When the Port of Long Beach approved a landmark truck replacement program last week with a key change sought by motor carriers, Great Freight Inc. got a new lease on life literally.
President Michael Lightman was readying to shutter the trucking company if the port had required that his 45 contract drivers be hired as employees a proposal the port had flirted with but ultimately rejected.
The requirement would have likely bankrupted the Long Beach company, but now Lightman is looking forward to reviving a business that has been on cruise control for almost a year.
"I was prepared to close down," he said. "Now, I can renew my lease, I can make some capital improvements knowing that I will be able to stay in business."
With the Feb. 19 decision by the Board of Harbor Commissioners to move ahead with a clean air program that will replace thousands of short haul trucks serving the port but allow the current system of truck owner-operators to continue motor carriers breathed a sigh of relief.
Many have begun negotiating renewed leases for their facilities, contacting customers to set transportation rates and making tentative arrangements to transition to cleaner fleets after months of uncertainty.
But there is still an air of caution throughout the industry as even the most optimistic companies acknowledge that the plan faces hurdles from Long Beach's sister port in Los Angeles and could change drastically before its October start date.
Both ports have agreed that the current fleet of older dirty diesel trucks that ferry cargo to local warehouses needs to be replaced, but Los Angeles is still backing a proposal that would require motor carriers to hire the contract drivers which total more than 16,000 at both ports.
Still, last week's decision was the first good news in months for many.
"I think it's a win," said Kevin Dukesherer, director of Progressive Transportation Services Inc., a Bell-based motor carrier with about 200 trucks in California.
Lightman has not made any investments in his facilities since last May, after proposals for an employee-based truck program put his company's future viability in doubt, he said.
Lightman, like many of the estimated 1,000 motor carriers that serve the ports, is attempting to negotiate transportation rates with customers and renew leases for his facilities in preparation for the impending truck program.
And should the Los Angeles port decide to retain its proposed employee trucker provision, Lightman said he is planning to make a go of it by only servicing the Long Beach port. He's also expecting that costs will rise no matter what.
"I think it's too involved to be smooth, during the transition I think there's going to be some hiccups," Lightman said.
Indeed, motor carriers will incur a number of new expenses, including an annual truck fee and higher driver pay.
A recent study by economist John Husing suggested driver pay will need to nearly double in order to allow drivers to make the truck payments on the newer models. Currently, many port drivers get by on pay that averages $12 per hour.
"The pay of drivers is going to probably end up in the $20-an-hour range no matter what you do," he said.
According to the Long Beach port, drivers will incur a monthly lease payment between $500 and $700. The port plans to help out by funding up to 80 percent of the purchase of a new truck, which averages $95,000 for a clean diesel rig and $137,000 for a vehicle that runs on alternative fuel. The port plans to offer three financing options: lease-to-own, grants for purchase and grants for retrofit.
However, higher driver pay and costs, as well as a new annual fee of $100 per truck that carriers will have to fork over to the port, will push motor carrier costs up nearly 50 percent, according to a port-commissioned study.
"That's very expensive," said Brian Griley, president of Rancho Dominguez-based Southern Counties Express Inc. Griley currently runs a fleet of 160 trucks and has another 71 on order.
As a result, transportation rates will likely rise and a number of small motor carriers probably will not survive, leading to consolidation in the industry.
"I suspect there's going to be some smaller carriers that don't have the financial savvy to buy new trucks," Griley said. "Maybe someone like ourselves might want to gobble them up."
There is another problem. While the new costs will lead to higher transportation rates paid by customers, including retailers and other warehouse users, establishing those rates may not be easy.
Ron Guss, president of Pico Rivera-based Intermodal West Inc., said the problems will come in the early stages when some motor carriers try to charge higher rates, while others stand still.
"Who wants to be the first one in the pool when there's five sharks in there?" he asked. "It's going to be a total mess. Without a rate matrix, there's going to be a lot of people underpricing or overpricing."
Perhaps the biggest uncertainty is that despite Long Beach's OK, the plan is not yet finalized.
Commission President Mario Cordero called the plan "a living document" and said there is still work to be done before the program begins in October.
"What we have before us is a start," he said last week before voting in favor of the plan.
The neighboring ports have previously said they would approve identical plans, since many truckers serve both ports interchangeably. But the Port of Los Angeles, with the strong support of Mayor Antonio Villaraigosa, a former union organizer, still backs an employee model, which is expected to lead to union drivers.
Los Angeles officials released a statement saying they are "committed to continuing to work with the Port of Long Beach on the Clean Trucks Program," but declined to comment further.
Industry observers believe the Port of Los Angeles may yet pass an employee model, and the smaller Long Beach port may be forced to go along. This uncertainty has some companies on edge.
Clem Cleri, vice president of Compton-based PDS Trucking Inc., said since the program is not finalized, he is not yet making accommodations for a plan that could change.
"This isn't an ultimate plan," he said. "The decisions keep coming and the changes keep coming. This is a very unsettling time in this industry."
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