TruckExec

Trucking, Carbon Footprint & the Economics of Cap and Trade

GUEST COLUMNIST

 

Eric Taub

 

CEO / Co-Founder

Verus Carbon Neutral

 

 

Whether you believe in human-induced (anthropomorphic) climate change or not, legislation to control green house gas emissions is going to significantly affect the trucking industry in the next couple of years. Trucking companies across the United States will soon have an obligation to measure and control their carbon emissions under Cap and Trade regulations, and that obligation will have a significant financial impact on their performance.

 

The term “Cap and Trade” has frequently been bantered around but many businesses don’t understand what it means or how it works. In simple terms, Cap and Trade rewards companies that are able to reduce their carbon footprint and punishes those that don’t.

The “Cap” is a percentage reduction versus prior years. For example, if your company reduces its 2012 emissions by more than 6% (the 'Cap) compared to a base year of 2005, then you have created Carbon Offsets (the reward) for reducing emissions. Those offsets can be traded and sold to companies whose operations exceed their specific Cap and therefore must purchase offsets (the punishment) to bring themselves into compliance. Here's a specific trucking example:

 

The average tractor-trailer in your fleet travels 10,000 miles a month and at 5.2 MPG creates around 235 metric tons of CO₂e a year.  That means that your fleet of 300 trucks in total generates 70,000 metric tons of CO₂e in a year. Assume that since your baseline year you have reduced fleet size or total emissions (from improvements in idling, mpg, etc…), thereby shrinking your carbon footprint.  If your baseline year performance was 87,500 metric tons of CO₂e, your company has created 17,500 metric tons of Carbon Offsets.  Your reward for achieving ‘Green Trucking’ status would be over $25,000 at current prices or around $47,000 at the four-year average price.

 

Even though Caps and Offsets are currently not enforced in the U.S. , there are many companies in our country voluntary participating in a Cap-and-trade system hosted by the Chicago Climate Exchange (“CCX”). They are selling or holding the offsets they’ve created by reducing their carbon footprint.

The price of CO2e offsets change every day with the market. So far prices have remained low relative to the European Exchange because the majority of emission reductions are voluntary ( California and the Northeast have recently instituted a mandatory Cap and Trade, limited to utilities).

Offsets do not need to be sold right away and can be held as assets that may appreciate over time. More importantly, if your company will be reducing below its 2005 level it can sell options today for these future offsets. That is money paid to you today for a future obligation.

The US is rapidly moving to a mandatory market. In order to qualify, a trucking company would need to measure their historic and current carbon emissions and then join the CCX in order to monetize emission reductions. The CCX, created in 2003 is comprised of over 100 corporations, municipalities and universities; including big names like IBM, Dell, Ford, Dow and DuPont. Each member makes a legally binding commitment to reduce their carbon footprint by 1.5% each year for four years (2007-2010) based on the average of 1998-2001 or 2000 (whichever is greatest).

So a 6% reduction might sound tough to reach but for some the change in the economy has made it easier. Under Cap and Trade your carbon footprint gets smaller if a lack of business causes you to shut down plants, reduce shipping or otherwise reduce greenhouse gases.

Since there are current and future prices for reductions, a trucking company can look at the return on investment from different fuel efficiency strategies and calculate if they can be done for free or, better, for a gain. If we add in grants from the EPA and money from the stimulus package, it is possible to improve your bottom line and be “Greener”.

 

Why do you care about “Green Trucking”?  Because your customers care. Whether it is Wal-Mart, Whole Foods or US Steel, big companies are looking at their supply chain emissions.  Also, members of the CCX have a better understanding of how to best prepare for a world where CO₂ becomes a bigger commodity than soy beans.

 

Currently, there are seven Cap and Trade bills pending, some of which have bi-partisan support (one is co-sponsored by Senator Specter who recently became a Democrat). The most important and imminent is the Waxman Markey Bill. President Obama has made it very clear that he supports Cap and Trade. Finally, the EPA has recently moved to regulate CO₂e as part of the Clean Air Act (a George H. Bush legacy). The EPA set a level of 25,000 metric tons of CO₂ as a starting point. The EPA is the stick in this situation. No one wants the EPA to enforce a limit on Carbon emissions.

 

To get a base line of where your CO₂e emissions levels are and whether there is technology is coming from you must measure your carbon footprint. Without a metric that tells you where you are, it is difficult to determine if you are on the creating offsets for sale or creating liabilities.

