O'Neal regroups at O&S

While Jim O’Neal worked to fix the ailing Police and Fire Pension Fund, balance city budgets and wrestle with a handful of initiative petitions, a faltering economy and evolving federal regulations were battering his trucking company’s bottom line.

O’Neal resigned this month as Springfield’s mayor, citing business and personal issues. A closer look at the financials of the company he co-founded in 1981 reveals O&S Trucking Inc. generated roughly $40 million in revenue in 2011 – some $20 million less that it did in 2008, the year before O’Neal was elected.

O&S Trucking, which comprises roughly 200 trucks and nearly as many contract and full-time drivers, hauls for large corporations such as Unilever and Kraft, and brand names such as Sara Lee and Breyers ice cream.

O’Neal said his efforts to turn the ship around were keeping him from doing his best job as mayor, and ultimately, led to his decision to step down.

“We found ourselves trying to hold our water like everybody else,” he said. “There’s a number of challenges industrywide that have affected us, and there are probably things we’ve done internally that have affected us.”

Problems at hand
Internally, O&S Trucking had a different chief executive at the helm during O’Neal’s first 18 months as mayor. David Corsaut served as CEO until early 2011. O’Neal was elected mayor in April 2009 and juggled the duties until resigning May 7.

O’Neal said one industry culprit is freight rates. The rates for hauling loads haven’t kept pace with expenses in recent years, O’Neal said, and adjusted for inflation, freight charges are less today than when he started his business some 30 years ago.

The low rates have fostered an environment where it is harder to retain quality drivers, he said, because income potential is limited. O&S Trucking drivers have to log about 2,500 miles per week, or more than 50 hours on the road each week, in order to earn around $40,000 per year.

O’Neal calls driver shortages the single biggest problem facing the industry. Part of the reason, he said, is that trucking businesses typically hire drivers who are at least 23 years old and have at least a few years of experience. By that age, most people have made career decisions, and too many people see trucking either as a last resort to a livable wage or as a second career.  

“Do you know anybody raising their children to be truck drivers?” O’Neal asked.

The cost of buying new trucks today is also an issue. He said new semitrucks cost about 40 percent more than those purchased 10 years ago, with much of the increase due to Environmental Protection Agency regulations on emissions.

He said he supports efforts to make trucks more environmentally friendly, but the progress has come at a cost. The heavier, more efficient engines coming online today cost about $35,000 more than they did in 2004 when regulations tightened, O’Neal said.

Industry issues
Overall employment of truck drivers and driver/sales workers is expected to grow 9 percent between 2008 and 2018, creating more than 290,000 jobs, according to the U.S. Bureau of Labor Statistics.

Missouri Trucking Association President Tom Crawford last week attended an American Trucking Association conference to gauge the industry outlook. Via telephone from the St. Petersburg, Fla., conference, he said the economists presenting called for a slower recovery during the next year than has been experienced during the last two quarters.

Among the trends noted was an increase in truck sales, but a slight decline in capacity, which could mean carriers are replacing two old trucks with one new truck. Crawford also said while the manufacturing sector is outperforming expectations, retail sales and housing are lagging.

Though driver shortages are still a long-term concern, the problem isn’t as dire nationwide as it appeared to be about a year ago. In June, the Council of Supply Chain Management Professionals’ State of Logistics Report predicted driver shortages could be as high as 300,000 by 2014.

Crawford said EPA regulations on emissions hit everybody, and even though there were a variety of things a company could do to comply, they all came at a cost. As for new engines, he said the biggest jump came between 2007 and 2009, when prices rose by more than $10,000.

Mark Montague, an analyst for Oregon-based shipping rate tracker Transcore DAT, said while freight rates vary greatly depending on the season, destination, commodity and contract, it is generally true that today’s freight rates are on par with 2004 levels.

“We began to see a slowing of truck rates in 2006 and 2007, retreating in 2008 … and then, they fell apart in 2009. In 2010, we started to see some recovery, and now, we are just starting to recover to where we were in 2004 and 2005,” Montague said.  

Crawford said other issues that O&S is dealing with are common among carriers in Missouri.

During the recession, he said carriers became more competitive, particularly with their “back hauls.” For example, if a Springfield trucking company regularly picked up a load in town and dropped it off in Kansas City, it would want to find a load shipping from Kansas City to Springfield – known as a back haul – and offer the shipper a low rate, so that the trip back was earning money.

“You want to get as much of that return trip paid for as possible,” Crawford said. “Somebody’s front haul is someone else’s back haul, so there is always a pressure to keep the price low.”

New chapter
For O’Neal, the key to turning around O&S Trucking is getting his focus on building the book of business and reducing operational inefficiencies.   

He said he thinks it might be the right time for a rebound, in part, because he expects demand for services to increase faster than companies can supply those services. Being efficient in its operations, and fully staffed, would help O&S Trucking reach its goal of increasing revenues and decreasing expenses by 10 percent each during the next year.

A top priority for O’Neal is working with shippers to decrease drivers’ unloading times, which directly impacts the number of jobs a driver can take on. That might mean striking new deals with incentives for efficient drop offs, which should allow for greater driver capacity.

He said the work to improve operations is important not only for the 250 families earning a living through O&S but for the economy as a whole.

“The country cannot have economic recovery and job creation without the transportation industry to provide the backbone with the movement of goods and services,” O’Neal said.

Crawford said many trucking companies are facing a long, slow road to recovery.

“Folks have just come out of probably the most difficult time that many of them have faced, so there hasn’t been much breathing room,” he added. “It’s a challenging time. I’ve seen a lot of folks doing better, but that doing better is relative to some pretty bad times.”[[In-content Ad]]