Don't squander chance to reduce capacity

June 1, 2003
TANK TRUCK carriers particularly those specializing in chemicals have been presented with a rare opportunity to reduce capacity across the board and improve

TANK TRUCK carriers — particularly those specializing in chemicals — have been presented with a rare opportunity to reduce capacity across the board and improve profitability. For the future of the industry, it's important not to squander this chance.

Capacity reduction comes to the tank truck industry courtesy of the federal government (and the railroads to a lesser extent). On the government side are new regulations covering hours of service and hazardous materials driver background investigations. Since September 11, 2001, the railroads have acted capriciously, citing vague security concerns for halting shipments of certain hazardous materials with little notice, and these actions continue. All of this adds up to less capacity for chemical shippers.

Let's start with the revised hours of service (HOS), which were announced in April. While the new HOS rules should have only a minimal impact on capacity, regional and longhaul fleets probably would need to add some drivers and tractor-trailer rigs to maintain current service levels.

The major HOS criticism has been directed at the 14-hour rule, which some carrier executives believe is intended to create an “8-5 office environment” for truck drivers. Under the new rule, all hours between loads count as part of the driver's daily 14 hours of on-duty time (unless the off time is logged in the sleeper). That, combined with the requirement for 10 consecutive hours off duty, adds up to a need for more trucks and more drivers.

A much greater impact on driver supply will come from the new requirement for FBI background checks for anyone needing a hazardous materials endorsement on a commercial driver license (CDL). This rule affects 3.5 million commercial drivers, more than 40,000 of whom are employed in the tank truck industry.

Developed as part of the USA Patriot Act, the rule requires that hazmat endorsement holders must be US citizens or lawful permanent US residents. Regardless of citizenship, hazmat endorsements can be denied for a variety of reasons, including convictions for a wide range of felonies or even suspicion of certain crimes.

With the program just starting, it's hard to say how many drivers will lose their hazmat endorsements as a result of the new background investigations. Also unknown are how many drivers will decide that the new rule is just too much aggravation and will let their hazmat endorsements expire.

Even before these new rules, some tank truck carriers were struggling with driver shortages. The problem now will spread across a broader cross section of the tank truck industry.

This can be a good problem if the tank truck industry uses it as an opportunity to reduce capacity. Don't add equipment and drivers to handle lost productivity due to HOS revisions. Don't replace drivers lost as a result of the FBI background checks.

For too long, over capacity has hurt tank truck industry profitability. Chemical shippers have been very successful at using carrier over capacity to squeeze rates. This year's Gross Revenue Report (Modern Bulk Transporter May 2003) shows how successful they have been.

For many years, more than enough carriers have competed for a chemical shipper's business no matter how unprofitable it might be. New carriers found it relatively easy to enter the industry and were encouraged by shippers.

Chemical shippers are unlikely to have as much success enticing new tank truck carrier startups in the future. Besides the growing driver shortage, there are other substantial barriers to entry. These include difficulties in obtaining insurance and in finding startup capital.

Now is the time to stop the downward spiral in tank truck rates, but carriers will have to show unity and courage. Do the carriers have what it takes to translate capacity constraints into revenue enhancements that will boost the health of the industry? That's the question. The answer will become apparent over the coming months.