 

Cap and Trade regulations are coming.  Knowing how to measure, reduce and account for your company’s carbon footprint will soon become a legal and financial necessity.

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Eric Taub is CEO and Co-Founder of Verus Carbon Neutral; a carbon footprint audit and offset organization.  Before founding Verus Carbon Neutral, Eric was a partner and portfolio manager at Juno Management of Atlanta. His career has taken him to London, New York, Mexico City and Chicago. Eric's experience includes several years as Senior Vice President in portfolio management at Wachovia, Managing Director at SunTrust, Director of Emerging Markets at Bank of Montreal, and certification as a Chartered Financial Analyst. He received his MBA from New York University and undergraduate degree from Tufts. A master of carbon emission management strategies—balancing risks against opportunity—he has a deep understanding of the global emissions market. Eric is an expert at identifying and capitalizing on what our new green economy holds and how to best position organizations for success.

Post-Recession Revenue Plan

Outside of short term survival, the biggest risk to a trucking company operating in a recession is how it is positioned when freight levels return. 

 

Recessions create a magnetic-like attraction between trucking companies anxious to secure additional revenues and shippers anxious to bid their business to lock in low rates for long periods of time.  As a result, truckers looking for top line solutions to bottom line problems bid too low for too long.

Here’s the question CEOs should ask themselves that best frames the issue:  “When the economy rebounds and capacity tightens - how much available fleet will I have uncommitted to capture freight at higher rates?”

The economy and related freight levels will improve gradually and that creates a dangerous temptation – fill up all the idled trucks as soon as possible.  Success with this strategy will only keep a trucking company’s rate structure low during the anticipated upcoming boom years of under capacity and higher rated freight.  

 

The solution is to have a formal revenue plan and the fist step in developing that plan is to map existing freight businesses on a timeline that includes how many trucks are associated with each piece of business and when those contracts expire.  That will provide insight into how much capacity will be available at specific times in the future.

 

Bid new business carefully, particularly when it comes to a time commitment.  For longer term contracts, continue to bid aggressively but insist on adding a truck tonnage escalator to your annual CPI increases that kick in when freight levels exceed a certain ceiling.

 

Finally, bid out your uncommitted capacity in layers with each layer providing higher revenue per mile.  If, for example, over the next year-and-a half you forecast 175 trucks will be available, offer the first 75 at $X/mile, the next 50 at $X + 5% and so on.

 

Our economy will bounce back and when that happens, trucking capacity will be in high demand.  After months, possibly years of depressed earnings, reducing the temptation to grab as much freight as possible as quickly as possible will require a lot of discipline.  Truckers able to muster that discipline will be rewarded with years of possibly record breaking profitability thanks to the insight of their CEOs and their commitment to long term revenue planning.

 

-- Joe White -- TruckExec Publisher / CEO-CostDown Consulting

Fit to Drive: Improving Commercial Driver Health and Productivity

 

GUEST COLUMNIST

 

Amy J. Khan, MD, MPH

National Medical Director – Concentra TotalCare

 

 

 

 

 

A comprehensive and insightful overview of the health and productivity issues facing commercial drivers and the trucking industry was provided by Dr. Khan of Concentra during the American Trucking Association’s Health and Safety Expo held in Nashville, TN , in September 2008.  Highlights from this presentation are included in this article.

 

Driver Health Status

 

Compared to the rest of the US population, commercial drivers are disproportionately affected by weight problems with up to 90% reported as overweight or obese compared to two thirds of US adults. In fact, compared to workers from other occupational categories, commercial drivers rank among the highest in obesity rates. This increase in obesity has fueled the increased risk and expression of related chronic disease and musculoskeletal injury. For example, obese workers have four-fold greater risk of hypertension. Similarly, the risk for diabetes and sleep apnea is greatly increased among obese persons compared to those with normal weight. Lastly, large physical size can potentially compromise a driver’s functional capacity to safely and comfortably operate a commercial vehicle and can impact the severity or recovery of musculoskeletal injuries.

Lifestyle, poor dietary habits such as consumption of high caloric fast food, sugary soft drinks and high fat snack foods, limited physical activity, long work hours and chronic lack of sleep due to inconsistent domicile and irregular or rotating shifts frequently characterize the lives of many commercial drivers. These characteristics place them at increased risk for weight problems, diabetes, heart disease and other chronic illness. In addition, more than half of commercial drivers report regular tobacco use which increases their risk for heart disease, stroke, lung disease and cancer.

