'The best way to predict the future is to create it.' ' Peter Drucker

With the U.S. economy poised on the brink of uncertainty, regulatory pressures building, and competitive conditions in the industry heating up, trucking is going for a full measure of creativity as it prepares for the final year of this millennium. In fact creativity is the only alternative.

In 19 99, truckers will face a challenging agenda. Now is not the time to hunker down and ride out the storm. Now is the time to acknowledge the threats that exist and take some innovative risks ' measured though they may be ' to steer clear of the turbulence. When you're running white water, the guides tell you not to ride the current but to run it. That means paddling faster ' so you control the current before it controls you. The same advice applies to plotting a successful business strategy.

For a good example of dealing with stressful times, look to the military. Soldiers don't suffer the effects of combat stress when they feel in control, have strong group cohesion, trust their commanders, have high motivation, feel well armed, trained, and prepared. And, oh yes, have faith that they will win.

To help you prepare that winning strategy, FLEET OWNER once again takes an in-depth look at the key issues that are likely to impact trucking in 1999.

Signs point to sluggish growth, at least in first half of year

The impact of the financial crisis in Asia, which led to a slowdown in the growth rate of the U.S. economy during the last half of 1998, is expected to continue in 1999, at least for the first half of the year.

The manufacturing sector is already feeling the effects of the Asian crisis, with output slowing down as a result of a weak export market. With exports accounting for about 24% of domestic output, industrial production expanded at a seasonally adjusted rate of less than 2% for the first ten months of '98. Since the situation in Asia hasn't stabilized, growth in exports is expected to remain weak. In addition, South American economies are also slowing, further softening demand for U.S. products.

Another reason for the slowdown in our manufacturing output is the fact that foreign producers are gaining market share in the U.S., partly because the appreciation of the dollar has made their products more competitive. The worldwide exchange rate of the U.S. dollar has appreciated by 10.6% since January of 1997. Pricing pressures tied to exchange-rate fluctuations alone are expected to squeeze profit margins for U.S. manufacturers.

This decrease in manufacturing output means sluggish shipment activity in the production pipeline. Consequently, the growth rate of linehaul traffic will decelerate at a faster rate than local and regional traffic. While linehaul shipment traffic depends on activity in the entire production pipeline (materials and intermediate goods, as well as final goods), the distribution pipeline ' which has a more direct effect on local and regional traffic ' transports only final goods.

With a weak export market leading to a decline in sales growth, and foreign competition putting a squeeze on profit margins, investment spending by business is expected to gradually decelerate in '99. This, in turn, will mean less demand for capital goods here in the U.S., leading to a softening in shipment activity throughout the production and distribution pipeline.

Since business equipment makes up almost one-third of final-goods output in the production pipeline, a slowdown in this area will affect shipment activity of upstream commodities, intermediate goods, and the materials used in producing business equipment. A slowdown in spending on equipment by the business sector also affects activity in the distribution pipeline as distributors adjust stock levels. Eventually, local and regional shipment activity will also be affected.

Another domino to fall in this equation will be the level of non-residential construction spending, since companies do not need as much extra space. Spending in this area will soften gradually as projects currently under construction are completed. Unfortunately, the number of new projects is not expected to make up for those that will be completed. Thus, in 1999 we can expect to see a gradual decline in building-materials traffic related to private non-residential construction.

Traffic levels are also dependent on consumer spending. Although consumers have been spending at a relatively robust rate, this phenomenon is not expected to last.

As the business sector's demand for labor softens somewhat in '99, the growth rate of real wages is expected to slow to a more moderate pace ' about 2.5%. With a relatively tight labor market and continued low inflation, moderate growth (3%) in consumer spending is expected.

Since about two-thirds of U.S. economic output is related to consumer spending, even a gradual deceleration will have a big impact on shipment activity. Again, linehaul traffic will be affected first, followed by local and regional traffic.

Spending on residential construction is not expected to slow as much as consumer spending, primarily because of low interest rates.

What makes today's economic environment different from recent scenarios is the fact that our economy's growth is slowing because of world events, rather than because the Fed is raising interest rates to keep inflation under control. During the first half of the year we can expect low interest rates to keep housing affordable and thus drive up demand, which means building-materials traffic related to residential construction should remain high.

Also dampening the economic outlook for 1999 somewhat is the fact that banks are expected to tighten lending requirements as a result of bad foreign loans, a weak agricultural sector, and an increase in bad consumer debt. Since it will be harder for both businesses and individuals to borrow money, the spending growth rate will likely decline.

In conclusion, as disruptions in the global economy work their way through the U.S., we can see that a softening in our rate of economic growth is likely. As growth in traffic declines, fleets will be forced to adjust their equipment investment plans. How quickly this will happen will differ from one segment of the trucking industry to another, with construction fleets faring the best.

