (FMCSA) for several years. In 1995, Congress, concerned about the effect of fatigue as a contributing factor in commercial motor vehicle crashes, directed the FMCSA to begin a rulemaking to increase driver alertness and reduce fatigue-related incidents. In short, the new regulations require more rest time for drivers (see table).

As for the operational and financial impact of the new regulations, according to Nightingale, "We're seeing productivity hits of anywhere between 2 percent and 19 percent." The bottom line effect on rates is therefore just as variable, he concludes. At the same time, the "shipper to consignee pairings" is a critical component that is being overlooked by some, says Nightingale. For instance, you could start with a "perfect shipper" who dispatches identical loads to two different consignees. If one consignee is not as organized as the other and causes delays for the driver, the shipper is going to suffer too. So will the carrier, for that matter. The solution, advises Nightingale, "is for the shipper to extend 'best practices' out to the consignees." Schneider National's best practices include:

• Minimize or eliminate time the driver spends to count or load.

• Make pickup and delivery using an open window instead of a fixed appointment time.

• Proactively update carrier for changes in load status.

• Ensure paperwork is ready and complete when driver arrives.

• Ensure paperwork is complete and accurate for cross-border shipments.

• Utilize drop trailers.

• Use yard jockeys to handle tasks currently performed by over-the-road driver.

• Communicate overall and location specific requirements to driver and carrier.

• Reduce number of loads with stop-offs.

• Provide adequate space for drivers to park and sleep.

Meanwhile, a recent web chat session hosted by Transport Topics asked a panel of experts their thoughts on how the new regulations will affect prices.

Scott Arves, President, Transportation, for Schneider National, commented that rate hikes are "not only possible, but critical to the health of the industry. The industry is facing capacity constraints like it has not seen in over a decade. Costs have risen dramatically. We are now facing one of the largest challenges we have seen in decades. Shippers seem to be generally conscious that a pass-along of these costs is inevitable. Our detailed modeling varies widely by customer due to their freight characteristics and their ability to deploy best practices."

Another panel member, Joyce Jordan, COO of the Dallas Operating Center of Dart Transit, agreed. "Because of narrow profit margins, carriers will pass on increased costs. We estimate the need to recoup six cents per mile (trailers, recruiting, lost productivity, additional labor, insurance, communications, miscellaneous such as permits, fines, tolls, etc.). The cost does not cover additional pay needed for our company to attract more drivers into the profession."

Bill Zollars, chairman, president, and CEO of Yellow Roadway Corporation remarks, "Pricing is more of a function of supply and demand, and as the economy rebounds the laws of supply and demand will come into play pretty effectively." He adds, "The competitive landscape is still very active. We've got a number of really good competitors."

On the other hand, the regulations will also have varying degrees of effect within the trucking industry itself. According to Schneider National, over 80 percent of the country's freight moves via full truckload and this is the sector that will experience the greatest burden. Parcel, LTL, Expedited (Teams), and intermodal will feel a lesser impact, but One-Way (solo), Dedicated, Specialized, and Bulk will be hardest hit by these changes.

A lot of the major shippers see the regulations as an opportunity to actually realize gains in productivity. Executives with Home Depot and Newell Rubbermaid have stated that they view the regulations as a "joint issue" between carriers and shippers, and that, "There are lots of ways to gain productivity in transportation. These Hours-of-Service changes are going to force us to do that."

In the meantime, an executive with Procter & Gamble believes that the real impact of the rules will become apparent in March and April when freight demand peaks.

Harbor truckers have their own challenges

The trucking industry, and harbor drayage companies in particular, are keeping their eyes on another development involving one of the nation's largest importers, Wal-Mart, and the largest seaport, Los Angeles-Long Beach.

In late November, Stefan Hargrove, general manager of direct imports for Wal-Mart, said the giant retailer would commit to moving at least 25,000 containers during off-peak hours this year, with a possibility of increasing that number later. The proposal to extend terminal gate hours at the seaport isn't new, it just hasn't gained enough support in the past to make it viable for truckers, importers, or terminal operators. Given Wal-Mart's influence over supply chain strategies within the logistics and transportation industries, however, the announcement may prove to be the turning point in acceptance for extended gate operations.

Indeed, there may not be any other choice. The push to extend gate hours is coming from more than one direction, and increased supply chain efficiency is only one of them. The seaport complex and trade community in Southern California are also under pressure to reduce diesel fuel emissions, which prompted a state law last year that fines marine terminals any time a truck with an appointment at a terminal is forced to wait longer than 30 minutes. And, the I-710 freeway, which serves as a main artery for the ports of Los Angeles-Long Beach, has become dangerously congested-it has the unsavory distinction of being the site of more truck accidents than any other roadway in California.

The time frame for coming up with a plan to solve these problems is also short. California state assemblyman Alan Lowenthal, D-Long Beach, is threatening to take political action if the private sector can't find a way to cut down on truck traffic generated by the ports. But, there's still some resistance. For starters, an effort by the Waterfront Coalition, an industry group representing large retailers and other importers, resulted in commitments by the trade to move roughly 200 containers per terminal per week to late-night shifts. Terminal operators, though, say they require 400 to 500 container moves per shift to make up for the $15,000 or more that it costs to operate the extra shift.

In the meantime, progress in other areas continues to be made at Los Angeles-Long Beach and other seaports along the U.S. West Coast. Specifically, stevedoring companies say they will install a wireless truck identification system by March to get cargo moving faster through container terminals. Either radio frequency identification (RFID) tags or real-time locating system (RTLS) tags will likely be used to run the system. The proposal is being watched closely because the system that terminal operators eventually adopt is expected to become the standard for the maritime industry.

What lies ahead for the industry?

In what was considered a bold move, Con-Way Transportation Services a few months ago announced a 2 percent insurance surcharge on all LTL shipments that was to begin January 1. The company's president and CEO said at the time, "This surcharge will cover only a small portion of the overall cost increase we're experiencing in health care benefits and other insurance expenses," adding that the costs "can't be ignored any longer." Health care costs for other carriers are also growing, but no one else was willing to follow suit. The surcharge was short-lived, though. Within a few weeks of the announcement, Con-Way decided to withdraw it. The company said that customer feedback showed that insurance costs should be included in a general rate increase instead.

Overall, industry analysts are optimistic about 2004. Bob Costello, chief economist for the American Trucking Association says, "A robust rebound in manufacturing activity, solid holiday consumer spending and inventory rebuilding each translate into better truck tonnage levels for us." He described inventories throughout the supply chain as "too lean" and predicted a further boost in truck tonnage as inventories are rebuilt.

Figures show truck tonnage through October 2003 up 3 percent from the same 10-month period in 2002. According to Costello, volatility in tonnage has been higher during this recovery than previous ones because businesses are better able to fine tune their needs, increasing deliveries to meet demand on one day and reducing them the next.

"New technology, just-in-time inventory management and a responsive trucking industry have actually resulted in a 'bumping rebound' for us, but it is a rebound nonetheless. I expect even better tonnage growth in 2004 as manufacturing output climbs higher and job growth gains strength," says Costello. He also predicts that trucking capacity will remain tight due to lower truck sales and a number of motor carrier closures.

In addition, the American Trucking Association's recently released "U.S. Freight Transportation Forecast to 2014" predicts the trucking industry will continue to dominate domestic freight transportation modes, increasing to 68.2 percent its share of all freight tonnage moved throughout the U.S. by 2008.

"This number represents a gain in market share of 0.8 percentage points and keeps trucking squarely in the driver's seat as the dominant mode of transportation for delivering America's goods," says Costello.

The forecast projects rail will move 13.4 percent of domestic tonnage (primarily bulk freight) five years from now and that the volume of freight carried by rail intermodal (shared container/truck movements) will be 1.4 percent. Pipeline will transport 9.3 percent of freight volume, water passage will move 7.6 percent, and air deliveries will carry 0.2 percent of total tonnage.