Air Cargo Quarterly
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A post- 9/11 carrier environment
(Editor’s note: This is the fourth part of a White Paper article by National Logistics Management (NLM) concerning carrier capacity issues. Part lll appeared in our March 6, 2006 edition.)The events of 9/11 have forever changed the ways in which border security is managed. Border crossings now have increased security measures to monitor goods trucked across them, especially between the US and Canada. With increased security comes new costs to cover additional security measures, implement new border crossing initiatives, and bolster an existing infrastructure that hasn’t been able to keep pace with demand. The Freight Carriers Association of Canada (FCA) has recommended carriers implement a surcharge to cover the increased costs of crossing the US-Canadian border.
With border crossing delays more the rule than the exception, sometimes taking several hours, the FCA has also proposed a delay charge to be imposed on trucks waiting more than one hour or in the instance of extreme line-ups of trucks.
One effort to manage this situation is the Free and Secure Trade (FAST) program that is a joint initiative of border authorities of the US and Canada in the North and the US and Mexico in the South. Carriers that are FAST certified have access to dedicated FAST lanes at border crossings, which allow for passage of pre-approved eligible goods through streamlined, synchronous customs processes agreed to by the respective governments.
Another residual impact of 9/11 is that insurance premiums for carriers are increasing at high percentages annually. A survey conducted by the American Trucking Association shows that primary, or general liability insurance rates, increased by 32% for motor carriers renewing in 2001, with those renewing after the 9/11 terrorist attacks paying an average of 37%. The rising cost of insurance cuts into a driver’s income and can discourage new entrants into the field.
Since 9/11 there are now only two insurance carriers that issue policies for truck drivers over $1 million. This lack of insurance carriers reduces competition among insurers and truckload carriers now pay a premium price to obtain insurance. The average driver requires $1 million liability, $1 million automotive and $100,000 in cargo insurance. Michael J. Riley, chairman of the 50-state Trucking Association Executive Council, observed that 80% of trucking companies have 20 or fewer trucks. Profit margins are slim and undue costs at one end, such as rising insurance rates, can threaten the entire business.
Another factor for carriers is that, in the first year after completing trucking school, new drivers have difficulty obtaining insurance. Somewhere, somehow, these drivers are expected to obtain a year’s driving experience and demonstrate a solid driving record before one of the two companies that provide insurance to carriers will cover them. To combat this issue, several carriers are managing insurance programs for new drivers through their organizations, as well as offering signing bonuses, to get new drivers to sign on and add to the carrier’s flexibility in managing capacity.
What the Carriers are Saying
National Logistics Management (NLM) conducted a survey in August 2004 of its carrier base to ascertain what can be done to increase carrier participation during tight capacity times. The following issues surfaced:
Increase the fuel surcharge
Decrease payment time from the industry average of 37 days
Increase overall rates
Allow carriers to consolidate shipments at a fair rate
Compensate dry runs by carrier cost
Reduce wait time at both shipper and consignee
Provide realistic protect times
Payment for deadhead miles
Increase notice for shipments
Establish off-hours surcharge
Eliminate dock high
Reduce insurance requirements
(National Logistics Management (NLM) is a non-asset-based third-party logistics provider of premium freight.)
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