Low interest rates and fuel prices drive fleet demand for equipment

Thinking of buying new equipment? You and everybody else. To keep up with the surprisingly strong freight volumes, fleets spent most of 1998 acquiring new equipment. As we go to press, it looks like the number of new trucks purchased will make 1998 a record year. The combination of low interest rates and low fuel prices has taken pressure off the bottom line, freeing up capital so that fleets can buy new equipment.

That provides the perspective we need as we go forward into 1999. Although most experts believe the economy will start to slow in the second half of the year, freight volumes continue to remain pretty healthy. As a result, fleets have continued to order new equipment. They don't want to be in the position of having plenty of freight and not enough equipment to haul it. That's a sure sign of disaster.

If you place an order today, you'll have to wait until the third quarter ' or even the fourth quarter ' to take delivery. That's a long time to bet on the come. Indeed, more and more fleets are placing orders and taking advantage of liberal cancellation penalties if the expected growth fails to materialize. At most manufacturers, as long as the cancellation is received within 90 days, the penalties are light or nonexistent.

So we begin 1999 with strong order boards and cancellation rates that are increasing slightly, but are generally not out of proportion to the number of orders. One analyst categorized the backlog, which stretches out through most of the year, as 'tremendous ' much stronger than current economic activity would suggest is necessary.'

According to a monthly carrier survey conducted by the American Trucking Assns. from October 1997 to October 1998, almost all equipment categories increased, but carriers were definitely replacing old with new.

The LTL sector in particular presented mixed results. Truck fleets rose a net 0.5% after accounting for removals. Single trailers expanded by almost 15%, after disposing 5%. On the flip side, double trailer fleets actually shrank by 1.7% on the net, as unit additions could not offset a 6.3% removal rate.

Large TL fleets of both trucks and trailers grew solidly. After junking a substantial amount of older equipment (just over 20%), truck lots ended the year 7.8% larger. Trailers had a net growth of 9.8% after accounting for a 9.3% reduction in old units.

Small TL carriers performed important replacements, but also ended the period with more trucks and trailers than they started with. Truck fleets swelled by 10.3% (net), with removals accounting for 12.6%. Trailers rose even more, with a 16.9% net gain after retiring a relatively small 4.1%.

Looking at the Class 8 market, business is starting to soften, driven primarily by the decline in exports; industrial production continues to grow at a sluggish 2% rate. 'The current backlog would indicate industrial growth of at least 5%,' he said.

That means that most fleets will add capacity faster than shipment volume would dictate. Early warning signs of this would be a decline in what up to this point has been a high level of capacity utilization. Translation: If fleets are overbuying now, look for utilization to fall. Typical warning signs would include an increase in the number of empty miles, the availability of backhauls, a decline in shipper volumes that can't be attributed to seasonal adjustments, and softness in the rate structure.

There will come a time ' this analyst's crystal ball says it will be the second quarter ' when fleets realize this, resulting in a substantial drop in orders and a step-up in cancellation rates. To avoid adjusting production rates, manufacturers will simply pull the backlog forward. Historically, they've been reluctant to lower build rates because of labor contracts and the fear that if they don't build they'll lose business.

While the wind is likely to go out of the sails of the Class 8 over-the-road market, traffic running through distributors and retailers should continue to grow at the robust rate of 4-5%. Shipment activity in local and regional markets remains healthy because there has been no falloff in consumer spending and business investment. That's good news for Class 3-7.

During the second half of the year, however, demand for housing is likely to weaken as the economy continues to slow down. In spite of this, truck purchases by fleets in the construction segment should remain high throughout the year. Construction fleets are not expected to immediately cut back on truck purchases because the decline in residential construction activity is starting from such a high level. Look for these fleets to lower their equipment-purchasing plans in 2000.

One thing helping to sustain the build rates is the structural change in equipment purchasing. More and more fleets are entering into deals on the front side with guaranteed residuals on the back side that give them higher depreciation, operational savings, and reduced maintenance. These guaranteed residuals also provide more predictability in determining what percentage of the fleet they'll need to replace every year, and how much new growth they must take into account. In general, they help fleets to minimize risk.

Right now, at least one-third of the current backlog stretches out beyond 12 months, reflecting these extended, multi-year deals. Only after a significant drop in revenue will fleets reverse that strategy, stretching out trade cycles because they can't afford the new equipment. But there's no evidence that this has begun to happen yet.

So as you think about buying new equipment, monitor your customers' businesses, watch your cash flow, and keep an eye on interest rates.

Rate and service pressures put fleets between a rock and a hard place

Fleets hauling truckload or LTL freight can expect to be pinched by tough customers again this year. While shippers will continue to enjoy downward pressure on rates, many will push carriers to deliver still higher levels of service than seen in '98.

It's a classic double bind. As fleets spend on further service enhancements to keep shippers happy, trucking's overcapacity will keep rates low ' preventing carriers from profiting or even recouping those investments.

According to Chris Brady, vice president and chief economist of Martin Labbe Assoc., excess freight capacity is at the heart of this year's rate woes.