 

Sleep apnea represents a particular concern for commercial drivers and increased risk to driver and public safety from motor vehicle crashes if this condition is not recognized or treated.  Published reports have estimated rates of moderate to severe sleep apnea to range from 10 to 16% among the commercial driver population.  Strongly associated with obesity, sleep apnea also creates a risk for impaired glucose metabolism, contributing to the risk for developing glucose intolerance, insulin resistance, and diabetes. Among sleep apnea patients, over three quarters complain of both excessive daytime sleepiness and cognitive impairments, and half report personality changes.  As a group, sleep apnea patients’ risk of motor vehicle collisions is increased two to seven-fold thereby representing a significant potential liability to employers of commercial drivers.

 

In addition to the health risk issues noted above, commercial drivers tend to be older on average than other members of the US workforce. This represents an additional risk for chronic disease as older persons are more likely to have health issues such as hypertension and other chronic illness (as a factor of aging) compared to younger persons.

Trucking Industry Issues

 

In the United States, federal regulations governing transportation safety require commercial drivers to meet behavioral and health standards as assessed through a periodic medical certification (see http://www.fmcsa.dot.gov/.) Whereas commercial drivers in good health may be qualified for two years, Department of Transportation (DOT) regulations disqualify commercial drivers with Stage 3 hypertension, uncontrolled diabetes or untreated sleep apnea. In many cases, those with poorly managed medical conditions or evidence of worsening health status may have qualification time restricted and be required to return for medical re-evaluation at shorter intervals. Inadequately controlled or advanced medical conditions may lead to permanent medical disqualification of a driver. 

Due to the increased health risks and disease burden of the potentially eligible driver population, employers of commercial drivers are increasingly challenged by the costs associated with more frequent qualifying exams for drivers with certain health risks that are mandated by federal regulation. These costs combined with the increase in non-occupational health care costs in general represent in increasing financial burden to employers. In addition, loss of productivity driven by obesity is well documented as these workers typically incur higher rates of disability and absenteeism.  Frequent driver turnover and related costs for recruitment and training represent an additional issue for employers of commercial drivers.

 

Improving Health Status

 

In an effort to improve driver health, reduce health costs, increase productivity and retain drivers in their workforce, evidence has shown that employers can benefit from acommercial driver wellness program that implements health improvement activities targeted to the risks of their commercial drivers. For example, a JOEM report[i] published last year demonstrated a more than 50% reduction in uncontrolled blood pressure among hypertensive drivers (from 40.7% at baseline to 17.2% at follow up) after a health awareness and hypertension management program was implemented for 6 months. The improvement in blood pressure was consistent across all subgroups defined by diabetes, obesity, and use of antihypertensive medication. 

The specific health promotion activities provided to the commercial drivers in the report cited above included 1) a personal health education session consisting of a five to ten minute consultation by a health specialist following their regular qualifying exam; 2) a health marketing campaign that included placement of health promotion materials at work and mailed home that reinforced the importance of optimal blood pressure control, healthy lifestyle practices, treatment compliance and factors impacting commercial driver certification; 3) access to follow up blood pressure monitoring and facilitated referral for follow up medical care including provision of suggested “Ask your doctor” questions for drivers to pose to their treating provider; and 4) tools for employers, unions, and clinicians that reinforce hypertension awareness.

 

Obesity screening and related risk reduction counseling are recommended by the United States Preventive Services Task Force (USPSTF). This clinical preventive service could easily be offered during the certification/recertification exam process for commercial drivers. Noninvasive body measurements would be obtained to identify chronic disease risk and include determination of body mass index (BMI) and waist circumference, both independent risk factors for development of cardiovascular disease and diabetes. An additional set of focused screening tests could also be provided to identify persons at risk for sleep related problems such as sleep apnea or those with tobacco use problems.

 

Given obesity’s association with increased morbidity and mortality, providing guidance and support to improve dietary practices, increase physical activity, and reduce or prevent weight gain can potentially avert future co-morbidity from associated hypertension, diabetes or sleep apnea.  Population-based screening and referral for ongoing lifestyle support interventions can help reduce related health care and disability costs, as well as reduce the need for more frequent DOT reexaminations, due to improved health status of commercial drivers.

 

Key to Effective Interventions

 

A Truck Driver Wellness Program targeted to your commercial drivers can assist your driver population in staying healthy both on the road and at home. These programs reinforce the message that good health is essential not only for ones wellbeing, but also for the wellbeing of the family and the community. Whereas it is true that the vast majority of commercial drivers will pass their DOT certification and re-certification medical exam, those at risk for future illness often don’t know it but can be identified early to prevent future disease through modification in lifestyle practices or timely referral for medical evaluation.

