Major Fleets Can Make A Big Difference In Port Freight Flow, Take Advantage Of Truck Incentives And Enhance Their Customer Lists

Implications: The keys to success in the logistics chain are relationships, information technology, operational productivity and managing costs. The dray cost structure is being pressured with not only the 25%+ ($35 container plus $15 infrastructure) surcharge to fund those programs, but also with security (TWIC) mandates, productivity technology, fuel cost, driver costs and more expensive trucks to do it. There are three areas of opportunity worth discussing that major fleets can address - freight, flow and equipment. The pending ATA legal action will slow all this, but that is a separate missive. This posting was developed with GLG Leader Stan McWilliams - looking at the multiple opportunities for fleets.

Analysis: Our logistics supply-chain can be complicated. The desired model is one that has one-party responsible for the entire chain - and optimally having the freight in their own possession from door-to-door. One should however utilize the most economical / productive mix, be it truck, rail, steamship, etc. The port dray moves are similar to those across the Mexican border - low miles (ave. 30), cheap ($100+) and high frequency (4-6 per day), and those from longer-haul rail terminals. California’s emissions rules are changing the fixed cost side of the equation dramatically, so other efficiencies are needed to help offset them.

The Los Angeles-Long Beach drayage market is serviced by 1,300+ motor carriers today with 16,000+ trucks. Over 90 percent of the trucks are Independent Contractors leased to the motor carriers - predominantly with Latino drivers. The ports have been openly trying to re-regulate and reduce number of fleets to just a hundred or so through various means. LA goes further to say to go with those with “deep pockets.” The compliance paperwork with the emissions program alone is substantial, so fewer fleets are better just from that perspective  alone.

While fleets like Gold Point, Southern Counties and Transport Services have 150+ trucks servicing the ports today, the average fleet is just 20 trucks. They need big fleet participation plus growth of the larger fleets servicing the port today to get the number of fleets down, and therein lies opportunity.

Over a year ago, the Teamsters saw it as one way to organize the drivers running in and out of the port, had actively lobbied for rules to game it in their direction, and had even helped start a trucking company to do it. That never progressed past one truck.

In June of 2008, the port held an invitation-only meeting with Swift Transportation, Knight Transportation, Frozen Foods Express, RoadLink, CalCartage Companies, Pacer Cartage, Horizon Freight System and Logistics Insight - each with hundreds to thousands of trucks. This is in addition to the others who had already applied.

The move by Swift Transportation and Knight Transportation is smart. For Swift, it’s more of the same like they do in Mexican cross-border operations and rail Intermodal. For Knight, it would be a regional model for taking containers to regional warehouses and then still doing trans-loaded freight outbound from warehouses. For Frozen Food Express (and Knight Refrigerated), the temperature-sensitive segment is an opportunity. For Pacer or for the not-listed likes of Schneider and JB Hunt, it would be similar to that they do today from rail terminals.

A benefit is that it addresses the goal of getting more directly at the beneficial cargo-owner. Instead of taking responsibility for the actual freight at a warehouse after trans-loading from the overseas container, they can take possession directly from the steamship lines. Where it was cost prohibitive to do such previously, the higher revenue / cost structure will make it more viable. They can then utilize their planning / productivity software, technology and processes to streamline it from there.

From a truck emissions standpoint, the first step set for October 1, 2008 bans 1988 and older trucks, which is estimated to be over 2,500 trucks. Following that 15 months later are those from 1989-1993 or an additional 2,300+. At the same time the TWIC (Transport Workers Identification Cards) are being implemented, which is a wild-card but some think that could be another couple thousand drivers. By 2012, all trucks must meet 2007 emission laws. This will upset the capacity / demand balance in itself.

Major fleets can easily flow in late-model fleet trucks that fit into the time window. Large fleets will also find a market for their used equipment with a good floor on residual values of trucks - along with selling / leasing used trucks to “partners” - taking advantage of some of the program numbers today. There are also a number of truck financiers trying to create packages too. The question will be costing out the doubling or tripling of the fixed cost of the truck from today’s $24,000 average, but that will show up in the dray rates.

Swift announced they will also put some Liquefied Natural Gas (LNG) powered trucks into place at the port. That business model is already being implemented at Southern Counties Express who is going LNG, for a cost of about $40,000 each after grants / programs. Major fleets such as Swift and Knight are eligible for one of the plans giving them $30,000 per truck for carriers who don’t rely on other more expensive plans. If they collectively place 2,000 units into the ports, they would be eligible for $60MM in incentives. Other plans available not going with truck replacement includes a one-time payout of $20,000, and another does $10 per dray ($10,000 limit).

Other specific things for Swift to consider are to: develop the container yard (CY) concept to flow (buffer) cans; begin to piggy back immediately on the this operation to other operations that are in close to port; aggressively market drayage operations now - 1st  in will reap the biggest rewards; integrate micro map into the drayage model to identify true drop and hook operations; make sure that personnel are trained properly in drayage - otherwise, assessorial charges will eat away the profit; make sure to develop a rate sheet and get it publicized; and utilize Interstate Leasing as a tool to finance equipment for Owner Operators - should begin contacting existing Independent Contractors at the port and buy them a truck.

We're watching to see how October 1 goes. This article co-authored by Stan McWilliams & Jay Thompson.