'Indications are that fleets were overbuying equipment throughout '98, and will continue that pattern into the first half of this year,' Brady relates. 'It's a sign of overconfidence. Fleets that have been making good money in the strong economy want to bring in more equipment to generate more revenue.'

But at some point, the bubble has to burst ' or at least lose some air. This may be that time. Brady predicts that both truckload and LTL carriers will try to increase utilization by taking market share away from other carriers. And that activity will have a dampening effect on rates.

He says Producer Price Index data shows that through October '98, LTL rates were up 6.4% and TL rates 1%, compared to the same period a year earlier. 'Given current conditions, LTL rates will not decline in '99, but will only rise by 2-3% at best,' Brady contends. The news is worse for TL fleets, which can expect rates to stay flat this year.

Also predicting the road ahead are rate increases announced by several major carriers. Back in October, Yellow Freight System brought its rates up by 5.5%, as did Overnite Transportation.

San Jose, Calif.-based Viking Freight plans to make a 5.8% rate hike effective January 4 on all intra- and interstate freight. According to Viking president Douglas Duncan, the increase will allow the carrier to keep up with operating costs and make investments to improve customer service.

The real question for many such LTL fleets in '99 will be how well rate jumps in the 5-6% neighborhood will go over with customers. Hikes above 2 or 3% may be a tough sell to shippers already used to price-shopping among similarly capable carriers that are willing to trade lowball rates for fewer empty miles.

But to be completely fair and correct, these freight customers are not merely acting as predatory opportunists. Rather, shippers are under greater pressure than ever to trim the cost of transportation related to manufacturing and distribution cycles.

'Shippers are shortening their supply chains to take costs out,' observes Brady. 'That in turn is causing fleets to tailor their service offerings.'

For example, as the price of communications technology falls, more fleets will be tempted to offer freight-tracking solutions. Such service enhancements, of course, are alluring to shippers bent on speeding up the movement of goods.

Despite the fact that fleets must respond to customer demands, there is the danger that shippers will come to regard tracking and other communications capabilities as just another cost of doing business that fleets must absorb.

Put another way, doing more for customers in a competitive market may not give carriers enough leverage to command higher rates.

The best advice: Test the waters so you don't end up treading them. Before taking the plunge, discuss with top shippers just how valuable these extra services would be to their bottom line.

Also, bear in mind the kinds of things that matter most to shippers. A recent study conducted by logistics provider C.H. Robinson Co. points up some perhaps obvious factors.

The top selection criteria for carriers is adequate equipment availability followed by consistent transit times, driver professionalism, and frequency of mechanical failure. In other words, these shippers are not after high-tech answers, but good old-fashioned freight service ' on time most every time.

To say the least, getting out of the rates-vs.-service squeeze play won't be easy. Some carriers may have little choice but to scale back the addition of new equipment ' or risk running far too many unprofitable miles.

But other fleets may slip the noose by wisely tapping service niches they've overlooked, or didn't regard as lucrative enough, before these tighter times rolled in.

Growing list of environmental rules will impact fleet decisions

Hard to understand. Hard to plan for. Hard to implement. Hard to contain. Hard to fight. Yet all too easy to get stuck with huge fines if you don't do it right.

We're talking about the growing list of environmental laws, regulations, and policies that will in large measure shape trucking's future. The operational headaches that accompany compliance are innumerable. Unfortunately for trucking, it's tough ' if not impossible ' to swim against the environmental tide of public opinion.

A case in point is the consent decree signed in October between the EPA and the heavy-duty engine manufacturers, in what was probably the most significant environmental policy development in 1998. The complaint alleges that the companies violated the Clean Air Act by selling heavy-duty diesel engines equipped with 'defeat devices' ' software that alters an engine's pollution control equipment under highway driving conditions.

The government was well aware of the testing protocol and had even blessed it. Nevertheless, it decided to draw a highly visible ' and political ' line in the sand. Truck engine builders could have fought the EPA's position but realized that even if they were successful in overturning the fed's arguments, they would lose in the court of public opinion. Engine manufacturers maintain that their products were in full compliance with the law, but that they settled to avoid lengthy and costly court trials. The complete settlement will cost the manufacturers over $1 billion, the largest settlement in the history of the Clean Air Act.

The good news for fleet owners is that the settlement does not include a recall, although when rebuilt, engines will need to be altered to meet tighter emissions restrictions. Going forward, new engines must comply with stricter testing and emissions standards, which may result in more frequent oil changes, altered durability, and a slight decrease in fuel economy.

Another highly visible and politically charged element of the environmental agenda is global warming. In November, the Clinton Administration put its 'John Hancock' on the Kyoto Protocol, a treaty that pledges to significantly reduce emissions of greenhouse gases to below 1990 levels over the next 10-15 years.

The transportation sector, which accounts for one-fourth of all energy consumption in the U.S., will unquestionably be a focus of new policies to reduce these emissions through fuel taxes or other similar measures. It's a complex debate of science, meteorology, diplomacy, and international politics, and will be the dominant environmental and energy policy issue for years to come.