 

An effective Commercial Driver Wellness Program should be multi-component and offer sufficient intensity and duration to realize the maximum benefit to the employee and employer return on investment[ii]. Essential components of a successful Commercial Driver Wellness Program includes the following elements:

 

·         Health Risk Screening and Education – evidenced-based screening and counseling on risk factors for sleep apnea, diabetes, blood pressure and tobacco use problems. Attention to diet, physical activity, weight management, sleep hygiene and personal accountability for health behaviors are stressed and clinical practice guidance provided that reinforces lifestyle change and link to timely medical care.

·         Ongoing Health Promotion – guided by the risk factor burden of the trucking industry employee population, health messaging and coordinated health awareness campaigns keep recommended lifestyle practices top of mind. Workplace and environmental support for selecting healthy nutritional options and increasing physical activity for drivers are emphasized.

·         Targeted Lifestyle Support – topic-focused educational sessions such as for weight management or diabetes care may be offered via web-based meetings with a focus on building skills and confidence to make and sustain healthy behaviors.

·         Personal Health Coaching –  offered to participants to support improved health practices such as tobacco cessation. Through active engagement, personal responsibility and confidence  is enhanced to make recommended lifestyle changes.

·         Effective Incentives – requires an understanding of the workforce demographics, employee benefits and health management objectives to promote participation.

 

Health management efforts to improve the recognized health and safety risks of commercial drivers are essential especially in light of the workforce characteristics and economic challenges faced by the trucking industry today. By leveraging current requirements for medical certification exams, targeted health improvement programs can be delivered in a cost effective and convenient manner to minimize downtime and ensure commercial drivers are back in their vehicle in a timely manner. Through innovative use of incentives, periodic check ins, web-based tools and telephonic touch points, ongoing support and specific interventions can successfully support healthy lifestyle practices and reduce disease risk among commercial drivers. 

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Dr. Khan serves as the National Medical Director for Concentra’s TotalCare program, an integrated suite of services for employers and their workforce that includes health promotion, disease prevention, occupational health and primary care. Prior to joining Concentra, Dr. Khan served six years at the Centers for Disease Control and Prevention identifying at-risk populations, measuring disease burden, and disseminating disease prevention recommendations. In addition, she has over a decade of health management experience in her prior role as Assistant Physician-in-Chief at Kaiser Permanente in Northern California where she directed a multidisciplinary behavioral health service line serving workers and their dependents impaired by substance-use problems. Specialty boarded in Internal Medicine, General Preventive Medicine & Public Health, and Addiction Medicine, Dr. Khan is an expert in population health, behavioral change and integrated clinical care. Her background gives her broad knowledge of cost effective solutions that improve health while reducing overall health care costs. Dr. Khan earned her BA in chemistry from Albion College, her MD from Wayne State University School of Medicine and her MPH from Johns Hopkins Bloomberg School of Public Health. For more information about how Concentra’s TotalCare services can help improve health, reduce costs and enhance productivity, visit: www.concentratotalcare.com.

 

[1] J Occ Env Med Medicine 2008; 5:359–365.

[1] Am J Prev Med 2005;29( S1):113–121.

Structuring Effective Broker/Carrier Relationships

GUEST COLUMNIST

Robert T Franklin

Partner - Franklin & Prokopik

The transportation industry has seen a dramatic increase in the roles played by freight brokers, and other third party “intermediaries”.  It is also quite common now to motor carriers, both large and small, who also offer freight brokering services, either directly or through a related entity.

Brokers and motor carriers share a desire to remain competitive and profitable.  Their perspectives, however, are inherently different.  The broker seeks to protect the customer base it has spent time and money to develop.  Conversely, the motor carrier wants to ensure that it will be adequately compensated, and that it will have sufficient recourse if a dispute regarding payment should arise.

 

An additional factor in the broker-motor carrier relationship is the increase, in recent years, of claims being filed against freight brokers, and even shippers, for accidents involving motor carriers.  While the specific theories vary, the underlying essence of them is that the broker was negligent in tendering the load to a motor carrier which it knew, or should have known, was unsafe.  The increase in lawsuits under such theories is clearly driven by the fact that a motor carrier’s insurance is often insufficient to cover the damages in a given claim, particularly in light of ever higher jury verdicts. As a result, plaintiffs’ attorneys and, unfortunately, judges, have become ever more creative in seeking additional parties to hold responsible.  Brokers must, accordingly, take that exposure into consideration when entering into related agreements, including its contract with the motor carrier.

