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Rocky roads ahead.

Listening to truckers talk about developments in their industry over the last few years invites a comparison to basketball. It's a fast-paced game that frequently changes pace. As the competition wears on, a few major players emerge to dominate. Although everyone is governed by the same rules, the drive to win makes for hard play and sometimes hard feelings. You still have your bumps, bruises and bad calls by the referee. Then it's step up to the free throw line, and let's get this ball back into play.

This sporting analogy begins to break down when truckers talk about their competition with the Alaska Railroad Corp (ARR).

Spurred by its own economic imperatives -- which includes avoiding the need for public subsidies -- the state-owned ARR has announced plans that threaten an uneasy truce with the trucking industry. The rail and trucking industries actually do a lot of business together, and truckers collectively are sometimes referred to as ARR's third largest customer, after petroleum and coal shippers.

Now, however, the railroad is assuming all risk and responsibility for Alaska Hydrotrain, the Crowley Maritime rail barge service originating in Seattle. Crowley will continue to run the vessels, but ARR will do all the marketing, management and customer service.

Head-On Battle

According to railroad officials, the new service arrangement will eliminate duplication of marketing, sales and administrative services previously provided by both companies, giving customers a single point of contact. A new ARR division called Alaska Rail-Marine Services will run the 32-year-old service and maintain the same 10-day schedule for the Seattle-Whittier run.

Spokesmen for a number of trucking firms say Crowley was losing money hauling the 3,000 to 4,000 truck trailers that will now have to come up the highway or find space on container ships serving Anchorage. "We're pretty well locked out," says Harry McDonald, president of Carlile Enterprises of Anchorage.

Of greater long-term concern to truckers is whether this move signals an intention by the railroad to compete more directly with truckers. While the volume of business lost through elimination of trailers from the rail barge is not significant in relation to the industry's overall market share, the ARR-Crowley agreement is a consolidation of rail traffic that appears to be having important psychological impacts for everyone concerned.

It comes at a time when the railroad, under attack from other private-sector interests, has agreed not to become an equity partner in ventures seeking to lease or otherwise develop some of the railroad's 36,000-acre real estate portfolio. Like other American railroads, ARR has been counting on a more aggressive and sophisticated land-development program to generate revenues as a hedge against those years when transportation doesn't pay for itself, thereby avoiding the need to seek state transportation subsidies to keep the line running.

However, some Anchorage hoteliers have strongly objected to ARR's partnership in the new Comfort Inn, built on railroad land on the bank of Ship Creek, claiming the state-owned entity enjoys unfair advantages. That controversy has encouraged some state legislators who would prefer to sell off the railroad and are eager for any opportunity to restrict its independence. What truckers now fear is that having essentially agreed to stick to hauling freight and passengers, ARR will have no choice but to try and lure business away from them.

"We have some fundamental heartburn over the change because we're uncomfortable with the railroad expanding into the area of direct competition with private enterprise," says Frank Dillon, executive director of the Alaska Trucking Association. "In the desperation to shore up their revenues, I expect them to buy a trucking company, or something similar to that."

Andy Collins, operations manager for Sig Wold Storage and Transfer of Anchorage, echoes the concern. "I feel the trucking industry does need the railroad up to a point, but there's some strong and bad feelings about them getting into the trucking business themselves."

According to Dillon, there were avenues for truckers and the railroad to work more closely together to the benefit of both, but now he's not so sure. "To make money, they simply have to come after the stuff that we're hauling and take it away," he says.

The railroad will continue hauling freight for Mapco Alaska Petroleum Inc., under a new five-year contract signed in early May. Mapco is still studying the long-term feasibility of building a pipeline from its North Pole refinery to Anchorage.

The Days of Deregulation

While it remains to be seen whether truckers' fears about railroad competition are well-founded, industry margins in Alaska's deregulated environment afford scant comfort against any loss in business, regardless of the circumstances.

"There's a lot of price competition," says Carlile's McDonald. Now one of the state's largest trucking companies, Carlile got its start just a year before deregulation.

Sig Wold has been around a little longer, and Collins remembers things used to be easier, not just because regulation essentially controlled the competition, but because pipeline construction created a huge demand.

"I wouldn't say we're scraping by, but we're not making the money that we did," Collins says. "If you can remain competitive you can make money in this market. They are playing hard ball, and it is tough to make a buck. You kind of have to specialize in a certain field."

Sig Wold has specialized in hauling refrigerated freight, investing in new technology in a bid to increase its market share in this area.

According to Robert McDaniel, a 34-year industry veteran who owns McDaniel Trucking of Anchorage, specializing sometimes is not enough. While he says freight rates are not currently the most predatory he's seen since deregulation, other factors make life harder. He uses his four trucks and 12 trailers to haul equipment and supplies for construction contractors, drilling companies and miners. Lately, there's been less work and more competition. In some cases, his clients have ended up buying trucks of their own to gain a tax advantage.

McDaniel is also frustrated at the way some potential customers play beleaguered truckers against each other in the bid for big or long-term contracts. He still chafes on recalling one effort he made to cultivate a client, going to some effort and expense to research the customer's needs and operation. In the end, he didn't get the job.

"Right up until two days before, the job was mine. But my competitor bought them dinner. I only bought them lunch and gave them my knowledge. It wasn't enough," says McDaniel. He recalls the days when a small outfit like his could gross $500,000 a year. Now, the average is half that.

"There's not near as much freight as there used to be," says McDaniel. "I can think of 15 companies that have gone out of business in the last 10 years, real formidable competitors, gone. Everything in the state has dropped 50 percent since 1985."