The treaty has not been presented to the U.S. Senate for ratification and is not expected to be until the Clinton Administration is able to defuse some of the political land mines that exist on the road to ratification.

Truck-smoke testing is likely to continue as a regional issue, particularly in the Northeast. New Jersey began smoke-opacity testing last July, and New York plans to begin testing in June of 1999. Connecticut approved legislation last year giving teeth to this issue. Other states with pilot programs or plans to begin testing include Maryland, Vermont, Maine, Massachusetts, and Rhode Island.

In 1998, EPA officials finally endorsed a uniform approach for states seeking to conduct diesel-smoke inspections that focuses on the industry-developed SAE J1667 test procedure. This should help establish a uniform approach to diesel truck emissions testing, saving the industry from a wide variety of approaches.

Equally confusing is the status of the Clean Fuel Fleet Program. Because of the unavailability of clean-fuel vehicles, EPA delayed for one year rules requiring that 30% of light-duty vehicles (up to 8,500 lb. GVWR) and 50% of vehicles between 8,500 and 26,000 lb. GVWR must be certified as 'low emissions' vehicles in certain jurisdictions. In addition, more and more of the jurisdictions are opting out of the requirements altogether.

Look for increased inspections of your underground storage tanks in 1999, as states enforce EPA's December 22, 1998, deadline for upgrading, removing, or replacing pre-1988 underground storage tanks (USTs). Operators of non-compliant tanks can be fined up to $11,000 per tank per day after December 22. If you have any USTs that haven't been upgraded, you may want to consider temporary closure until you can take the appropriate action. For more information on federal upgrade requirements or temporary closure protocol, visit the EPA Web site at www.epa.gov/ OUST or call their toll-free hot line: 1-800-424-9346. For more information on state enforcement plans, you can view a 50-state survey conducted by the Petroleum Equipment Institute at www.pei.org/Forms/EPA/Index.htm.

A ban on underground injection control wells that receive motor vehicle maintenance waste is likely to be put in place in 1999. EPA has closed the comment period on the rulemaking and convened a panel under the Safe Drinking Water Act to work on implementation of the new rule when it becomes final. The agency intends to ban the wells in certain areas and possibly in entire states. This action would supersede any current permits or 'permit by rule' that wells are operating under.

The Multi-Sector General Permit (MSGP) has now replaced the Baseline General Permit as the new federal stormwater permit. All facilities should have been switched over to the MSGP by the first of the year.

There's a lot of confusion over the switch due to EPA's handling of the situation. It's very likely many facilities are still operating under the old permit without realizing their mistake.

Phase II of the Stormwater Program is due in March of this year. This part has the potential to lead to a host of permits issued by small municipalities in each state. Also, incorporated into Phase II is No-Exposure Certification, which will enable facility operators to drop industrial sites from the permit process if they can prove their stormwater is not exposed to any sources of contamination.

Mechanic ranks are thinning, but drivers still hardest to find

The thriving economy that's keeping business humming won't make it any easier to recruit or retain drivers or technicians this year.

Even the casual observer can't help but note the number of 'Help Wanted' signs now dotting the landscape. Thanks to the strong economy's extended stay, trucking is competing with nearly every business for skilled and non-skilled workers alike.

Since the traditional if painful cure for this condition ' recession ' is not on the horizon, innovation will continue to be the best medicine for most labor shortages.

Fleets that haven't done so already may have to explore alternative labor sources and other creative approaches to keep their driver's seats full and their trucks well-maintained.

You can run trucks with fewer or even no mechanics ' if you're willing to outsource maintenance and repair work to leasing companies, truck dealers, and other outside service providers.

No matter who covers the payroll, for the foreseeable future trucking will need the same absolute number of technicians. So, the cost of outsourcing could rise if providers must pay higher wages to secure enough maintenance personnel to support fleet demand for their services.

Driver picture On the other hand, you can't run trucks without drivers. No one's figured out how to outsource that function yet.

Driver recruitment and retention will stay a top concern for years to come. Consider that a recent Gallup survey indicates truck fleets will have to hire some 80,000 drivers each year through 2005. The study points out that 80% of those driver vacancies result from turnover. Attrition and industry growth account for the other 20% of the empty seats.

To be sure, finding enough drivers this year will literally mean leaving no stone unturned. But new things are happening. For example, a fresh public-private initiative with a twofold aim is under way.

The Dept. of Labor recently awarded a $1.2-million grant to the ATA Foundation expressly for retraining as truck drivers workers who have lost jobs in other fields.

According to Susan Coughlin, ATA Foundation director, the funds will contribute to a project launched by state trucking associations and job-training agencies in Pennsylvania and Tennessee to make certified truck-driver training available to about 200 displaced workers. The project's organizers hope it will also serve as a pilot for developing similar retraining programs in other states or regions.

