The end of the year is fast approaching and once again, like Old Man Time, I find myself looking back on 2003, scratching my head and wondering how it went by so fast!
The events that shaped and impacted the world in 2003 were incredible. But the circumstances that shaped the trucking industry and the commercial tire industry were also of great note. Take a glimpse back in time with me and let's see just what happened.
The economy, of course, had the biggest impact on everyone. For the past three years, economists had forecasted that the third or fourth quarter of the following year would be the turnaround period for the economy. Well, this year they finally got it right. In 2003, after two rather dismal quarters, the third quarter definitely came to life.
The U.S. economy grew at an annualized rate of 8.2 percent as companies boosted inventories in September to meet a surge in demand and spent more heavily than first thought on plants and equipment. This growth rate is the fastest pace since 1984. In contrast, the economy grew only 3.3 percent in the second quarter. The Federal Reserve also stated it would keep short-term interest rates steady and would continue to keep them at low levels for a considerable period to fuel the recovery.
Further good news is that U.S. consumers' confidence in the economy rose in November to the highest level in more than a year, as hiring picked up and views about job prospects improved. The index measuring sentiment about the current economy rose to 80.1 in November from 67 in October and 59.7 in September.
Economists are now using words like ``definitely'' and ``finally''-seldom used by any analyst in statements like, ``The worst is definitely over,'' which was declared proudly by Nariman Behravesh, chief economist of Global Insight Inc.
Additionally ``a broad-based strong cyclical recovery-essential for a meaningful rebound in manufacturing output and employment-has finally arrived.'' That was proclaimed by Chief Economist David Heuther of the National Association of Manufacturers. Fleets have reported they are seeing improvements in freight volumes but are remaining cautiously optimistic until significant increases are seen.
Trucking fared well
Most trucking companies fared financially well this year despite the sluggish economy and spikes in fuel prices.
Truckload carriers posted stronger year-over-year earnings for the third quarter because demand for their services was slightly better than the same period a year ago. The big consolidations in the industry were DHL Holdings' purchase of Airborne Inc.'s ground operations and Yellow Corp.'s purchase of Roadway Corp.
DHL made a smart strategic move and purchased Airborne's ground operation assets for $1.05 billion in order to gain a U.S. truck delivery network and compete with FedEx Corp. and United Parcel Service of America Inc. Yellow Corp., the nation's second-largest less-than-truckload (LTL) carrier, purchased larger rival Roadway Corp. for more than $1.1 billion-including $140 million in Roadway debt-in a bid to create one of the largest trucking companies in the U.S. The combined company is named Yellow Roadway Corp. and, said Yellow CEO William Zollars, will operate both companies' almost identical freight hauling networks independently.
Many in the industry question whether Roadway will remain a name in the industry for long and how the financially smaller Yellow will be able to absorb the huge $150 million debt it has to incur to pull off the deal. This could be a tragic mistake for both companies if managed badly or a smart move if redundant expenses can be eliminated quickly. Only time will tell. One way or another, job security will be affected for both non-union and Teamster employees.
Speaking of the Teamsters, this past spring, Yellow, Roadway, ABF Freight System, USF Holland and about 25 smaller fleets agreed with the International Brotherhood of Teamsters to a new five-year contract known as the National Master Freight Agreement. The contract was signed two months before the old pact was to expire. It provides for wage, health and pension increases, a cost-of-living adjustment, extension of health and welfare insurance and equipment upgrades. It also prohibits the companies from subcontracting work to Mexican carriers and reduces the amount of freight a company can ship by rail.
The total value of the contract was $1.7 billion-the largest monetary package ever negotiated covering LTL freight workers. In return the companies got five years of labor peace. I just hope they can survive to enjoy it.
Fuel and other costs
The price of diesel fuel hit a new record when it reached $1.753 a gallon in March due to an oil strike in Venezuela, market uncertainty over Iraq and last year's cold winter. This really put the hurt on many trucking companies and owner operators, many of whom disappeared from the highways.
The price of diesel remained volatile the rest of the year but did inch its way down so that by the beginning of December the average retail price was $1.491 per gallon-only 8.6 cents higher than during the same time a year ago.
Increases in workers' compensation benefits to employees increased between 25 and 50 percent because of medical inflation and rising state benefit levels. Workers' compensation, general, cargo and auto liability are core insurance coverages that represent the third- or fourth-largest cost of operating a motor carrier behind labor, governmental fees and diesel fuel.
So naturally, in addition to fluctuating fuel prices, the increases seen in this area in 2003 reduced fleet profitability. Surcharges on freight rates to cover rising insurance costs are being considered by many fleets while others are planning on just raising rates.
Two important issues emerged on the governmental front in 2003. The first, the Safe, Accountable, Flexible, Efficient Transportation Equity Act (SAFETEA), was due to be passed this fall to replace the Transportation Equity Act for the 21st Century (TEA-21), which expired Oct. 1.
However, due to great disagreement, in September Congress moved to extend funding for federal highway programs and related agencies for five months and agreed on short-term legislation that would not require higher fuel taxes that many in Congress have said are needed for the long term.
Both the trucking and tire industries are lobbying hard for passage of the act without a motor fuel tax increase, without the imposition of a national weight-distance tax, which would eliminate the Federal Excise Tax (FET) on new truck tires, and without any FET increases on truck tires.
The second regulatory issue that affects trucking is the new Hours of Service Rule issued by the Federal Motor Carrier Safety Administration (FMCSA). Many carriers view that as the biggest change ever in the way the industry operates.
The rules that were issued in April were an immense improvement over the proposal issued in 2000. However, now that fleets have had the opportunity to scrutinize how the rules will affect them, it has become painfully obvious that the new rules have taken away operating flexibility and reduced productivity.
In truckload operations, productivity is expected now to decrease between 4 and 19 percent. The new work rules contain two seemingly minor but important changes. First, maximum driving time is increased to 11 hours a shift from 10. Second, total on-duty time is reduced to 14 consecutive hours from 15 cumulative hours.
Before drivers could just go off-duty any time they wanted to stop the clock. Now the only way to stop the clock is to go to bed for at least two hours. The 14-hour limit likely will hamper truckload and short-haul operations where drivers spend time waiting to load and unload, while the extra driving time could help some long-haul drivers to go farther.
But the bottom line looks like there is going to be a need for more trucks on the road to haul the same amount of freight. More drivers will be needed to operate these vehicles, and an increase in driver compensation will have to make up for lost mileage, attract new drivers and retain old ones. J.B. Hunt Transport Services, Schneider National, Heartland Express, US Xpress and Swift Transportation already have announced raises in their driver pay.