New-hire woes follow rising freight demand
Increased freight volume is generally viewed as a welcome development for companies such as ABF Freight. Simply put, the more a company hauls, the more revenue it has the potential to generate.
There are, however, costly growing pains associated with gains in tonnage.
Decreases in efficiency and a rise in cargo claims as new dock workers learn on the job often accompanied the additional work and revenue generated in the second quarter by ABF and its peers in the lessthan-truckload industry.
Over the past year, ABF Freight — a subsidiary of ArcBest — added 668 fulltime-equivalent employees. Its employees with less than a year of experience rose by nearly 10 percent, and although not all of those hires are dock workers, many are, leading to declines in efficiency that the company believes weighed on its bottom line for the first half of 2014. ABF has about 7,000 employees.
ArcBest Chief Executive Officer Judy McReynolds said during a recent investor call that two of the company’s key metrics in measuring productivity were down between 4 percent and 5 percent. Almost all of the declines were associated with “new hires,” McReynolds said.
“A B F Freight has doub led the normal amount of training and mentoring offered to these new employees,” McReynolds said. “We believe that the freight productivity in the second half of the year will improve as we help these new freight employees gain valuable experience, training and knowledge in the efficient handling and loading of shipment.”
Many of the inefficiencies come from new hires working on the docks of ABF Freight distribution centers. These are hands-on positions that put dock workers in frequent contact with shipments and increase the likelihood of damage.
Newer employees often need longer to load trucks, something that can result in missing delivery times. When that happens, shipments go back to service centers where it has to be unloaded and reloaded later.
“Then you’re running the risk of damage again,” Stephens Inc. analyst Brad Delco said. “Missing appointments means the freight is going back to the dock. That means freight is getting rehandled, and the more you handle a piece of freight, the more likely you
have some cargo claim, right?”
ABF Freight is hardly alone in trying to balance the benefits of increased shipments with the downside of hiring additional, often inexperienced workers.
Old Dominion Freight Line, which operates a service center in Fort Smith, increased its dock workers by 12 percent to accommodate a 50 percent increase in tonnage. Chief Financial Officer Wes Frye said during the company’s secondquarter earnings call that Old Dominion is encountering “training pressure.”
It can take up to nine months before “they become efficient with how we do things,” Frye said of new employees.
McReynolds describes a 20 percent drop in freight handling productivity for newcomers compared with seasoned employees. That drop in productivity, McReynolds said, “has unfavorably impacted our operational metrics and the incremental margins on the new business we have added.”
YRC Freight of Kansas City reported a 5.9 percent increase in tonnage but had $15.5 million more in expenses related to cargo claims, bodily injury and property damage coverage. Not all of those increases were directly related to inexperienced dock workers, but the company is battling more frequent and severe damage to cargo.
Those additional costs resulted in YRC Freight reporting an operating loss of $300,000. Parent company YRC Worldwide reported $1.3 billion in second-quarter earnings, up 6 percent from the same period in 2013.
“Quite frankly, we struggled throughout much of the second quarter to keep our network fluid,” YRC Freight President Darren Hawkins said. “This results in higher costs than we would have liked.”
Despite the efficiency and productivity dips created by the freight increase, Delco said it shouldn’t be ignored that ABF Freight performed well. The shipper reported a 15-year high in sequential growth between the fourth quarter of 2013 and the second quarter of 2014. Stock for parent company ArcBest was up 25 percent year over year.
Even with the growing pains, the company is performing well and poised for more growth, Delco said. ArcBest revenue was up 14 percent to $658.6 million for the second quarter of 2014, including an 11 percent increase for ABF Freight.
“I think that message was missed,” Delco said. “They did have productivity issues, but what people need to understand is they can manage the tonnage in their freight network. … This is a pretty good environment to be in.”