Certainly, fleets could enhance their own driver-recruiting efforts by offering retraining courses in-house or at least by steering candidates to qualified driving schools.

Other creative solutions fleets are implementing include a move that embraces family values. Some sleeper-equipped carriers are encouraging 'ride-along' spouses to become drivers themselves so they can share driving duties ' and pay ' with their mates.

Yet one more approach that grew in popularity last year should remain hot. Many fleets are seeking to quell churning of the ranks by giving their best drivers opportunities to convert from employee to independent contractor status.

To entice these prospects, fleets often offer attractive lease/rent-to-own programs on new or late-model tractors as well as various degrees of back-office support to help ease the transition to self-employment. The idea, of course, is that with a stake in the business, these new owner-operators will be more likely to stick with a carrier over the long haul ' and perhaps even contribute more to its bottom line.

Among prominent carriers launching such a program is Chattanooga-based U.S. Xpress Enterprises, whose recent acquisition of PST Vans has already raised its contingent of owner-operators to nearly 500. According to co-chairman Patrick Quinn, the carrier will recruit independents with 'competitive' compensation, a group insurance program, free base plates and permits, ease-of-entry assistance, and emergency breakdown support.

'This new program speaks to the enthusiasm U.S. Xpress has about being a major player in this market,' points out co-chairman Max Fuller.

Among other features, each owner-operator coming into the program is assigned to support personnel at a geographically suitable terminal.

U.S. Xpress is also working to cast the widest net possible by awarding a recruiting bonus to anyone who successfully refers to them an independent prospect.

Freight carriers doing business in Mexico enjoy a sunny outlook

Despite continued currency fluctuations and stalled efforts to create simpler border crossing procedures, patience and perseverance have their rewards for U.S. carriers doing business in Mexico. Both truckload and less-than-truckload operations report strong freight volumes and rates for 1998, and most expect those conditions to carry through, if not improve a bit, this year.

'We're expecting more of what we had in 1998, which was an excellent year,' says Robert Carr, vp-international at Roadway Express Inc. The company began both domestic and international LTL service in Mexico in 1989 and has experienced double-digit growth annually since NAFTA first went into effect. On any given day Roadway's Mexican operation is currently handling 'a few hundred' trailers with international freight and a similar number in domestic service through five company terminals. A sixth terminal will be opened before the end of the first quarter, and it will probably be followed by a few more before the end of the year, according to Carr. The fleet's Guadalajara terminal will also be replaced with an entirely new facility later this year.

Another reason for the carrier's optimism going into 1999 is an agreement with two Mexican fleets to provide dedicated tractor service. Foreign companies are still barred from owning trucking operations in Mexico, but under contracts signed in November with Autotransportes Especializados GM Express SA de CV and Servicios Corporativos de Transporte SA de CV, Roadway now has scheduled service between its Mexican terminals. The two will put 24 tractors equipped with satellite communications into dedicated Roadway service, which will allow it to begin offering guaranteed on-time delivery to interior Mexico from the states.

'Our time critical service has been very successful in the states, and we opened it to Canada just six months ago,' Carr says. 'There are many major manufacturers (operating in Mexico) now, and they are looking for this kind of service.'

A 20% drop in the value of the peso over the last six months, coupled with relatively high inflation, might be expected to slow freight volumes, but that hasn't really happened, Carr points out. While managing domestic freight rates, which are paid in pesos, can be 'a delicate matter,' he says the weaker exchange rate is also attracting even more manufacturers to Mexico, which in turn is boosting northbound freight volumes into the U.S.

'At one time, southbound freight was four or five times heavier than northbound, but we're approaching a good balance now and expect to see that northbound freight levels pick up a bit more,' he says. 'There's just so much (business) activity in Mexico now. Everyone is looking to do business there and to locate there. We expect that momentum to carry through 1999.'

The view from the truckload side is just as rosy. Contract Freighters Inc. (CFI) and Celadon Trucking Services, the two largest carriers in the Mexico/U.S. trade, both see continued growth in traffic between the two countries despite some problems with the peso and inflation. And even smaller TL fleets that have worked patiently to build solid relationships with Mexican shippers and carriers are confident that 1999 will be at least as good for them as last year.

'Mexico is always hard to predict,' says Herb Schmidt, senior vice president of sales and marketing at CFI. 'But our carrier partners (in Mexico) are optimistic, and we see consistent growth there in 1999, probably more than we'll see domestically. If you look at the amount of infrastructure investment going on, the ball is rolling too fast to slow down.'

Currently, 59% of all freight handled by CFI, which is expected to have annual revenues of $270 million in 1998, has a Mexican origin or destination. Even before NAFTA was signed, the fleet made Mexico an integral part of its growth strategy and having survived some wild economic swings in that market, has developed a good perspective on growth and business opportunities there.

