Consider two very different pallet businesses and their trucking operations. Kamps Pallets, based in Michigan, manufactures new pallets and crates but also is heavily involved in the recycled pallet market. The company has 11 facilities in four states, including six plants in its home state of Michigan. Kamps has a fleet of trucks and trailers and currently employs about 55 truck drivers in its operations, and it also contracts for additional trucking services.
American Pallet is a small, family-owned and operated business in central California, about 100 miles east of San Francisco. It manufactures new pallets and bins for the agriculture industry and also supplies cut stock for pallets and bins and other lumber products. The company’s operations required only one truck driver.
Now, what do they have in common? They both face the same number one challenge in their trucking operations, according to officials for both businesses: a shortage of qualified drivers.
Older drivers are retiring from the industry, noted Bob McDonald, director of purchasing for Kamps Pallets and who has oversight of the company’s trucking operations. “Young guys coming in just don’t have the experience we need,” he said.
Kamps, which uses a mix of both company drivers and equipment and trucking contractors, also seeks more than someone who is simply qualified to drive an 18-wheeler, McDonald suggested. Drivers play a key role in interacting with customers and collecting information and feedback from them, he noted. “They help maintain the account.” For that reason, the company prefers to use employee drivers for deliveries to major customers instead of third-party haulers.
Annie Montey is a member of the family that owns and operates American Pallet. Although her primary responsibility is sales, she started out working for the company in dispatching and is still involved in the company’s logistics operations
About a year ago American Pallet sold its semi-tractor and trailers and switched to third-party carriers for all its delivery needs.
Being able to retain good, reliable drivers “was probably the biggest struggle,” said Montey. “That was the deciding factor for us.” Some drivers proved unreliable, and turnover was high. In one period the company cycled through two or three drivers in a 12-month period. It tried to retain a back-up driver in case the regular driver was absent, but the arrangement was not cost effective.
Staffing trucking operations is an issue that has a direct bearing on a company’s ability to deliver its products on time and maintain a high level of service and good customer relations.
“We’re here for the customer,” said Montey. When a business can’t believe its products or deliveries are late, that negatively impacts customer service and satisfaction, she noted. “With outside carriers, we didn’t have that problem.” The trucking companies they turned to were large enough that a driver who was absent from work did not affect its operations.
Kamps also recognizes the importance that reliability in trucking operations plays in keeping customers happy. For company-owned trucking operations, Kamps leases semi-tractors and purchases trailers, and even though it uses third-party carriers, it prefers to have its own tractors at each plant. “That way, we’re guaranteed quality of service,” said McDonald.
It’s no secret there is a shortage of drivers in the trucking industry. And it’s not going away anytime soon, either. A report on www.truckinginfo.com, a website for Heavy Duty Trucking magazine, identified the driver shortage as one of six trends to follow in 2016 — and in the future.
“Finding and keeping qualified truck drivers, especially for long-haul operations, will remain a critical operating issue for truck fleets — and their customers — in 2016 and for years to come,” the report noted.
The American Trucking Association estimates there is a shortage of between 35,000 and 40,000 drivers, as mentioned in The Wall Street Journal.
Of course, there are other challenges to managing trucking or logistics operations for pallet companies and other businesses. Enough so that in the case of Kamps, on a quarterly basis McDonald scrutinizes the company’s cost per mile and per hour. “And then we look at the marketplace, and it does change.”
“We try to keep our trucks within a 60-mile radius” and use third-party truckers for hauling longer distances, said McDonald. That is the most cost-effective arrangement for Kamps although he noted that 60 miles is a “ballpark figure.”
At plants where the company uses contract haulers, “We tend to have long-term relationships with the people we out-source to,” said McDonald.
Kamps used a fleet management consulting firm in the past, but only minimally. “They generally don’t understand the business of (pallet) recycling,” said McDonald, referring to the practice of staging empty trailers at customer sites to be filled with used pallets, and sending a truck to drop to off an empty trailer van and pick up the one that is full. Pallet companies must combine the efficiencies of those operations, he suggested.
American Pallet had leased its trucking equipment for years. “We never owned a fleet like some pallet companies do,” said Montey. One reason was maintenance and service for the equipment. Under the terms of the lease, that was handled by a third-party vendor, eliminating the need — and cost — for American Pallet to have a mechanic on duty for those tasks. “We’ve just found that was a better way to manage our trucks,” she said.
There were other factors beside the shortage of drivers that played in the decision to rely 100% on third-party carriers. The company’s transportation costs were rising, reflecting the trend in California. In addition, American Pallet’s business was growing, and it already was relying on some trucking companies to make some deliveries to supplement its own trucking operations.
Another factor in the decision was the company’s large sales territory. American Pallet ships as far away as Los Angeles and Reno, Nevada. Los Angeles is about an eight or nine hour haul, Montey noted. Those hauls are more cost-effective when done by a third-party carrier.