 

As with any contract, one entering into a broker-motor carrier agreement needs to understand that “one size does not fit all”, and that the use of someone else’s “form” can result in disastrous consequences.  Each such agreement should be customized, premised upon the parties’ specific circumstances.

 

There are, however, certain fundamental issues which need to be addressed in any broker-motor carrier contract, including those pertaining the scope of the services to be performed, the parties’ qualifications, procedures for shipments, and for resolving issues regarding loss, damage or delay of freight, or for rejected shipments. Compensation needs to be carefully addressed, including issues pertaining to what rights the motor carrier has to withhold freight, or go against the customer directly, in the event of a dispute concerning compensation.  In addition, the broker will almost certainly insist upon a provision requiring the carrier to maintain confidentiality of customers’ and other information, and not to “back solicit” loads from the broker’s customers.  The parties should also carefully draft their respective indemnification obligations.

 

As noted above, one may face certain legal exposures in conjunction with the brokering of freight.  Accordingly, it is imperative to operate one’s brokering operations through a separate entity, in order to better protect the resources of each entity.  In fact, that is a sound approach to business in general.  For example, recent changes in federal law have facilitated the use of a separate entity to own equipment, and lease it to the operating entity, so that the equipment may not be at risk if a judgment exceeds a motor carrier’s insurance limits.

 

Brokers and motor carriers “need each other” in order to generate revenue.  The relationship, however, is inherently somewhat problematic, due to their competing interests.  It is, therefore, important for the parties to clarify their relationship, and carefully draft the contract between them.  If sound business and contract practices are followed, the parties will hopefully minimize their respective exposures, and the possibility of related litigation.  While doing that will necessitate the use of some resources, any such “expenditure” will almost certainly be far less than that which the entity will face  if it fails to do so.

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Robert T. Franklin is a principal with the law firm of Franklin & Prokopik, where the emphasis of his practice is the representation of motor carriers and private fleet operators, and their insurers.  Bob serves as General Counsel to Maryland Motor Truck Association and Counsel to the Maryland Movers Council. He is an active member of the American Trucking Associations, the American Moving & Storage Association, and National Tank Truck Carriers.  Bob is a Past-Chair of the American Bar Association Commercial Transportation Litigation Committee, and the Defense Research Institute (DRI) Trucking Law Committee.  He is also an active member of many other transportation-related professional organizations, including the Trucking Industry Defense Association (TIDA), the Transportation Lawyers Association (TLA), the Association for Transportation Law, Logistics and Policy, the Federal Bar Association Section on Transportation Law, the Maryland Chamber of Commerce Transportation Committee, and the Traffic Club of Baltimore.   Bob is an honors graduate of Duke University and the University of Maryland School of Law, and served as an adjunct professor at the University of Baltimore School of Law from 1988 through 1991.

NOW is the time for Driver Retention

Yes, in a bad economy with driver turnover at historical lows; driver retention is as important, or possibly more important, than when freight levels are strong and good drivers are hard to find.

Driver retention performance is a direct result of driver loyalty.  The more loyal drivers are to your company, the more likely they are to stay with your employ.

Keeping the loyalty/retention relationship in mind, think about driver perceptions at your company today during these challenging times.  Many are likely laid off; perhaps many more are working at less than full productivity (translation: lower wages) due to depressed freight volumes. 

Trucking during a recession requires making hard decisions like layoffs.  Without question the loss of wages, either in full or part, damages employee loyalty to the organization.  So what can an organization do to partially negate the damage?  Here are some suggestions:

1. Keep in touch with laid off drivers.  Use monthly home mailings from the top (CEO or President level) and weekly calls from Driver Managers to let drivers know you care, how business is going and when (if you know) they might be able to come back to work.
2. Communicate with your drivers regarding other actions taken as a result of the recession.  Non-driver staff reductions, equipment sales, etc - let them know that the situation is serious and that the pain is shared.
3. Rotate drivers in and out of layoff  if work rules permit.  A month on- month off rotation will provide at least some income to junior drivers.
4. Offer work opportunities at other terminals to laid off drivers in the system.  Even if the opportunity is not a personally viable one (NJ based driver offered work in OK), drivers will appreciate the offer.
5. Encourage laid off drivers to visit the terminal periodically.  You don't want them to lose the sense of family you have taken so long to build.