Two years ago, a drop in the peso's value sharply curtailed freight traffic. The current drop, however, hasn't had much effect on either import or export traffic, says Schmidt. 'We expected exports to go up and southbound traffic to go down, but that hasn't happened,' he says. 'I think what's happened is that 1998 was such a strong year of growth that businesses are strong enough to take the economic hiccups.'

A good example of that newfound stability is CFI's carrier partners. Despite a steep increase in fuel prices over the last six months, the Mexican fleets are continuing to purchase new equipment fitted with the latest wireless communications systems.

'I've visited 31 (Mexican) carrier facilities in the last four months, and I saw new equipment at all of them,' Schmidt says. Recent increases in productivity are one reason those fleets can continue investing, but Schmidt also believes that 'they've just learned how to deal with (the ups and downs in) their economy.'

Operating some 2,100 tractors in North America, Celadon says about 70% of its freight these days is headed to or from Mexico. With production now outstripping consumption within Mexico, CEO Steve Russell sees no reason why that international freight won't continue growing in 1999, especially northbound volumes.

Attracted by lower labor costs than the U.S. and concerned about instability in Asia, manufacturers are 'significantly expanding production (in Mexico) of everything from portable telephonesto jeans and auto parts,' Russell says. 'The decline in oil prices is putting some pressure on the government's budget, but on the positive side, they've almost solved the banking problem.

'We're expecting to see continued growth in trade with northbound freight growing faster than southbound, but still maintaining a reasonable balance,' he predicts.

As a relatively small player in the NAFTA trade, Evergreen Transportation usually has only about 80 trailers in Mexico at any time. 'Our Mexican operations account for about 20 to 22% of our van freight revenue,' says company president Pat Poole. But these days it also continues to increase steadily, even when economic conditions suggest otherwise. 'We saw an increase in business in 1998, and we expect to stay at the same level or see a small increase in 1999,' he says.

The most recent drop in the peso had a small effect on freight balance, with southbound traffic and rates decreasing a bit. 'But not as much as we thought,' says Poole.

The key to succeeding in Mexico is patience, according to the truckload carrier. 'We've been moving freight into and out of Mexico for eight years now. It's not like moving freight from Birmingham to Dallas. But if you're patient and prove yourself, the shippers stick with you through all the ups and downs.

'Of course, it helps to speak Spanish,' he adds.

Tackle safety preparedness now to keep house in order

The beginning of the New Year is always a good time to make sure that your 'safety house' is in order.

Start by getting a copy of your fleet's latest safety profile from Computing Technologies at 800-832-5660. It's important to verify any information pertaining to crashes you may have been involved in. Check to see whether there are any discrepancies between the government report and your records, making sure any inaccurate information is rectified. Also ensure that the inspection information is correct. Remember that even inaccurate information can be used against you.

Now's the time to review all of your driver records, making sure that medical qualifications are up to date and that each driver has a valid CDL for the type of equipment they're driving. Since driver records must be reviewed annually, now's the time to do it. The driver qualification file must contain a note with the date and name of the person who performed the review.

Should your review turn up a driver with the type of violations that would prohibit them from operating a commercial vehicle, you must resolve the matter immediately. A disqualified driver is not even allowed to drive for the purpose of completing a trip or returning to the home terminal. Failure to remove a driver from service as soon as you are aware of a violation can result in penalties ranging from $10,000 fines to a carrier shutdown notice.

Next on the list is making sure your accident register is up to date. The requirements for compliance can be found in the Federal Motor Carrier Safety Regulations (FMCSR), part 390.15. The following information must be included for each accident: date, location, driver's name, number of injuries, number of fatalities, and whether hazardous materials were released. The register must contain the required information for one year after an accident occurs.

January is also the time of year that the Federal Highway Administration (FHWA) may ask you to report the annual summary information for your fleet's controlled substances and alcohol use testing program. (Requirements are found in FMCSR, part 382.403.) To meet the FHWA's requirements, it's important to keep detailed records throughout the year. Whether you keep these records yourself or contract with an outside service, your fleet is responsible for the accuracy of the information and for getting it to the FHWA on time.

Next on the safety 'to do' list is a review of last year's roadside inspection reports. According to the FHWA, 25.1% of vehicles inspected in 1997 were placed out of service. If you think this figure sounds high, remember that inspectors generally select vehicles for inspection based on what looks and sounds bad. If your fleet's out-of-service rate is anywhere near this national average, you should examine inspection reports to determine whether there is a pattern of violations. If it appears that vehicles are being placed out of service for brake problems (the number one violation), you should think about changing your maintenance procedures. Use inspection reports as a tool to make improvements in your safety and maintenance programs.

In addition, here are some positive steps you can take to improve your safety program:

* Review the latest edition of the Federal Motor Carrier Safety Regulations, focusing on areas where your fleet is receiving violations. Since the regulations are constantly changing, it's important to look them over on a regular basis.

* Increase the number of safety meetings you have with drivers and other fleet personnel; the benefits far outweigh the costs.

* Attend a safety meeting held by your state trucking association or a national trade association this year ' and don't be afraid to ask questions.

