Largest U.S. Ports Drive Drayage Demand But Fleets Struggle With Regulatory Maze

This story appears in the Feb. 18 print edition of Transport Topics.

LOS ANGELES — The torrent of economic activity passing through the two ports here generates a massive need for trucking services, but managers of fleets who work the ports also say it is an extremely challenging operating environment for motor carriers and their owner-operators.

The driver shortage at Los Angeles and Long Beach takes the form of a declining roster of owner-operator trucks registered to work at the ports, an intricate compliance procedure for registering a truck, including the Clean Trucks Program that requires the use of newer trucks, and no consensus on how to use vitally important intermodal chassis.

Trucking companies are scrambling to keep up. Expanding into ports other than Los Angeles and Long Beach is one tactic, and offering services other than trucking is another.

One manager went so far as to say it might take the collapse of the current system to give birth to a successor that can accommodate more containerized freight.

“The drayage market, especially in L.A., is highly fragmented. There are a lot of people with one, two or maybe up to five trucks,” said Dan Flaherty, general manager of transloading and distribution for Schneider Logistics. “There’s cost pressure from equipment, repositioning moves, wages and fuel.”

Parent company Schneider National — based in Green Bay, Wis., and ranked No. 6 on the Transport Topics list of the 100 largest U.S. and Canadian for-hire carriers — owns about 9,900 tractors and is the nation’s largest truckload carrier. However, at the ports, it uses owner-operators.

“I think we’ll see some consolidation in the drayage industry,” Flaherty said, adding that if enough participants drop out, drayage rates could go up, “But right now it’s still highly, highly fragmented. It’s a different world out there.”

Driver Martin Varillas, 51, has spent a quarter century in that different world and it wears on him. Varillas has owned five trucks over his career at the ports, but now he’s just driving for people he knows.

“You can’t get a fuel surcharge. It makes no sense to own,” he said while waiting in a line to drop off an empty container at Long Beach. “It’s too many hours and you don’t make enough, maybe $600 to $700 a week.”

Part of the reason for the squeeze is the Clean Trucks Program at the two ports. Since the start of last year, the ports have required that trucks working the container yards must have been built in 2007 or later, meaning they have a diesel particulate filter.

Robert Curry, president of California Cartage Co., has been in Southern California trucking since 1954. He said the Clean Trucks Program has altered substantially the economics of being an owner-operator.

“It’s affected everybody. . . . It’s hard to get owner-operators. A person used to be able to pick up a used vehicle, maybe 15 years old, for a small investment and become an owner-operator. But now it takes some capital to become an owner-operator, and the majority of people who want to do this don’t have it.”

PierPass Inc., a company that helps administer operations in Los Angeles and Long Beach, said that in December, about 10,300 different trucks made at least one appearance during the month to work the container yards, down from about 16,000 of them in the middle of the last decade.

The ownership and maintenance of intermodal chassis that all trucks use to move containers also causes difficulties.

“My biggest problem is the chassis issue. Everyone wants to get out of the business,” said Sherry Hertel, sales manager of Southern Counties Express. “Twenty percent to 30% of our moves are for moving chassis, and that makes me angry. I want to move containers, not chassis.”

The lack of a chassis will annoy a shipper, yet there’s little to no money in moving chassis for a driver such as Varillas, she said.

Hertel also said most loads are just quick drop-offs, allowing the recipient to unload the container as he pleases while the driver rolls off to get another load, rather than waiting for the empty chassis.

California Cartage’s Curry is the son of Neil Curry, who founded the company in 1944 and was chairman of American Trucking Associations in 1954-1955. He said shippers have been trying to become less dependent on the ports here.

“Shippers are now using other ports. K-Mart used to be all through Los Angeles and Long Beach, but now they’re using other ports as well. . . . It’s very sophisticated distribution, and they figured it out,” said Curry, describing a four-corners approach to U.S. delivery rather than an all-Southern California one.

CCC has about $275 million in annual revenue, and nearly half of it now comes from operations outside California, including ports in Florida, Georgia, New Jersey, Virginia and Washington State.

As with Schneider and Southern Counties, CCC has a substantial transloading operation to complement its drayage work. It uses a warehouse built — and once operated — by the U.S. Army using Italian prisoners of war during World War II. Operating directions in Italian remain on the walls.

The CCC facility breaks down 60,000 import containers a year, but may have to close soon as the Port of Los Angeles wants to use the land for a larger BNSF Railway terminal.

Transloading is a cross-docking operation where ocean containers, often 40 feet long and filled with imports, are unloaded and then immediately reloaded into 53-foot-long domestic shipping containers or truck trailers. Once transferred, the freight either heads east on double-stacked rail cars or gets distributed via truck.

Schneider’s Flaherty said three ocean boxes usually can be reduced to two domestic boxes or trailers. That means shippers can save on the number of trucks they deploy.

“The secret to doing [transloading] properly is the [information technology] work,” said Curry.

“It takes a lot of hard work and thinking,” said Flaherty on the process of gathering multiple products in the precise number and sending them to the correct destination.

Southern Counties’ Hertel agreed on the essentiality of IT capability, saying that was one of the reasons she jumped from a career with the steamship lines to trucking. Some of the company’s transloading work, she said, involves taking products loaded quickly in Asia onto the floors of ocean boxes and turning them into palletized freight sealed in shrink-wrap here in the United States.

More often, though, the IT is used to reposition empty chassis and containers along with the primary work of picking up and moving paying loads.

As a sales manager, Hertel is eager to bring in new customers, but said all of Southern Counties’ capacity is being used for existing customers.

“I get new calls for the Inland Empire [California’s San Bernardino and Riverside counties] and haven’t quoted them. Las Vegas and Phoenix? Sorry, can’t do it,” she said.

Southern Counties has recruiters hunting for owner-operators and administers a lease-to-own program to help get the independent drivers into the 2007-or-newer trucks that are required to work the container yards. Some of the vehicles are powered by liquefied natural gas.

Hertel also said the company paid an attorney to draw up a multiple-owner arrangement to allow for slip-seating in the new trucks, thereby improving asset utilization. The U.S. Surface Transportation Board had to approve the arrangement, she said, adding that SCE also has developed a green marketing alliance among other companies with LNG tractors.

Still, recruiters say they have to talk to 20 drivers to find two or three who are a good fit.

Hertel said she thinks the current environment for drayage is not sustainable, with the declining driver base bumping up against increases in port cargo. At some point, she said, there will have to be significant changes in the operating environment to attract more owner-operator capacity into the local market.