Rising transport costs take their toll on distributors

March 23, 2018

March 19/26, 2018: Volume 33, Issue 20

By Ken Ryan

New government regulations have exacerbated the ongoing trucker shortage in the U.S., resulting in higher inbound freight costs for flooring distributors that could spread across the entire supply chain.

The problem is twofold: More than 70% of the goods Americans consume are carried on the nation’s highways, but a new report says the industry needs to hire roughly 90,000 new truckers each year to keep up with demand. At the same time, new government regulations—including implementation of the electronic logging device (ELD) mandate—are forcing some smaller trucking firms and individuals out of business, thereby worsening the shortage and creating problems like product shortages and delivery delays.

Observers say there is no reason to think the labor situation in the trucking industry should get better any time soon. In the short term, truckers must switch from logging their hours on paper to doing it electronically by April 1or face penalties; drivers will no longer be able to fudge their hours on paper to stay on the road longer.

“There has been a shortage of truckers for quite a while,” said Bob Weiss, CEO of All-Tile/Carpets Cushions & Supplies, a top five flooring distributor based in Elk Grove Village, Ill. “What is compounding the problem are new regulations that are tighter.”

Scott Rozmus, president and CEO of FlorStar Sales, a top 20 wholesaler based in Romeoville, Ill., said the biggest issues they are facing are delays and the difficulty of finding available, reliable carriers. “Obviously, costs are going up, too, but ultimately the consumer will need to bear those costs.”

Other distributors are feeling the impact as well. Carrollton, Texas-based Adleta, another top 20 flooring distributor, had to go out and hire additional drivers because of the shortage. “It’s no easy feat to find a driver with a clean and safe driving record,” said John Sher, president. “[As a result], all inbound freight has gone up dramatically. While we have been absorbing this, we will have no choice but to pass this on.”

The improving economy is adding to the problem. The reason: as more goods are shipped, more drivers are needed. It’s classic supply and demand economics. “There will be increased costs moving forward as the new cost structure realities begin to show themselves,” Weiss explained.

At issue is the ELD mandate, a federal rule that took effect Dec. 18, 2017 which requires trucking companies to record their hours of service on ELDs (devices that synchronize with a vehicle engine to automatically record driving time for more accurate hours of service recording). With ELD implementation, any delays at docks or warehouses will result in higher transportation costs for the shipper, according to transportation officials.

Jaeckle Distributors, Madison, Wis., has been operating with electronic logs since 2008, so the new ELD mandate hasn’t impacted the way it operates. However, it has impacted other carriers it works with and has added another layer of complexity for carriers who are new to it.

“We have not seen a significant rise in LTL [less than truck load] costs; however, I am seeing a decline in the overall service quality we’re experiencing with other carriers,” said Bill Simonson, vice president of operations. “We are finding increased damage and more occurrences of freight not being picked up. That is either due to lack of experience, shortness of drivers, or lack of hours available to drive.

“And, of course, you are dealing with a good economy, rising volumes and fewer drivers to move the freight. We’ve been adding drivers to our staff and we’re more confident with our ability to control quality in this environment than we are with some of the third-party carriers out there.”

Jeff Striegel, president of Elias Wilf, a top 20 distributor from Owings Mills, Md., said the implementation of electronic logs has prompted a tangible percentage of the smaller independent trucking companies to exit the business. “Losing 10%-12% is a dent in the overall capacity, which was strained to begin with,” he explained. “A lot of the drivers I am around have gotten older and they are not willing to spend the money [required of the electronic logs] into one truck; it has really shut down a portion of the trucking capacity, and there wasn’t an abundance to begin with.”

The American Trucking Association reports the industry has struggled with a driver shortage for the past 15 years. During the Great Recession, freight volumes dropped, allowing the industry to meet demand with fewer drivers. But when volumes recovered in 2011, the driver shortage became a problem again, the ATA found.

According to a study conducted by DAT Solutions, just one truck was available for every 12 loads needing to be shipped at the start of 2018—that’s the lowest ratio since 2005.

Striegel, as well as others, predicts the situation could get worse. “Hiring a driver is the hardest position to fill. Between [the government] closing loopholes and the new restrictions in place, it has put constraints on my existing fleet.”

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