Most important of all, resolve to do everything you can to make the trucking industry safer.

Expect to see more OEMs offering advanced safety devices ' such as airbags and collision-warning systems-on more trucks as optional or even standard equipment.

Speaking on SAE's annual Blue Ribbon panel, Jim Hebe, president and CEO of Freightliner Corp., detailed some of the safety devices coming down the pike.

He described several developments that will 'debut shortly' on Freightliner trucks. Chief among these is the Eaton VORAD EVT-300, a 'next-generation' collision-warning system with optional SmartCruise control, which Hebe said 'maintains fixed headway to the vehicle in front.'

He also pointed out that the company's testing has proved 'the minimal impact of a rollover' when the OEM's SPACE occupant-protection system and driver-side airbag are combined with a side airbag.

'So,' he stated, 'you can expect us to add side airbags soon.' Also in the works, according to Hebe, is a system that warns of impending rollover conditions and another that warns drivers of drowsiness.

Safety equipment is also getting special attention by other major OEMs. For example, driver's side airbag systems will be marketed more heavily in '99.

Last fall, Volvo Trucks North America (VTNA) said it will make a driver's-side SRS airbag standard on all VN Series truck models ordered after January 1st. The OEM has offered the airbag optionally on VN trucks since 1996.

According to Volvo testing, having a driver's-side airbag installed with a three-point safety belt can reduce injuries by 20%, compared to belted drivers unprotected by an airbag.

'Knowing that drivers have survived highway accidents ' and in many cases, walked away uninjured ' reinforces our commitment to develop methods and invest in technology to discover new ways to ensure drivers are as safe as possible,' points out Marc Gustafson, VTNA president and CEO.

Just last month, Kenworth Truck Co. announced a driver's-side airbag will be available on its flagship T2000 model. The OEM's three-point seat belt and deformable steering wheel work in concert with the airbag.

The airbag can also be spec'd with Kenworth's SmartWheel steering column, which provides 'fingertip control' of such functions as cruise control and engine braking.

'We've run numerous reliability tests on the airbag at our Technical Center and other facilities,' reports KW chief engineer Jim Bechtold. 'We are very confident in its performance.'

Also getting the nod from many OEMs this year is the newest version of the Eaton VORAD collision-warning system, the EVT-300, the only active safety device of its kind in the world.

As noted, Freightliner is now offering the EVT-300 on its Century Class trucks and will add it to its Argosy cabover in February. Mack will provide it, starting in February, on its CH conventional and on the new highway model it is expected to announce soon. Volvo is beginning to offer the system on its VN Series models this month, as is Western Star.

Beginning in April, these OEMs will also be able to offer the EVT-300's SmartCruise option. According to Don Purtill, vice president and director of sales, marketing and service for Eaton VORAD Technologies, this will be the first production launch ever of an 'adaptive' cruise-control system.

'With this option,' Purtill explains, 'the truck can operate in cruise mode for longer periods of time. Once set, SmartCruise will keep the truck at the set speed until traffic slows it down. After the road clears, it will take the truck back up to the preset speed.'

He points out that the base EVT-300 system is improved over its predecessor. 'There are fewer nuisance alerts set off and the system reacts more quickly,' Purtill points out. 'In addition, the side and forward sensors can now more accurately determine where the truck is located in a traffic lane.'

Purtill reports that another optional feature will be added this year that will allow fleets to receive, via a Qualcomm communications system, selected safety data pulled off the EVT-300, such as incidences of following other vehicles too closely or hard braking.

Internet gives trucking affordable link to the supply chain

It's hard to think about supply chain logistics without also thinking about information technology. The supply chain just isn't very efficient without advanced information systems. However, such high technology comes with a high price tag. And that means many small and midsize fleets are shut out of ever-growing amounts of freight moving through various supply chains because they don't have the capital to make investments in such technology. In fact, even many larger fleets have found it necessary to align themselves with third-party logistics providers due to the cost and complexity of the required technology.

In a study of shippers completed last summer, approximately one-third said they already rely on third-party logistics suppliers for information systems to monitor shipments, manage distribution center operations, select and route carriers, receive and pay bills, and monitor carrier performance. Adding shippers that expect to receive those information services from their providers in the near future pushes the figure to 50% or more for each of those five areas.

Conducted by the University of Tennessee, Ernst & Young, and the third-party provider Exel Logistics America, the study concluded that use of third-party logistics is growing among major industries, and 'information technology is being viewed as a key to the success of third-party operations . . . Customers are relying increasingly on their third party logistics service providers for provision of information-based services.'

As for the future, the study found that 'respondents . . . emphasize the need for additional information-based capabilities as part of the menu of strategic choices which are available from third-party logistics supplier firms.'

