Dray of Reckoning

Motor carriers serving the nation’s ports and rail ramps are convinced that if they can survive the global trade recession for six more months, they will be well positioned to thrive in an improving economy.

Gerard J. Coyle, vice president of marketing and agent development at the Pennsylvania-based Evans Network of Companies, says traffic is down about 15 to 20 percent at its East Coast ports and inland hub operations. But business is picking up in Atlanta and Memphis, and Coyle believes a national recovery could start in late 2009.

“I think we will see better gains in the first or second quarter of 2010, about 5 percent,” Coyle said.

The harbor trucking industry that emerges will be leaner, more efficient and environmentally friendly — and still could be headed down the road toward unionization.

Until then, the challenge for drayage companies nationwide is to cut costs and operate more efficiently in an environment where freight rates have fallen at least 10 percent since the beginning of the year.

“Economic conditions are tough, and truckers will get squeezed. There are likely to be more failures,” said Paul Bingham, managing director of global trade and transportation at IHS Global Insight.

As weaker companies leave the harbor, motor carriers with access to capital and a solid fleet-replacement program will prosper.

“It’s difficult to look a year or two down the road, but companies that are investing in new equipment today will ensure that they’ll still be here,” said Patty Senecal, government affairs representative at Harbor Truckers for a Sustainable Future in Southern California, a coalition of intermodal carriers in Los Angeles and Long Beach.

The harbor trucking industry has weathered a host of economic adversities this year. In addition to plunging freight rates, truckers survived the implementation of the Transportation Worker Identification Credential, the federal security program that requires all workers needing access to secure areas of ports to have a biometric identification card.

In the run-up to April’s implementation, the industry feared TWIC background checks would deplete the driver ranks in regions with large immigrant populations. That did not happen, especially for companies that perform thorough background checks before hiring drivers, Coyle noted.

Harbor truckers in Southern California surprised the industry by avoiding a capacity crunch last year when the ports’ clean-air program eliminated some 2,500 old, polluting trucks. Those trucks were quickly replaced with new vehicles that comply with the Environmental Protection Agency’s standards for 2007 model-year clean-diesel trucks.

The ports since October have registered 5,000 clean-diesel and liquefied natural gas trucks, which now handle about 50 percent of the ports’ container volume.

Truckers nationwide also are surviving in a rate environment they say is pathetic. Shipping lines, their main customers, sent out letters earlier this year advising truckers of mandatory 10 percent rate cuts.

Dick Jones, executive director of the Association of Bi-State Motor Carriers in New Jersey, said some truckers had no choice but to accept the rate cuts, but “some just rejected the letters.”

Bingham expects the trade economy this year to “inch its way out of the trough.” Because imports plunged late last year, port figures in late 2009 may actually turn positive compared to the same time last year.

Prospects for growth raise fears of a truck capacity shortage, a condition that plagued the industry earlier this decade when container volumes increased at double-digit rates. A capacity crunch next year is unlikely, however, because this recovery is likely to be slow and plodding.

“Port volumes won’t surge,” said Bob Costello, the American Trucking Associations’ vice president and chief economist. “They’ll come back gradually.” That will give truckers time to ramp up capacity.

In fact, the economic and trade downturn has created a surplus of drivers and trucks. Evans is spreading its traffic around so all its owner-operators get some business, Coyle said. That means three good days and two not-so-good days each week. “We’re trying to keep everyone alive,” he said.

But Southern California could see a truck shortage in the near term. The aggressive clean-trucks program will ban up to 8,000 existing trucks from the harbor, starting next Jan. 1. All pre-1994 trucks will be gone. Trucks of 1994 to 2003 vintage can remain if they are retrofitted with pollution traps.

Long Beach expects its former fleet of 16,800 trucks to fall to no more than 11,000 by 2011, port spokesman Art Wong said. The 20 percent drop in container volume the past year is one reason fewer trucks will be needed. Another is that the newer trucks are being operated more efficiently.

Truckers that have invested $100,000 for each new clean-diesel truck are working the vehicles as much as possible. Some truckers are using their compliant vehicles only to shuttle containers from the ports to nearby yards. Noncompliant trucks haul the containers on longer routes to customers’ warehouses. Some drivers are co-leasing trucks and running them two shifts a day.

If the Southern California trucking community is to survive the ban on pre-1994 trucks, drayage rates must increase, said Bob Curry, president of California Cartage, a Long Beach-based trucking and warehousing company.

The monthly note on a clean-diesel truck is about $1,500, which requires a $40 rate increase for a short haul. “If drayage rates don’t go up, no one will be able to turn their equipment,” Curry said.

The Teamsters union, which is attempting to organize harbor truckers nationwide, insists higher drayage rates and wages for drivers are central to a sustainable industry. The employee-driver mandate in the Los Angeles clean-trucks program would have made it easier to organize drivers if it had not been struck down by the courts.

An employee-based model would bring drivers back to the harbor where they would earn middle-class wages, said Fred Potter, who heads the Teamsters port division. Employee benefits also would relieve taxpayers of the burden of providing medical care for today’s underpaid workers, he said.

Clean-trucks plans also stimulate new truck purchases. Truck sales nationwide are down 60 percent this year, but they are up 33 percent in Southern California because of the program, Potter said.

Similar programs are emerging at other ports. Clean-trucks programs are in various stages of development at major gateways such as Seattle, Tacoma, Oakland, Houston, Virginia and New York-New Jersey, according to a study by the Port of Seattle.

The industry will continue to debate whether the owner-operator or employee-driver model is best for harbor trucking. Motor carriers oppose the employee-driver model because it opens the door wider to unionization efforts.

In a purely operational sense, a system running trucks two or more shifts a day is the most efficient because it results in a need for fewer trucks in the harbor, said Michael Belzer, an economist at Wayne State University who specializes in the trucking industry.

But the classic owner-operator model has created an environment of low drayage rates and consequently low wages for rivers, Belzer said.

A possible exception is a clean-trucks program such as the one in Los Angeles-Long Beach that forces a rapid turnover of the fleet and motivates shippers to accept higher rates so truckers can purchase compliant vehicles. That plan also requires extended shifts at marine terminals and receiving warehouses.

“The point is to reduce costs. If you use equipment more efficiently, you can lower costs, but this is a trap if it results in lower compensation,” Belzer said.

Contact Bill Mongelluzzo at bmongelluzzo@joc.com.