With new labor contract, LTL carrier believes it is back on road to prosperity.
By Jon Ross
Having just emerged from a protracted labor negotiation and with an eye toward his company’s 90th anniversary this fall, Roy Slagle, ABF’s president and chief executive officer, takes a sunny view of the current domestic less-than-truckload market.
The carrier’s new five-year labor agreement, which was ratified in June, will help ABF stem some of its recent financial issues. Slagle points to the 7 percent wage cut, the reduction of a week’s vacation time and the ability to purchase outside transportation help as reasons the new agreement will save ABF money. ABF Freight experienced a $22.5 million operating loss in the first quarter of the year.
“That was a big step moving forward to help ABF,” Slagle said of the agreement. He added the company will be looking at a number of new money-saving initiatives as well, “many of which are made possible by the new labor agreement.”
One potential money-saving situation, a buyout offer from YRC that was acknowledged but rebuffed during the height of labor negotiations, isn’t a conversation topic ABF officials are currently discussing.
Aside from ABF’s financial issues, the current domestic transportation market is on pretty solid footing, according to Slagle. There’s little growth, but on the other hand, the industry is not shrinking. Pricing, he added, is rational, with perhaps a few pockets around the country where there are exceptions. He expects demand to remain stable for the foreseeable future.
This relative stability is a welcome release from the turbulent times experienced a few years ago. In fact, Slagle said the LTL industry is still digging itself out from the rate wars of 2009. All things considered, though, the industry is in fair shape, and trucking indices “are trending right along the midline,” he said.
While it seems that ABF’s financial losses make it unhealthy in an otherwise stable industry, the carrier’s financials reflect those of its competition. A majority of the domestic carriers are struggling, Slagle said.
One of the barriers to renewed health is the regulatory landscape, which is making shippers hesitant about doing business. Slagle said decisions are now being made on a short-term basis with little thought to planning for transportation needs down the road.
“It seems to me that the regulatory burden, and the threat of future regulatory burden, is holding customers back,” he said. “I sense in talking to businesses that they’re unwilling to risk capital with the uncertainty in the future.”
The key to fighting this trend is lobbying. Helping to show people how reducing regulations on the transportation industry will help boost the economy is the way to go, he said. There hasn’t been much success to point to in this arena, and Slagle noted to the U.S. Federal Motor Carrier Safety Administration’s hours of service rule change, which took effect July 1, as a prime example. Despite fierce opposition from carriers and industry groups, a court challenge and a general dislike for the new rule, FMCSA imposed it anyway.
As an LTL carrier, a change in the restart provision of the hours of service regulations isn’t of much direct consequence to ABF — and it may actually gain it some additional business — but truckload carriers have had to change some aspects of their operations, and this could cause a shift in the industry.
“In my view, it will make the truckload carriers less productive. It will reduce capacity to some degree and probably put some upward pressure on rates,” he said. “As a result of that, mode shifting does take place, and we may benefit somewhat from that, but I wouldn’t call it a game-changer for us.”
One upcoming issue that could quickly become a game-changer is the omnipresent specter of a driver shortage. Some industry watchers have brushed the shortage talk off as just that, but Slagle is sure that an impending lack of drivers is very real. Finding enough drivers for the nation’s trucks may have been somewhat dormant due to the economic downturn, he said, but once the economy turns around, it will become a big concern.
Shippers are pursuing some blend of modal shift as an early inoculation to whatever capacity constraints might crop up due to the shortage, and Slagle said there are operation-based solutions to the issue. In truckload, increasing truck line capacity would help ease the burden, and allowing longer-combination vehicles on more LTL routes would help.
“When the economy returns and gets more robust, and particularly as housing gets more on its feet,” he said, “I think we’ll see the truck driver shortage return with a vengeance.”
Regulations are also to blame for increased fuel expenditures to some extent. Rules imposed on tractors by the Environmental Protection Agency have rendered some of ABF’s cost-saving fuel-efficiency techniques moot. Slagle said ABF had been increasing its fuel-efficiency, step by step, for years, but “the EPA’s requirements set that back.”
ABF still studies fuel-saving techniques regularly, Slagle said, to tamp down what has become a huge cost for the carrier.
In addition to using idling limiters, experimenting with trailer skirts and trying out other techniques to make trailers more aerodynamic, the company has been watching for developments in new fuel technology.
Slagle calls the use of liquefied natural gas a “wild card” that is currently in its infancy, but he pointed to a number of carriers who have been experimenting with the new fuel source. LNG isn’t suitable yet for LTL operations because of the limited fueling structure present and relatively high startup costs, but Slagle has expressed interest in that facet of the industry.
“I see it as something that, over the long run, could potentially reduce our dependence on foreign oil and perhaps lower the price of energy for that use,” he said. “We are very well in tune with it, we are just not using it in any large way as of yet.”
For now, Slagle is content to sail the calmer industry waters with the knowledge there are few storms ahead. He’ll not get complacent, however, and keep pushing ABF to reach new heights.
And plus, he’s got an anniversary to plan.
“We’re very excited to celebrate our 90th anniversary and to start talking with employees and customers in the marketplace about the next 90,” he said.