When the economy improves, the driver shortage will return and eventually worsen.  Truckers fortunate enough to survive the recession will be looking forward to the opportunity of higher freight levels and rates brought on by tight capacity.   That will be a tough opportunity to capture if once loyal drivers start looking elsewhere for their employment.

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--Joe White - -TruckExec Publisher/ CEO CostDown Consulting

The Trucker's Lament: "I've Cut all I can Cut - What Next?"

Truckers around the county have reduced staff, cut costs and eliminated all but the most necessary of capital expenditures as they prepare for a prolonged and painful recession marked by tight credit, reduced freight and excess industry capacity.

 

Profitability as the primary operating goal has been replaced by survival as many – too many - of our industry’s once financially sound Truckers lament: “I’ve cut all I can cut – What Next?”

 

For most, the answer to that question can be found in an opportunity few Truckers have yet to capitalize on – improved employee, fleet and cost performance through development of an effective Performance Management Program.

 

Before outlining the four steps required to develop a Performance Management Program, let’s understand the targeted benefits of such a program.  Imagine the positive impact on your operations if everyone in the organization improved individual performance by an average of just ½ - 1 percent.  What would happen to your bottom line if key performance areas such as Laden Mile, Driver Productivity, MPG and Maintenance Cost per Mile all improved by just ½ - 1 percent?  That’s the mission of Performance Management, to elevate the performance of your employees in those key areas that most impact profitability.

 

A Performance Management Program is a program that uses performance goals, defined activities, performance monitoring and mentoring, and financial incentives to improve the baseline performance of employees and thereby improve bottom line results.  Put another way – you provide employees the goals, tools, direction and reward necessary to elevate their performance.

 

There are four basic steps required to develop an effective Performance Management program.

 

STEP 1 is identifying Key Performance Indicators (KPIs) and establishing individual performance goals for each.  KPIs are the areas of your operations that most impact profitability such as those listed above (Laden Mile, Driver Productivity, etc…).  

 

STEP 2 in developing a Performance Management Program is to Define the Activities employees should incorporate into their daily routines that will ensure they make their goals.  It is critical to the success of your program that the most effective activities are identified and standardized across the organization. 

 

STEP 3 is Monitoring and Mentoring.  Companies managing elevated employee performance need the ability to quickly identify who in the organization is having problems making goals so that they can provide support and coaching.

 

STEP 4 is providing Financial Incentives.  Unquestionably, employees are motivated by money and providing a reward for goal obtainment is the most effective motivational tool in a Performance Management Program.  Keep in mind, employees that make their assigned goals have improved individual performance over prior period and thereby improved bottom line results.  Financial incentives are funded from a portion of the savings goal obtainment generates.

 

Performance Management is not a new concept nor is it just for lower-level employees.  CEOs of large companies, regardless of industry, often have employment contracts that provide significant bonus opportunities for meeting specific goals.  The success of linking financial reward to goal obtainment to increase profitability has long been recognized and embraced by the business community. 

 

These same companies often integrate their Performance Management Program into their Business Plan by defining employee KPIs and making assumptions about what percentages of those goals will be met.

 

Surprisingly, most trucking companies have not established a Performance Management Program.  I say surprisingly because as an industry we are quick to embrace technology and provide driver training to increase performance and cut trucking costs but somehow have failed to recognize the huge bottom line potential of providing field management employees pay for performance opportunities.

 

Trucking in a recession is difficult yet after all of the cost cutting is done, we can’t lose sight of the fundamental fact that our day-to-day operations are run by Terminal Managers and Driver Managers.  Each one of them makes literally hundreds of decisions every week that impact the cost and profitability of our organization. 

 

Doesn’t it make sense to provide the employees that actually manage our business the goals, direction, resource support and financial incentive to help and encourage them to excel?

 

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If you would like to learn more about how Performance Management can improve the financial results of your trucking company, visit our web library and view CostDown Consulting's PowerPoint training presentation:  Bottom Line Improvements through Performance Management. 

 

--Joe White - -TruckExec Publisher/ CEO CostDown Consulting

Freight Demand & Supply in a Crazy World

                                           

GUEST COLUMNIST

Thom Albrecht  -  CFA / Managing Director

Stephens Inc.

