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Logistics: Trucking Costs Continue Climb

Regulatory changes, new fuels and driver shortages mean much higher transport charges. Collaboration could ease the pain.

Forget about lean practices and kaizen blitzes. If you can't ship the products you've worked so hard developing, what's the point?

While the logistics landscape isn't quite that bleak, rising shipping costs are showing no sign of coming down.

Indeed, in the 2005 IndustryWeek Value-Chain Survey, which was conducted in conjunction with IBM Business Consulting Services, 51.2% of the 650 respondents stated that total logistics costs as a percentage of sales were 10.1% or greater in 2005. In 2003 only 20% of companies stated their logistics costs were more than 10% of their total sales.

And according to the U.S. Census Bureau's most-recent annual survey, the truck transportation industry grew 10.4% to $186 billion in 2004.

Add to that the American Trucking Associations' (ATA) report, U.S. Freight Transportation Forecast to 2016 -- which states that trucking will increase its share of the nation's freight pool in the next decade -- and you have to wonder how that mixes with the news that there is a trucker shortage -- a 20,000-truck-driver deficit in 2005 according to ATA. That number will rise to 111,000 by 2014 if current demographic trends continue.

"Quite frankly, when demand is greater than capacity, we'll just pass inflationary costs on to shippers," says Scott Arves, president, transportation, Schneider National Inc., Green Bay, Wis. "So that raises their cost of goods, or they are going to have to absorb it into their bottom line."

Some of the inflationary costs that Arves speaks of come in the form of higher fuel costs (by late 2006 trucks are going to have to run on ultra-low sulfur diesel, which according to Arves is less fuel-efficient) and higher driver pay to attract more workers to the industry.

Arves goes on to say manufacturers probably are not in a position to absorb the higher costs that transportation companies are passing on based on the number of companies filing for bankruptcy protection.

To add another pothole in the road, trucker productivity is going in reverse.

"The driver shortage has been made a little bit worse by two Hours of Service [federal regulatory] changes, which have reduced the productivity of our driver force. We need more drivers to move the same amount of freight," Arves says.

He also notes that railroads are reducing track, thus creating an additional burden on the fragile trucking infrastructure. Indeed, the infrastructure has been stymied by lobbying groups that prevent the transportation industry from using longer combination vehicles or hauling heavier loads, two changes that would alleviate the productivity drains on truck drivers today, according to Arves.

"Since the late 1980s there has been no productivity increase in either the weight or the length of a vehicle," says Arves. "And I don't see anything changing in the foreseeable future."

One bright spot is a push for fewer tires. Instead of 18 wheels, trucks can run on 10 bigger tires.

The larger single-tire technology has been out 15 to 20 years, and it has some promise in that it reduces the weight of a truck and it improves the fuel efficiency.

However, according to Arves, there are barriers to overcome.

If a truck gets a flat tire, the driver has to replace it immediately. With 18 wheels if one tire blows, its twin can support it and enable the driver to move to a safe location to make the change.

Another concern -- availability. Will tire manufacturers stock the bigger tires to ensure that if a problem arises on the road a driver can get a new tire immediately?

Despite the bad news for companies wanting to move goods, every tight market has a reciprocal benefactor.

"For us it's a good time to be in trucking and trucking related services," says Arves. "But it's going to continue to be a very challenging climate for shippers.

"We encourage them to work with transportation providers to make their freight more driver friendly, to increase the flexibility of loading hours for freight and just do a great job of productivity on their docks -- getting drivers into and out of their facilities as quickly as possible."

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