Tonn Ostergard also noted the company’s load turndown rate increased 400% in February
Is the industry hot right now? It sure is, based on comments at the Transportation & Logistics Council’s 44th Annual Conference, being held this week in Charleston, SC. That was reinforced by Tonn Ostergard, chairman & CEO of Crete Carrier Corp., during his lunchtime keynote address.
“We had 400% more loads tended to us [in February] than we could accept,” he told the audience of brokers, shippers, 3PLs and carriers. “So, I think that tells you how hot the market is.”
Ostergard said Crete saw a 400% increase in its turndown rate (the number of loads it didn’t accept) in February compared to February 2017.
Ostergard touched on a number of subjects in his wide-ranging address, including the Amazon effect on freight, which he says is “a real paradigm shift that is rippling through our whole social structure, including trucking and I don’t think you ever go back from a paradigm shift.”
The result is ever-increasing pressure from shippers and end-customers who want goods moved faster and cheaper. “It’s certainly stressing the supply chain,” he noted.
That is only one external force that is adding pressure for carriers. Hiring drivers remains Crete’s biggest challenge, Ostergard said, even though Crete’s driver turnover rate is just 48%, although that is up from 40% a few years ago.
“We believe that turnover starts with who you hire,” he said. “We also believe turnover relates to our on-time performance and safety scores.”
As a result, Ostergard said that Crete has refused to lower its driver hiring standards, and in fact, has implemented steps to ensure it gets only the best drivers. “I firmly believe that if you want to hire the best drivers, you have to pay” them like they are the best, he noted about Crete’s higher-than-average pay levels.
The company also uses hair follicle drug testing, which is somewhat controversial as some claim it is discriminatory to certain population groups. “Since we started hair follicle testing, 15% to 20% of our drivers who came into our driving training programs who passed the urine test [failed the advanced hair test],” Ostergard claimed. “These drivers are now driving for someone else.”
He added that drug testing is a critical element and as more states legalize marijuana use, more drivers are failing drug tests. “There’s been a significant increase in positive tests for drivers living in states with legal marijuana,” Ostergard noted.
Turning to driver pay, the CEO expects truck driver pay to continue to rise 2 to 3 times as fast as overall wage inflation as the industry competes with other sectors for candidates.
The current tight capacity situation, which seems to have been exacerbated by the electronic logging device (ELD) mandate, is likely to get worse, Ostergard believes. He related information from fuel suppliers he has spoken with who say they are still delivering fuel to fleets that couldn’t be using that amount of fuel if they were running legal miles.
“I think we still haven’t seen the [full impact],” he said, noting that he thinks some of these carriers may still see a 25% decrease in miles once full enforcement with out-of-service orders hits on April 1.
“As the non-compliant carriers lose 25% of available miles, just to give these drivers the same [pay rates], their rates will have to increase 15 cents per mile,” Ostergard said. “I’m not trying to be a doomsday analyst, as I think the market will adjust.”
As to critics of ELD devices, many of whom were in the room, Ostergard noted that he slept “much better at night knowing that when we have an accident, our drivers were legal.”
Ostergard said that Crete stopped hauling for Amazon as the capacity Amazon was requesting was causing the carrier to struggle to meet other customers’ needs. That capacity reservation was also hurting Crete financially as 25% to 30% of the Amazon reserved capacity was being cancelled with no penalties for lost revenue opportunities.
As was mentioned in an earlier morning address, Ostergard noted how the pricing dynamic is changing and time is becoming the key component. “That is the product we sell more than anything else,” he said. “We have 660 minutes per day for that [truck to be productive] and drivers have 660 minutes per day to maximize their earnings.”
The average Crete truck spends 8 hours per day on the road driving, he said, noting that he has been told that is much higher than many others in the industry. A driver’s and truck’s time is impacted by a number of factors such as traffic, dock delays, and delivery windows that don’t allow drivers to deliver if they arrive early, sometimes requiring an additional day of time. An additional 30 minutes of driving time each day would add 5% to a driver’s paycheck, Ostergard observed.
“Maximizing that 660 minutes should be the goal of every carrier, broker and shippers, that is the key to reducing costs,” he concluded.
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