 

A comprehensive and insightful overview of the economy and the trucking industry was provided by Mr. Thom Albrecht of Stephens Inc. during a January 2009 meeting of the Atlanta Chapter of the Council of Supply Chain Management Professionals.  Some of his insights regarding the future of trucking included:

• TL Van rates could drop 2-4% in 2009
• Spot rates could be off 15-25% during first half of 2009
• It could take until 2011-2012 until the word 'robust' is associated with our economy

Thom was kind enough to provide TruckExec readers access to his presentation which can be viewed here:    Download T Albrecht Presentation

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Thom Albrecht's bio:

Thom co-heads the transportation equity research team with a focus upon truckload, less-than-truckload and transport suppliers, working out of the Richmond, VA office. He joined Stephens in February 2005 from BB&T Capital Markets, where he served as a Managing Director and co-head of the transportation equity research team since 2000. 

Prior to joining BB&T, Mr. Albrecht oversaw the transportation research effort at ABN AMRO, Inc. for almost 3 years and prior to that was at A.G. Edwards for 11 years, where he started the transportation research group. He has been quoted on the transportation industry by the national media including the Wall Street Journal, Traffic World, Transport Topics and the Journal of Commerce. He has also been a featured speaker at several American Trucking Association conferences. He has been chosen by the Wall Street Journal as an All-Star Analyst 7 times and has been selected, along with Alex Brand as providing the top regional brokerage transportation research the past 7 years by Institutional Investor magazine.  He was selected by Starmine/Forbes as the best stock picker for “Road and Rail” during 2001, 2004 and 2005 and the runner-up in 2003. 

Mr. Albrecht holds a B.S. in Business Administration with a finance major from the University of Central Missouri and he is also a Chartered Financial Analyst. Interests include golf, politics and baseball, especially the St. Louis Cardinals.  He is married with two children and resides in Richmond, VA.

Teamsters: Prevention and Preparation

 

With the November election placing Barack Obama in the Oval Office and increasing the Democratic majority in Congress, we are virtually guaranteed that the Employee Free Choice Act will soon become law.
 

The Employee Free Choice Act will require that if a majority of a company’s employees sign authorization cards, the company must accept the union.  Current law provides that secret ballots first be held to determine if a majority of employees want to join the union.
 

Secret ballots frequently result in ‘wins’ for the companies as individual employees are free to vote their true conscience, without fear of peer scrutiny or public scorn.  General consensus is that loss of the secret ballot will allow unions to spread rapidly throughout trucking and other key industries.

There are two strategies truckers need to develop in response to the threat of Teamster Unionization: Prevention and Preparation.

Prevention deals with the actions you take today to improve the odds that your drivers will not want to sign authorization cards.  Preparation deals with identifying and protecting critical aspects of your operations from unproductive work rules that may come as a result of unionization. A brief overview of each strategy follows.

Prevention

The good news for many trucking companies is that prevention strategies overlap ‘driver friendly’ retention strategies so some of the required actions may already be in place.  A sound Prevention Strategy focuses on countering the promises Teamsters typically make during the recruiting campaign.  A few examples include:

        
Teamsters promise higher wages: 

o        Maintain competitive wages, medical benefits, 401K contributions and bonuses.

o        Communicate often to your employees on just how competitive your compensation is.

        
Teamsters promise to protect their members:

o        Have published policies and enforce them fairly amongst all employees.

o        Provide a forum for employee complaints to be discussed and acted upon where necessary.

o        Make sure disciplinary action and discharges are investigated and administered fairly. 

o        Establish performance goals for employees that are achievable but consistent and hold everyone to the same standards.

        
Teamsters promise to favor and protect seniority:

o        Develop a system where senior drivers receive additional benefits while not jeopardizing work or earning opportunities for junior drivers.  One of the disadvantages of unions is that junior drivers are often forced into frequent layoffs and consistently receive the worst loads and equipment.

o        Offer promotional opportunities by seniority where possible such as Driver Trainers, Driver Mentors or Dispatchers.

Preparation

Regardless of how comprehensive your Prevention Strategy is, you need to prepare for the possibility that your drivers may someday vote in a union.  A Preparation Strategy is designed to identify all the areas of your operations that need protecting in the event of unionization.   Examples include:

        
Work Rules – Teamsters will want to define how loads are dispatched, how equipment is assigned, etc…

o        Look at current procedures for assigning work and equipment to identify those that must be protected.  For example, new trucks every year should go on two-shift operations to minimize after hour breakdowns and allow for managing lease constraints on odometer miles.  Therefore new trucks can only be assigned by seniority if senior drivers bid those runs.

o        Identify work rule changes that could improve productivity and make them now; before they have to be negotiated.

