Increasing costs for bulk trucking carriers are expected to outweigh low capacity and hit bulk transportation rates hard in 2003. Bulk trucking carriers continue to report overcapacity in most markets despite the 2001 failure of chemical bulk hauler Matlack, but see little to no room for price reductions in the current economy, which continues to claim more carriers as victims.

"Eventually, the attrition in the market will create more capacity than carriers and you will see prices go up," says Bryan DeWolfe, vice president of operations at Bulk Transit Corp., an Ohio-based dry bulk hauler. "All of our costs are going up. Insurance companies are increasing both health and liability premiums. Fuel will stay high this winter. Maintenance is going up. And the new emissions regulations on engines come into effect next year and that will increase cost of trucks. Rates will have to come up at some point."

Carriers say the higher costs and lower margins in the bulk market make it more difficult to offer discounts than in other modes and the limited (and some say declining) number of bulk carriers provides less competitive incentive for discounts and more reasons for rate hikes in 2003. So shippers are looking everywhere for ways to reduce costs.

"Shippers want to reduce cost, but they equate that to a reduction in rates," says Jim D'Alessio, vice president of marketing and business development at Canadian bulk trucker Trimac. "There are a lot of ways to reduce costs and most have nothing to do with reducing line-haul price. Too many shippers feel that beating up the carrier over price is their job. We should be focusing on discussing different load times and having more flexibility to create efficiency. If you fix that, you will drive cost out, but we don't do that in this industry. We could drive cost out of the supply chain if we could get the customer and the customer's customer to just think a little bit differently."

Flexibility by shippers in receiving shipments could help improve carrier efficiency and keep costs down across the board. Both DeWolfe and D'Alessio say too many companies may be in the habit of receiving weekly bulk shipments at 8 a.m., Monday morning simply because of habit or convenience. The chemical industry is notorious for this practice, because outbound chemical shippers do not want to increase the demands on their customers, fearing they may lose the business in the competitive commodity chemicals market. But being more open to receiving the inbound shipment over the weekend or later on Monday could let the carrier build other stops into its schedule. This result is improved efficiency for the carrier and savings for shippers.

"And in that situation, the carrier is left holding the bag, quite literally over the weekend," D'Alessio says. "As an industry, we have to get better at this."

The information technologies that are working to streamline other modes of transportation are not showing up in the bulk market yet. Bulk carriers admit to being more set in their ways and resisting dramatic changes in the way they and their customers do business more than other modes. Jim Cordock, CEO at bulk-focused third-party logistics provider [3PL] Bulk Connection of Mystic, Conn., says his firm has actually won business by marketing itself as less tech-savvy than some competitors, saying bulk shippers are often intimidated by tech-heavy 3PLs which force them to change the way they do business.

"In bulk, we have to be more hands-on and there are more factors that don't lend themselves to computerization," he says.

For its part, Trimac has invested $17 million into a new operating platform for the bulk industry, but D'Alessio says the company is having trouble recouping its investment from shippers, who expect that type of technology to come as a free value-add.

There are some other longstanding issues at play in this market affecting carrier costs and shipper rates. The driver shortage issue is nothing new to the trucking industry, but bulk carriers say it is at its worst right now and is directly affecting costs. Because bulk requires specialized trucks and drivers to handle chemicals and liquids, there are fewer new drivers coming into bulk as compared to LTL and other modes. Fewer drivers means less efficiency for carriers and higher costs for shippers.

Carriers suggest one solution to the driver shortage is creating tax credits for carriers to build driver forces. Carriers say the lack of drivers slows the entire economy, so all shippers and manufacturers should lobby Capitol Hill for tax credits. Shippers, however, have trouble seeing the direct correlation between tax credits for carriers and the rates they pay.

The specialization and lower margins in the bulk market have also limited the number of start-up firms entering the market after deregulation and continue to discourage entrance by new firms.

Bulk trucking carriers say the insurance crunch is hitting them as hard or harder than the rest of the trucking industry and more are considering passing costs to shippers in the form of insurance surcharges, as they have with fuel costs. The difference is that insurance rates are less likely to decline and the surcharge could become more of a permanent factor. As many carriers' insurance policies are renewed in the first quarter, shippers will see rates trend upward as carriers are faced with decisions on how to handle their spiraling costs.

"[Carriers] have three choices [when their insurance premiums increase dramatically]," says D'Alessio. "Get out of the business, absorb the costs themselves or deteriorate their insurance coverage in either overall coverage or their deductible, which is a ticket on the Titanic. The first time there is a catastrophe, the carrier does not have the coverage to withstand the incident and the shippers are in trouble." Cordock says one carrier he works with put its insurance renewal out for bid to 10 insurance providers and only two sent back bids. The other eight refused to even write the policy.