Whether the supply chain is managed by third parties or internal logistics operations, both for-hire and in-house fleets are being asked to provide much of the information that drives those key systems, most often through electronic data interchange (EDI) of shipment status, invoice, and other freight documents. For small carriers, the cost of acquiring the needed software and communications capability for such electronic commerce has been beyond their means. And even larger fleets have found it almost impossible to recoup those costs with rate increases.

After years of speculation, however, it looks like 1999 will bring a major shift in that cost/benefit equation, a shift that should put even the smallest carriers at least on the same playing field as their larger competitors. In 1999, according to a wide number of observers, the Internet will finally begin to make serious inroads in electronic commerce, and that means affordable access to EDI and other logistics information services for even the smallest fleet.

According to statistics gathered by the American Trucking Assns.' Information Technology and Logistics Council, expenditures for EDI transactions over the Internet will rise from $48.9 million last year to $71 million this year and $117 million by 2001. For the five-year 1997 to 2001 period, Internet EDI expenditures are predicted to grow 63.8%, compared to 13.9% for EDI transactions over the traditional network services.

Electronic commerce file transfers over the Internet, which can contain EDI as well as other electronic trade documents, will grow 44.3% over that same five-year span, compared to just 0.6% for file transfers over other electronic channels.

There are two reasons for that growth, according to Jeff Hill, vice president of sales and marketing for TranSettlements Network Services, one of the major providers of electronic commerce communications services.

The first is that the Internet makes it much easier to communicate electronically because it provides nearly universal protocols and nearly universal access. With private networks like those built by TranSettlements, all parties had to agree on one of any number of communications protocols and invest in expensive network hardware. With the Internet, TCP/IP protocols are a well understood standard and access can be as inexpensive as a modem and telephone line.

The second reason for this e-commerce shift to the Internet is that it makes developing and maintaining software applications much simpler. 'Anyone with a browser and Internet access can use the software,' says Hill. 'And when you need to update it, you don't have to worry about getting that update out to all the users because the application resides on one server.'

The end result is a far lower cost of entry for electronic commerce. For example, TranSettlements has a new service that allows a fleet to fill out a form at a Web site and then transmit that form to a shipper as an EDI document. Instead of investing $2,000 to $3,000 just for EDI software, a fleet can pay $50 a month to create and transmit 50 EDI documents.

Given the cost and operational advantages, other supply chain service providers are also rushing to move their information exchange onto the Internet. For fleets, which often feel like they bear all the costs and reap few of the rewards from logistics, that move should provide a welcome opening into the age of electronic commerce.

Competitive pressures help defuse truck mergers

Each week in 1998 seemed to bring the announcement of a mega-merger in a different industry. There was one very notable exception: trucking. Will 1999 be a different story for motor carriers? Or is there something about the industry that will keep the marriage brokers at bay?

Certainly the answer is not that the big motor carriers are already too dominant. Outside of the package business, there are probably no significant trucking segments in which competition is narrow enough to raise regulators' hackles. In any case, many of the pairings now occurring in other industries would formerly have been considered unthinkable because the companies were so big that antitrust regulators would surely intervene. But a global economy has a way of making even the biggest banks, automakers, or oil companies look like they are at the mercy of the market rather than the master of it.

Besides, some markets, such as the once tightly limited intrastate trucking markets, are actually less concentrated than they were a few years ago. Other segments that appear to have become more concentrated, such as nationwide less-than-truckload (LTL) carriage, have in fact been redefined. There may only be an amputated handful of national LTL carriers left, but few if any shippers find that a handicap. Their shipping choices have multiplied, thanks to ever-expanding regional and 'super-regional' LTLs, package carriers willing to haul more and charge less than they once did, and truckload carriers providing multistop service that resembles LTL.

Some of the action in the merger world is coming from companies that can swap their fast-rising stock for the target company's stock, or can raise funds readily by issuing more. That doesn't describe most trucking companies: Recently, the Dow Jones trucking index was 8% below its year-ago level, while the better-known industrial average was up 11%.

But why should trucking stocks be downshifting when others remain in overdrive? After all, the economy is still expanding, LTL rates (as measured by the producer price index) are far outstripping inflation, and fuel costs ' the biggest operating expense after labor 'are practically evaporating. Either trucking stocks are simply out of fashion, or the market believes that capacity will soon overtake demand. That would leave many carriers looking for ways to sell rigs, not buy another fleet of them.

Fashion may indeed be part of the answer. Big, lumbering trucks and their owners ' both little changed to an untutored eye ' look nothing like the glamorous e-commerce stocks that are so hot today. Perhaps the market thinks e-commerce will make goods carriage less necessary, dampening demand for trucking services.

But unlike retailers, wholesalers, and manufacturers, which may each be threatened in varying degrees by the trendy new 'virtual vendors,' trucking as an industry should not be a loser from Internet-based commerce. In fact, the more that people buy books and other goods from remote sites rather than walking into a store and carrying them home themselves, the more truck shipments they may generate. So maybe the next mega-merger in trucking will come not from another carrier but an electronic vendor.

Amazon.truck, anyone?