In the end, it was a strategic business decision. “We had to decide if we wanted to be a pallet and lumber business or a trucking business,” recalled Montey. Contracting for trucking allows American Pallet to focus on its core business and also ensure high levels of quality and service.
American Pallet contracts with several trucking companies, although only a couple get the majority of its business. “It’s been great,” Montey said of the change in logistics. The frequency with which orders have been delayed has been “significantly reduced,” she reported, because the trucking vendors are bigger and can provide greater reliability and dependability. As a result, customer service and satisfaction have improved. “So much of our business is tied to our ability to do what we say we’re going to do to,” said Montey. “That’s what fosters trust in our relationship.”
Another benefit of using third-party trucking is that American Pallet’s transportation costs now are fixed and the company knows exactly what they are. The company deals mainly in truck-load quantities of pallets or lumber. As an example, a truck-load is about 700 pallets. If it costs American Pallet, say, $300 for trucking, that’s 43 cents per pallet. “Our cost is fixed,” Montey reiterated. “It’s much smoother for us than it was before.”
In the past, the company was unable to track the true cost of trucking. Montey gave an example. Say a delivery ran late — through no fault of the driver. By the time he got to his destination, he had to wait to be unloaded. As a result, he makes fewer deliveries that day. Efficiency goes down because the driver is an hourly employee. “Now we can track delivery or trucking costs much better because they’re fixed.”
In addition, in the past the trucking operations constituted a “department within itself.”
“We’re better off focusing our efforts and energy into being a really good pallet company,” said Montey
“This shipping model for our business works well,” said Montey. For other companies that ship mostly truck-load quantities, “it could be a good model for them,” too, she suggested.
To tackle the challenge of having enough drivers, Kamps does a lot of pre-screening in its recruitment and hiring process. Also, it relies heavily on word-of-mouth referrals throughout the business for driver candidates. “That’s generally our best source,” said McDonald.
The company’s second biggest challenge in its trucking operations is complying with federal regulations governing how many hours a drive can work during periods when demand for Kamps products fluctuates. “I don’t think you can efficiently run an operation unless you have at least a few partners to help with high demand and peak seasons,” said McDonald.
More regulations — that’s another trend people who manage trucking operations have on their radar. More federal regulations are seen coming from the White House before President Obama leaves office, and regulations are increasing even below the federal level.
Other issues are the continued emphasis on safety and reigning in costs — even during a period of relatively low fuel prices.
Technology is going to be an increasingly big driver in change in the industry. Readers probably are aware that tests already are under way of cars and trucks that can operate without drivers. Telematics can provide information about truck location and driver practices.
More technologically advanced trucks are a two-edged sword. That impacts having mechanics who can service trucks if the work is done in-house. Also, the new technology generates data that has to be collected, analyzed, and managed.
John Larkin, managing director and head of transportation capital markets research at Stifel Financial Corp., recently made several predictions regarding U.S. manufacturing and the freight transportation and logistics market. Increased automation and 3D printing in manufacturing, along with a growing desire to shorten global supply chains in order to trim costs, likely will bring more production back to the United States and consequently increase freight demand, according to Larkin, whose views were aired earlier this year in an article for Fleet Owner magazine.
As labor costs rise faster abroad than in the United States, America is gaining a competitive advantage, he said. With the advent of horizontal drilling (fracking), U.S. energy costs are highly competitive globally. And gains in automation and 3D printing are likely to spur re-acceleration in nearshoring and in-sourcing, according to Larkin.
Full production of products in the United States would create eight to 12 ‘touches’ by transportation companies — hauls of raw materials, substrate, semi-finished material, finished materials, parts, components, sub-assemblies, and finished products. By contrast, goods that are produced overseas and exported to the United States generate one or two ‘touches’ for the transportation industry.
Another factor impacting the transportation industry is e-commerce, which Larkin believes will continue to grow and snare a larger share of retail sales. More consumers shopping online will spur more home delivery or customers themselves driving to stores to pick up their order. Larkin notes that trend will put greater transportation emphasis on keeping fulfillment centers near urban areas stocked as well as the final home delivery function. Dedicated and private fleets now focused more on hauling goods from remote distribution centers to stores may lose some volume as e-commerce grows.
Fleet management service are growing. An article for Inc. magazine’s website submitted by Ryder, which provides commercial transportation, logistics, and supply chain management services, noted in 2015 that the global fleet management market is expected to grow from the current $12 billion to more than $35 billion by 2019. The main reasons: investments in new technologies and increasing pressure on businesses to control delivery costs. Also companies are realizing that in order to remain competitive they must focus on their primary mission and let other companies that specialize in fleet management take charge of their logistics.
