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December 24, 2007 8:00 AM, EST

Trucking in 2007 Faced Economic, Regulatory Challenges

By Daniel P. Bearth, Staff Writer
This story appears in the Dec. 24-31 print edition of Transport Topics.
Editor's Note: Because of the holidays, the Dec. 24 and Dec. 31 issues of TT are combined. The next issue will be published Jan. 7.

Trucking faced challenges on all fronts in 2007 as credit woes curtailed economic activity, a federal appeals court overturned key provisions of rules governing driver hours and truck equipment suppliers endured another precipitous — but not unexpected — sales slump.
Meanwhile, crude oil approached $100 a barrel and the price of diesel at the pump hit a record. And higher energy costs led to increases in prices for tires, steel and aluminum.
As excess capacity put pressure on rates and rising costs for labor, fuel and equipment squeezed the bottom line, and many fleet operators struggled to maintain profit margins and began to shrink the size of their fleets.
Retail sales of Class 8 trucks declined more than 50% in the first 10 months of the year as fleet operators were reluctant to buy new vehicles in the face of weak freight hauling demand.
Trailer shipments also fell, with new trailer registrations declining 24.7% in the first nine months of the year, according to data from R.L. Polk & Co.
Trailer manufacturers shipped 281,000 units in 2006, the best since 307,000 units were shipped in 1999.
At the outset of the year, ATA Chief Economist Bob Costello said housing and autos were the industry sectors “to watch out for” in terms of their effect on demand for trucking services.
Indeed, while the overall U.S. economy has continued to grow, home building and auto production proved to be the Achilles’ heel of trucking.
Worries about rising defaults on subprime mortgages put the brakes on home building and curtailed demand for hauling everything from lumber to washing machines and house plants.
Auto sales through September were at an annualized rate of 16.2 million units, down from 16.6 million units in 2006. U.S. automakers cut production as foreign automakers gained a bigger share of the North American market.
Some truckload fleets reacted by reducing the number of company-owned trucks in their fleets and shifted more business to non-asset-based freight services, such as brokerage and rail intermodal.
Purveyors of software and fuel-saving technologies, such as auxiliary power units, reported strong demand for their products as companies focused on cost savings and improving efficiencies.
A number of U.S. trucking firms set up shop in China to take advantage of a growing domestic transportation market there. Large enterprises such as YRC Worldwide, Schneider National Inc. and Werner Enterprises, and smaller companies such as National Retail Systems and Watkins & Shepard Trucking, established footholds in China to take advantage of the freight growth.
Efforts to open the U.S.-Mexican border came to a head as Transportation Department officials cleared the way for the first Mexican and U.S. fleets to run beyond the border. The move was met with protests, however, including efforts in Congress to block funding for cross-border trucking, raising questions about how much pro-gress will be made in implementing the trucking provisions of the North American Free Trade Agreement.
In California, officials at the Ports of Los Angeles and Long Beach raised a ruckus with a proposal to curb emissions by banning older trucks and requiring drayage companies to use employees rather than owner-operators.
The U.S. Supreme Court also played a role in changing the debate over environmental regulation by deciding that the U.S. Environmental Protection Agency was wrong to exclude “greenhouse gas” emissions from its regulation of motor vehicles.
California and some other states are now asking the federal government to allow limits on carbon dioxide emissions.
The issue of privatization of infrastructure heated up as several states considered proposals to lease roadways or set up tolls for existing interstate highways.
The Aug. 1 collapse of the Interstate 35W bridge in Minneapolis also focused attention on infrastructure maintenance and funding of highway and bridge upgrades.
The Surface Transportation Board surprised some industry officials when it revoked the authority of motor carriers to engage in collective rate making and freight classification. After initially protesting the decision, organizations involved in rate making and classification have agreed to abide by the ruling and have developed alternative services.
Closely watched contract negotiations between parcel carrier UPS Inc. and the Teamsters union produced an early agreement and a historic provision that allows UPS to withdraw from the Central States Pension and Health and Welfare Funds.
Under terms of a deal announced Sept. 30, UPS would pay $6.1 billion to get out of the Central States Funds, the largest of 20 funds that provide retirement and health benefits for Teamsters members who work at unionized companies. UPS will set up a company-funded pension plan for 44,000 of its 236,000 Teamsters-represented workers.
The current UPS-Teamsters contract expires in July.
After completing a tentative deal with UPS, the Teamsters turned their attention to the National Master Freight Agreement, which covers about 95,000 workers at mostly less-than-truckload companies.
LTL carrier ABF Freight System said it also will try to withdraw from Teamsters’ pension plans and intends to negotiate separately from Trucking Management Inc., an organization that traditionally has represented LTL trucking companies.
The current National Master Freight Agreement expires in March.
Ray Kuntz took over as chairman of American Trucking Associations in June and will serve 18 months, partially filling the term of the late Clarence James “Mac” McCormick III, who died days before he was to take the helm as ATA chairman in October 2006.
In July, ATA moved into new headquarters in Arlington, Va.