Schneider National Inc. has been in the trucking business for more than 70 years, but it's more than a collection of tractors and trailers. The company was one of the first to get involved in intermodal services, and also offers a menu of brokerage, logistics and dedicated operations. Today, it claims the title of largest privately held truckload carrier in North America. GLSCS asked Mark Rourke, Schneider's president of transportation, to talk about some of the challenges that the company faces in serving shippers.

Q: How has business been in the first quarter of this year?

Rourke: It's been mixed. Freight tonnage dropped a bit faster than you would [expect] on a GDP basis, so there's a little more capacity than demand in the market now, which is a condition we haven't had in a few years. The second half of March and April have not been too bad. We had those terrible storms in February-it was quite devastating and certainly had an impact. Overall, it's still a bit sluggish, but getting better.

Inventory levels are pretty low. Our liquid-bulk business was slow in the second half of 2006, and it generally slows down before the dry-van sector. That business is absolutely screaming right now, which would [suggest that] you're going to start seeing inventories build back, because I think they're a bit too tight right now.

Q: How do volumes break down right now in terms of international versus domestic?

Rourke: Right now about 36 to 38 percent of our business originates as an international movement. It's been growing over the last several years. Where that's originating is changing. It's not just Long Beach-ports like Savannah, Norfolk and Houston are all starting to see increased activity from our network standpoint.

Q: What's the trend in length of haul?

Rourke: We expect to see more transloading in 2007 than in 2006. So much traffic in 2006 moved to inland DCs [in international containers]. We think the economics are going to shift back toward the ports, which should have the effect of raising length of haul for that segment of the business.

Q: Are we seeing more transloading because ocean carriers don't want their containers going into the interior?

Rourke: That's part of it. I also think that rail inland economics are changing. The combination of those two factors is shifting the economics of transloading back to the ports.

Q: How does over-the-road stack up against intermodal right now, in terms of price and service?

Rourke: The reliability of the intermodal network has improved. There's still generally between a three- and four-and-a-half-percentage difference between rail reliability and over-the-road. From a price standpoint, any time there is more supply than demand, that narrows the gap between over-the-road and trains. In the first quarter, those were getting much closer together. On a long-term basis, there's still a [pricing] advantage on the intermodal front.

Q: How has the driver shortage affected Schneider?

Rourke: Attracting and retaining drivers is still one of the major challenges that we have in this industry. We have had to be much more thoughtful around providing predictability into our business. We're doing a lot more truck shares-we call it the Home Run program, where we get folks to share trucks so they can work two weeks on and then a week off. We've changed our recruiting practices to make ourselves more attractive to the over-50 crowd. We're a preferred employer [with the American Association of Retired Persons], and we're trying to tap into the second-career folks. That demographic is up 40 percent. In certain demographics like the Hispanic community, we've made some inroads as well, to go after the folks who traditionally have not been as represented in our industry as the population would indicate.

Q: How are you coping with higher fuel prices?

Rourke: Variability seems to be here to stay. It's quite dramatic. We've put a lot of focus on how we spec our equipment, using things like onboard heaters, so that we can run a secondary technology to keep the cab warm. We spend a lot of time in training drivers on MPG performance and measuring that directly, because it's such a significant cost. When fuel gets to $3 a gallon, it becomes our number-one cost, replacing labor. The difference in running an unbilled mile today versus five years ago is significantly different.

Q: What is the trend in shippers' reliance on less-than-truckload [LTL] versus truckload transport?

Rourke: Since the new hours-of-service rules, more volume has been finding its way into the LTL channel, because of the cost associated with doing a multi-stop truckload. I don't see a lot of that converting back, even in slower times, based upon the freight characteristics.

Q: Some shippers talk of shifting from LTL to truckload, to save money.

Rourke: There is more collaboration going on among shippers, to get the leverage and economics of a full truckload. If you can get multiple customers with smaller-lot shipments put together at a consolidation point, where it's all going to the ultimate retailer's DC, there is definitely power in that.

Collaboration in general is a trend. As I sit here with my service-provider hat on, sometimes I look at another company as my competitor. Another time it's my customer. At other times it's my supplier. We've got some customer relationships where we're collaborating with a competitor inside their DC storage networks, so that we can more effectively deal with getting product to market. What we're trying to do is look at how multiple customers can collaborate on their networks and dedicate operations to drive out inefficiencies in those unbilled miles.

Q: When the peak season arrives this year, do you expect congestion at terminals and port areas to recur?

Rourke: From the standpoint of overall traffic, congestion might not be as pronounced as you would see during surge seasons. But it's still a factor in terms of not having enough locations for trucks to park safely and close to the destination. Particularly with regard to hours of service, we're finding that drivers are stopping farther back [from the pickup point], where they know they have a safe haven, versus using their hours to go all the way in. It is pushing back inefficiency into the supply chain, just because of infrastructure issues.

Q: What do you think are the biggest infrastructure challenges and choke points that need to be addressed over the long term?

Rourke: We would very much like to see highway taxes stop being diverted from their intended use. There doesn't seem to be any slowing down of that phenomenon. As people move to more fuel-efficient passenger cars, fewer [tax] receipts will come in, and that will put more pressure on funding for replacement roads and bridges. We've been lobbying, trying have a voice in stopping that misuse, from our perspective.

Q: Where does the money most need to be spent?

Rourke: If you're the head of our intermodal group, he'd probably tell you about the need for more double-tracking, and other things to make the intermodal network more fluid and improve service. From our standpoint, it's such a mature interstate network, and there isn't enough widening of lanes or investment going on to have a material impact. Certainly around the ports, the continued congestion would be a primary place to put some focus on.

Q: What do customers want from you these days?

Rourke: Freight has been more sluggish. But the most sophisticated shippers are taking a long-term approach. They know this is a short cycle, and that the driver shortage hasn't gone away. They are looking for relief from a rate perspective, to take advantage of where efficiencies can be had. [Shippers and carriers] are looking to collaborate, and make sure that no party takes advantage of the other, depending upon where we are in the cycle. Shippers are saying to us, "Help us understand where we can get better. When we're doing something that's driving cost into your system, or driving inefficiencies that are going to show up in the rate, you've got to communicate. Show us where those opportunities are, so that we can take action."

Q: Where is the biggest opportunity for new business?

Rourke: Port activity, and the long-term economics of imports, are not going away soon. We're very focused on shipments that used to pick up in the Midwest and are now picking up at the end points of the system. We purchased a transloader a few years back, so that we could provide more of a seamless service for containers. With that and the inland network, customers can decide a bit later whether [a shipment] is going to Poughkeepsie or Kansas City. Giving them more options is what we're going after.

The fastest-growing segment in our transportation portfolio is flow-through centers direct to the store. That's mainly being driven by the retail sector. High-volume items like toilet paper and toothpaste-they're not staying in a DC at all. More and more folks are talking to us about how we can get them right to a cross-dock and then immediately on to end-store delivery.

Q: What is your business outlook for the coming year and into 2008?

Rourke: We believe we will not have a surge season or a second half like we saw in 2004 and 2005. We do expect a recovery. It will probably look more like the 2003 time frame, if you look back at the Morgan Stanley index. We know there are others who are taking a more conservative approach, but we're fairly bullish. This liquid-bulk piece, and what's in the manufacturing and inventory pipeline, are something that we'll watch very closely.

Q: Does strength in liquid-bulk signal recovery in manufacturing?

Rourke: It could. We've had a six or seven-week stint [in liquid bulk] where it's been absolutely a difference-maker for us. That was the first part of our business that we saw tail off last year. So if it's the canary in the mineshaft on the way down, maybe it's that on the way up. We'll find out.