Increased competition and less business has created hardship for small and medium-sized companies that can't achieve economies of scale but still have overhead to maintain. Dillon says no one wants to return to regulation, but he is concerned that rate-cutting to capture market share may finally have become "too cutthroat." He fears that lack of discipline will lead to problems similar to those faced by the airline industry, which could lead to re-regulation.

Rolling Through the Recession

Despite these concerns, there is equilibrium in Alaska's volatile trucking industry. Those companies that survived both deregulation and the recession had a generally good year in 1992.

"We've actually had a couple of pretty good years in the last four years," says Dillon. He cites the oil spill, a fairly active 1992 at Prudhoe Bay, airport and retail construction and a general, if still modest, economic recovery as reasons for last year's performance by truckers.

"We, in fact, benefit from any upturn in the economy," says Dillon.

With 125 employees, Carlile Enterprises has a fairly diverse operation, 30 percent of which includes direct oilfield hauling. Last year, Carlile grossed $13 million.

"Last year was the biggest year we've ever done. Most mainline carriers did as well or better than expected," says McDonald. While the company lost customers worth about a million dollars a year, it made it up by cultivating new clients and absorbing some of the freight hauled by truckers that left the market.

"Of course, there's new ones starting up all the time," McDonald adds. Most of these are owner-operators with three to five trucks and very low overhead who get a break with one job and try to parlay it into a bigger operation. McDonald remembers getting his start much the same way. He concedes that without deregulation, last year would have been even better but, cutthroat or not, that's the way the business works.

"I'm willing to have those people compete against me because I think it's right. We try to price on cost, and we get underbid consistently. I certainly don't think I'm the lowest-cost carrier around," says McDonald, still smarting after bidding 50 cents a pound too high for a big job for BP Exploration (Alaska) Inc. "Every year you learn new things. I think we operate 100 percent ethically and the customer makes the decision."

According to McDonald, the state's top eight to 10 trucking firms haven't lost or gained a market share in excess of 10 percent for the last several years.

Sig Wold's Collins says business remained stable on the freight side and showed marked improvement in the movement of household goods.

"Last year we did very well. I was very surprised," says Collins. This year, both freight and household goods moved briskly, then fell off by the beginning of the second quarter. Collins is hoping for a summer upswing, with a possible boost from continued movements of military personnel in and out of Alaska.

"You really can't predict it, it changes every year," he adds.

Pushed Out of Prudhoe

Collins says Sig Wold is one of the firms that opted out of the rugged Prudhoe Bay run. The financial drain from a couple of accidents and chronic heavy wear and tear on trucks prompted it to cut losses and leave the Dalton Highway to others.

"It's crazy going up there," he says.

Jeff Gregory, vice president of Fairbanks-based Sourdough Express Inc., is among those in the industry who have been trying to get the state to put up more money for Dalton Highway maintenance, especially since 95 percent of the business for the company's line-haul division consists of Fairbanks-to-Prudhoe traffic.

Gregory says, "The condition of the road is killing the companies. The revenue per load has dropped 50 percent, and it's being ignored by the state. We feel that that road is an economic resource, but there are potholes you can drop TVs into. It's ridiculous." He warns that oil companies may return to the large sealifts of the 1970s for hauling supplies to Prudhoe Bay if needed road funds are not forthcoming.

"They've run sealifts before. That's dollars going around the state, not through the state," says Gregory. "We can't live under $7.5 million (for road maintenance), and we'd like to see $10 million. It's been a problem for a number of years. We've invested in new equipment to see if it would hold up better, because the old stuff was just trashed, and we had to sell it for pennies."

Gregory concedes that the road conditions have forced even greater efficiencies on truckers than those called for by deregulation. Fortunately, other markets fared reasonably well last year, including movement of household goods.

"Last year was one of the better years we've had in a long time and the outlook is pretty good," says Gregory.

Sourdough is expanding into storage and distribution of retail and other goods. Gregory foresees greater opportunities in this area to attract both local and international customers. "That's something to watch," he says.

Looking Down the Road

Most companies expect 1993 to be a reasonable year for business volume, especially because much of the shakeout from deregulation and the recession seems to be over.

Also, a couple of other issues have been laid to rest. The Alaska Trucking Association (ATA) worked closely with the Alaska legislature to enact high-priority federal safety standards for truckers on the state's highway system.

According to ATA's Dillon, safety regulation went out the window with economic regulation when lawmakers dissolved the Alaska Transportation Commission, creating a hazardous situation for everyone that has now been remedied.

Much less satisfying for truckers, the state has prevailed in its efforts to ban lift axles throughout much of the industry. Lift axles are mechanical devices that can be lowered to provide an additional axle, enabling the rig to carry more weight without greatly increasing the impact on the road. Without the device, truckers are allowed to haul up to 38,000 pounds. With the lift axle in place to further distribute the weight, the load limit increases to 42,000 pounds.

But for now, truckers must weigh their concerns about increased competition with the railroad against the cheery news of Arco Alaska Inc.'s Cook Inlet oil strike.

"The recent news gives us reason to be guardedly optimistic about the mid-90s," says Dillon. "I think the trucking industry's going to be alright."

But the truckers will remain on guard against the Alaska Railroad. Dillon says ATA has steered clear of campaigning against the line in legislative forums, despite ARR's political vulnerability. Now, a re-evaluation may be in order.

"We're going to wait and see, but we're not afraid to go head-to-head for our share of the business. We're not going to be tied to the tracks," he concludes.
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Title Annotation:Alaska's trucking industry
Author:Richardson, Jeffrey
Publication:Alaska Business Monthly
Article Type:Industry Overview
Date:Jun 1, 1993
Words:2273
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