Biggest Cost of Doing Business? Transportation.

RCS Influencer Jennifer Stone says that contractors should be aware of the challenges so they can set expectations and make sure their materials get delivered when needed.  

As I reviewed this month’s topic: “What was the biggest cost of doing business in the last 12 months?” I knew the answer for Johns Manville immediately was transportation cost, AKA trucking! I reached out to our expert Emily Gehrmann; Director, Commercial Operations to talk more in-depth on the issues our industry is facing. Most importantly what the contractors need to do to set expectations, price and get material this season.

Here is what Emily had to say: Limited carrier capacity is rapidly changing how roofing manufacturers and contractors manage their businesses.  Over the last twelve months, demand for flat-bed carriers has peaked and the cost to transport material has skyrocketed.  The state of the transportation industry is in flux, being driven by a number of issues:

1. INCREASED DEMAND - Demand for carriers has increased as industrial production had the largest year-over-year gain since 2010.
2. ESCALATING PRICES - Prices continue to escalate as diesel has reached a three-year high and carrier rates have significantly increased.  
3. LABOR SHORTAGES - The industry is 50,000 drivers short on a 750,000-truck base.  As drivers retire, carriers are unable to recruit new employees at the same pace.
4. STRINGENT REGULATIONS – In December 2017, electronic logging was implemented.  As a result, drivers are limited in the number of hours they can work.  Routes that historically took one day may take two days. 

To service increased demand, manufacturers are struggling to find and on-board new carriers, often at significantly higher costs. Rates in some areas of the country, are double or triple the cost vs. prior year.  To offset these price increases, manufacturers are beginning to modify their transportation surcharge policies, charging customers more for transportation.  While inflation impacts the manufacturers’ bottom-line, the carrier shortage has also had unforeseen consequences in terms of service levels.  In this highly fragmented industry, carrier reliability and communication is marginal.  As a result, manufacturers are plagued with customer service-related issues when trucks do not arrive as scheduled, cancel a load without advanced notice and arrive at the final destination late.  As a larger pool of fragmented flat-bed carriers are utilized to meet demand, the ability for manufacturers to track trucks and proactively communicate delays or issues to their customer base is constrained. 

From a contractor perspective, higher costs in the form of transportation surcharges impact the profitability of each job.  For job site deliveries, contractors are now encouraged to plan a day in advance, pre-staging material before the project begins as manufacturers are unable to guarantee on-time delivery.  This requires the contractor to incur the additional cost of labor, equipment and security before the job evens begins.  As contractors begin including these incremental costs into bid packages, prices to the end consumer will escalate.  Lead time expectations are also evolving.  Historically, an industry that was accustomed to next day delivery, now must order in advance to secure transportation.  Asset-based carriers are scheduled out a minimum of five days in advance of shipment.  Orders received outside of this timeframe, are subject to the spot market where carrier availability is not guaranteed, and the cost is significantly higher.        

Unfortunately, limited carrier capacity is expected to persist, ultimately requiring manufacturers and contractors to modify how they run their businesses.  Carriers have the upper hand and will continue to be selective in determining who they want to service.  For manufacturers, short loading-times at the plant, driver amenities and relationships are critical towards retaining carriers. In comparison, contractors need to ensure they are staffed to unload trucks in a timely manner and their crews are respectful to the driver.  As long as the demand for flat-bed trucks outpace supply, carrier availability will be a limiting factor to industry growth.           

Jennifer Stone is the National Women in Roofing 2019 Chair and Pacific, Preferred Accounts Manager, Roofing Systems for Johns Manville.  See her full bio here.