        
My Work – Teamsters will attempt to claim all work assigned to the company as theirs.   

o        Establish a separate (new corporate identify) brokerage company without assigned driver employees and build a history of freight being tendered directly to them and then brokered out to your company and others.

o        Keep records of load exchanges with other companies (both union and non) to benchmark and protect how much work is exchanged.

        
Eligible Members – Teamsters will want to include all your employees into their bargaining units; including dispatchers.

o        Emphasize and increase the ‘supervisory content’ of your office staff, especially in the areas of discipline and directing their work to increase the likelihood that they will not be eligible for unionization.

o        Explore outsourcing dock jobs and clerical work currently being performed by low wage employees or part timers.

o        Reexamine your owner-operator strategy.   Owner-Operators are non-employees and in theory, not subject to unionization.

        
Protected Employees – Teamsters will fight all disciplinary and discharge actions grieved by their members.

o        Once unionized, it will be hard to get rid of unproductive or unsafe drivers.  Do it now.  Replace lazy and unsafe drivers.

o        Work on a progressive discipline schedule for your company and implement it before unionization. 

When developing your Prevention and Preparation Strategies, there is one simple fact you need to keep in mind.  Unions exist because companies treated their employees unfairly and paid them poorly.  When developing your strategies, make sure you keep your drivers interests in mind.

 

-- Joe White -- TruckExec Pubisher/CEO CostDown Consulting

Managing Your Insurance and Risk Management Costs In a Difficult Economy

 

GUEST COLUMNIST

 

Jim Millar, MBA, CFP

 

Truck Insurance Group Vice President

Cottingham & Butler

 

 

 

 

With the recent financial and credit crises, transportation companies can expect price increases for coverage in 2009. All insurers depend on underwriting profits and investment income to earn their profits. With the bond and stock market in turmoil, insurers will return to underwriting to maintain or increase profit margins. Simply translated to the transportation industry, this means price increases and/or limits of insurance decreases. How should you as a transportation company owner manage this aspect of your business under these conditions?

Very simply, return to the basics of the insurance process to ensure data accuracy and correct and appropriate coverages. Here is a checklist of underwriting procedures that as a company owner you can use to affect your coverages, premiums and risk management program:

 

• Review and refine your hiriing criteria
• Reemphasize your commitment to safety
• Review loss information
• Explanation on any large claims
• Prepare a company to presentation

Review and refine your hiring criteria. It is critical to your Risk Management program to hire the best and safest drivers on the road. Your drivers’ mistakes become claims and increase your company’s risk exposure. Be thorough in your hiring process and do a full back ground check for all your employees to mitigate unforeseen exposures down the road.

 

Reemphasize your commitment to safety. A safer company is a more insurable company. A good safety program lets the underwriters know that you have programs in place to influence behaviors and mitigate your company’s risk exposures. Attaching an overview of your safety program does not really do much good for underwriters - underwriters rarely read them. Take the time to tell them what makes your company different from the average transportation company.

 

Review loss information. Most insurers will request a five-year history plus the current year of loss and exposure experience as well as 2 years of financial information. This data is important to underwrite your risk and it is essential to make sure that the information is up to date and correct. Have your CFO or Controller available to explain any questions on your financial information. You should also have other business partners (bankers, consultants) available to discuss financial, operational and safety issues with the underwriter.

 

Explanation on large claims. Included in the information provided to the underwriter should be detailed explanations of large claims and the steps to reduce or contain this exposure. Underwriters like to know the frequency and severity of large losses. If you have changed insurers in the past, you might want to ask your broker to conduct and audit of any open claims with prior insurers.

 

Company presentation. Insurance provides coverages on predictable risks and the rare instance of the unforeseen risk. As a company owner, you have to sell the underwriter on why your company should be insured at better terms and conditions than your competitors. This means you need to differentiate your company from your competitors and indicate why your company is the safest bet. You should create a presentation on your company to share with primary liability, cargo, workers compensation and excess carriers.

 

In addition to the steps outlined above, a good risk management program collaborates with brokers and consultants that are committed to the transportation industry. The industry has a unique array of perils that differ from the mainstream market place.

 

A good broker should prepare a loss stratification and loss projection for the upcoming year for the underwriter. The projections is based on you company’s prior losses and exposure history along with your projected exposures. These projections will help you select the appropriate deductible based on your risk tolerance. Additionally, the projected exposures will help determine your premium and having accurate data will prevent any additional premiums owed or premium returned.

 

Another area that a broker can advise you is in claims handling. