An 18-Wheeler's Load of Woe

Fuel prices, retaining drivers, growing regulatory burdens -- Schneider National's Christopher Lofgren lays out the industry's challenges

It's hard work being a long-haul truck driver. You can be on the highway for up to 11 hours at a stretch and put in another three hours a day loading or unloading your truck. And you better opt for a generous calling plan from your mobile-phone carrier -- it could be weeks before you get back home again.

To hear Christopher Lofgren tell it, it's not all that easy being a long-haul trucking employer, either. Lofgren, 46, is president and CEO of Schneider National. Every one of his top three expenses -- wages, fuel, and equipment -- costs more today than just a few months ago, and he sees more increases ahead. "The industry," says Lofgren, "is really being burdened with significant inflation."

The only relief is that he's able to pass much of that burden along to Schneider's customers. Sure, many of his clients are giants used to dictating their terms, including Wal-Mart (WMT ), Procter & Gamble (PG ), and Detroit's Big Three. But with the entire trucking industry running essentially at capacity, there's almost nowhere else they can go.

Besides, Schneider has size on its side, too. The Green Bay (Wis.)-based carrier is No. 1 in the so-called truckload sector -- these are outfits that haul a full trailer of goods in a single shipment -- with 40,000 trailers, 15,300 drivers, 14,000 rigs, and $3.2 billion in annual revenue.

Lofgren, who has a doctorate in industrial and systems engineering from the Georgia Institute of Technology, came to Schneider from Symantec (SYMC ) in 1994. He moved up to the top job in 2002, succeeding Donald Schneider, son of the company's founder, to become the first outsider to run the family-owned operation. Recently, Lofgren talked with BusinessWeek Senior Correspondent Michael Arndt. Edited excerpts of their conversation follows:

Q: What are the big issues facing you today?


We've all seen what's happening with fuel. This year, fuel is up 30 cents a gallon, and we're up 60 cents a gallon year over year. But while it's up significantly, it's one of these things that is recoverable. Everyone in the industry today has a fuel surcharge (see BW Online, 4/28/05, "The Pain of Fuel Surcharge Shock"). But you don't recover 100%. Basically, what defines your ability to recover your fuel costs is how many empty miles you run. If you're driving between dropping off one load and picking up another, you don't get to bill those miles.

Q: So you can pass most of you fuel costs through, but somebody has to foot the bill, and it's the people you're hauling goods for.


Exactly. In the end, it's going to show up in the price of goods that people purchase, because that's the end of the supply chain. Fact is, fuel is an inflationary mechanism, even if there isn't a petroleum product in the thing we are purchasing.

Q: That's only one increase that you've just swallowed.


Starting in 2007, diesel engines will have to meet tighter EPA emissions standards. These standards were tightened in 2003, and it drove a lot of cost into the industry -- roughly $15,000 over the six-year life of a vehicle. The purchase price increased because the engine became more complex. There was a mileage inefficiency -- I'd say average miles per gallon decreased 3% to 5%. And then there are increased maintenance costs. Heat in the engine is much higher because you're reburning a portion of the exhaust to lower emissions, and heat tends to break things down.

Q: Do you expect to take a similar hit in 2007?


Absolutely. Before the 2003 engine came out, we went to the [Environmental Protection Agency] and said their cost estimates were way, way off. They said you don't know what you're talking about. They said it would be about $800. In any business, if you were off 15 to 20 times your projections, you probably wouldn't have that job very long.

Q: And labor? Back in February, the company raised pay by $3,000, or 5.5%, to attract and retain drivers. Has that worked?


This is a real challenging problem for everybody in the industry. The industry average for turnover in the long-haul market is over 100%. We've always done better than that. Since we increased wages, we netted up 350 drivers to our driver force this year. We're a little ahead of plan. And we have seen a 15% reduction in turnover.

The issue is, what are you going to have to pay labor to attract the capacity you need to execute the flow of goods? There's probably another 15% to 20% increase that we're going to have to put out there in order to make people hang in there and make this a profession that is a little bit less nomadic.

As in any industry, you get pressure back from your customers who aren't wildly enthusiastic about you coming and saying it's now going to cost more. But you've got to have drivers. Nobody's figured out how to drive a truck without drivers.

Q: Have you ever driven one of your big rigs?


Only in our training facility. But I have ridden with drivers and unloaded a truck with a driver. Do I like driving? I like driving. But a lot of my travel today is by plane, like most people.

Q: After Sept. 11, have new security procedures slowed border crossings?


Immediately afterward, crossing borders in Canada was much more inefficient. Now with preclearing loads electronically, that's improved. That's a pretty good model. But there are concerns. Some people want to go to a model of 100% inspection. If we did that, the cost would be phenomenal. If we were to add one hour of waiting time to each border crossing to Canada, that would mean about $750 million to the truckload industry.

We're more challenged on the time crossing borders in Mexico. It could be an hour, but it could be a day. That's waste. We have to be very careful to figure out how we create a safe country, while not imposing things that have ramifications on productivity.

Q: What do you do in your free time? I imagine that being in Green Bay, you go to all the Packers home games.


I don't have season tickets. I've worked in Green Bay only a little over 10 years, and the waiting list is 30 years. I like to work, and I work a lot. I like to golf. And I love to salt-water fly fish. I manage to get down there maybe once or twice a year. My father taught me very young how to fly fish. It's a skill you can always work on.

Q: Since you now live on the biggest body of fresh water in the world, maybe it's time for a new sport. How about ice fishing?


Dropping a line down, there are lots of people who love it, but not me. I don't think I could sit still that long.

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