Christmas Tree Arrives At Alamo Plaza

Freight brokers coping with rising fuel-price blowback

San Antonio Business Journal - by Donna J. Tuttle

Skyrocketing fuel prices and the weak U.S. dollar are creating unanticipated new opportunities and challenges for local freight brokers and forwarders.
Since the cost of diesel fuel has risen 135 percent in the past year, these shipping intermediaries are watching customer loyalty erode as local manufacturers and importers struggle to find cheaper transportation for their goods.
"Because of the escalating fuel prices, manufacturers and shippers are breaking out of their routine because they're being forced to look for more competitive pricing," says Mel Eardley, owner of America Transport Systems (ATS), a San Antonio freight forwarding company with 14 employees. "Some of the loyalties built on customer relations are bending a little. We're also getting calls from completely new customers, too."
Freight forwarders are third-party logistics companies, also known as "3PLs," that negotiate shipping arrangements and prices. They are the middlemen between two types of customers: those shipping goods and those who own and operate road, marine or air vehicles.
For example, if a local business needs to ship products to Buffalo, N.Y., a freight broker shops huge international databases for trucks and airlines that frequent that San Antonio-to-Buffalo "lane" for the best price and then coordinates the pickup and delivery of the goods.
In addition, the freight broker arranges for these same trucking and airline companies to refill their vehicles with cargo for the return trip.
Forwarders charge their customers a percentage of the cost of the total transaction, which is based on existing fuel prices and a variety of other factors, including the type of transportation, distance and delivery complexity.
So when fuel prices rise, these forwarders pass the cost on to their customers in the form of carrier fuel surcharges, calculated by using fuel indexes. These flat-fee surcharges have risen 11.5 percentage points in the last six months from 18.5 percent in November to about 30 percent today.
So, a $10,000 shipment in November that yielded a $1,850 surcharge would now have $3,000 tacked on to the price. Customers are not happy, but freight forwarders hands' are tied.
"We're in a very competitive business, and it is very difficult to retain customer loyalty when prices are an issue," says Oscar Garcia, president and CEO of Global Highways Inc., a San Antonio freight-forwarding company with five employees. "On the flip side, we're getting calls from customers who have never contacted us before. They're shopping around now purely for price."
Pamela Grzonka, a San Antonio branch manager for the four-employee broker and freight-forwarder Pioneer International -- Texas, concurs.
"I can't say people are happy about it (the surcharge). I get a lot of complaining about it.
"But if they've got to move their freight, they've got to move their freight," she says. "I feel bad. But the price of fuel gets passed on to everyone. I've got to feed a family, too."

Exports flourishing

While these fuel surcharges are most burdensome to companies shipping domestically and local importers, they are not affecting exporters. Thanks to the weakened U.S. dollar, exports are soaring.
"The dollar is so low that exports are booming," Grzonka says. "Europe is paying for the freight because they're getting more for their dollar.
"Inbound is where it's hurting," she adds. "Outbound, the space is at a premium. You can't even get immediate space ... some of the steamship lines out of Houston don't even have equipment because the vessels are full and there is an imbalance of trade."
On the other hand, importers and domestic shippers are being double-whammied by both the fuel surcharges and tight truck space. The reason: Rising fuel prices are hurting trucking companies nationally and regionally.
The American Trucking Associations recently testified before Congress that the increase in the price of diesel, which has coincided with a downturn in the economy, is threatening to put some smaller trucking companies out of business.
In San Antonio, some freight brokers say space is at a premium for trucks because the city's freight traffic is not as robust as cities like Houston or Dallas.
"I'm having more difficulty trying to find trucks to come here to San Antonio," Garcia with Global Highways says. "Traditionally, there is a lot less freight in San Antonio, so when a carrier is bringing us something from Ohio or Illinois, they need more money because there's a chance they might not have any freight going back -- or that they'll take on a lower-paying load going back. It's all supply and demand, and we're in the middle of it."
ATS' Eardley says he sees a lot of small trucking companies struggling.
"Some of these smaller guys don't adjust their prices. They aren't attuned to their overhead, so they don't know when to say 'No' to a shipment. They need the cash flow, so they take the job at a reduced rate, and that's where they make the mistake. They start operating in the negative, and they don't even know it."

Job satisfaction

Despite the willingness of some shippers to shop forwarders on price alone, there are some customers who pledge their eternal loyalty. Steve Coben, owner and president of San Antonio Circular, a mail advertising company, says he owes his business to Eardley and ATS.
Coben sends out 415,000 advertising direct-mail pieces via U.S. mail. He has about 70 clients, ranging from Rooms To Go to Little Caesar's. When Coben first got started in 2002, he used the U.S. Postal Service's transportation services to pick up the circulars from Houston and get pallets delivered to the post office on time.
On his third-ever delivery, the trucks were late and a big automotive dealer ("Who I won't name," Coben says,) didn't receive the dealership's Memorial Day circular advertisement until Tuesday, the day after Memorial Day.
"I've never, ever, ever gotten that business back," Coben adds.
Around the same time, Coben met Eardley and ATS has handled San Antonio Circular's freight needs ever since.
"I owe my business to Mel (Eardley), really," Coben says. "He finds the trucks for me, gets my product loaded, delivered, and unloaded -- always on time. If there's a problem, he fixes it immediately, and sometimes I never even know there was a problem until weeks later."
Coben says the fuel surcharges are onerous and that his transportation and printing costs have risen, almost doubled, but he knows that to get good service, you've got to pay for it.
Indeed, for freight forwarders like Eardley and Pioneer's Grzonka, it's the adrenaline rush of negotiating and coordinating deals and the satisfaction of following through that keeps them in the business even during stressful times.
Eardley recalls one of his biggest nightmares played out when a carrier "bit off more than they could chew" and couldn't get 175,000 pounds of heavy equipment moved into Florida.
"We had to get cranes from Alabama delivered to unload this equipment on the side of the road -- at my expense. They left us holding the bag, and I had to take a $20,000 hickey to make sure my customer got his product delivered, "Eardley says. "Even though that was difficult, I take pride in following through.
"It's got to be a win-win-win," he adds. "The shipper's got to be happy, the carrier has to be happy and we have to be happy."
Grzonka has had similar challenges. She once had a shipment of wooden doors from Lithuania that was trans-shipped through England and then to Houston. The container went through an agricultural inspection in Houston and was resealed. When the shipment arrived at the customer's door, it was empty.
"Turns out the doors were offloaded in England due to some restrictions, but no one alerted us along the way. There is a lot of stuff that is just out of our control," Grzonka says. "That's why I keep a voodoo doll, a crucifix and a magic wand on hand. You do your best, but sometimes you need a little luck ... or something else."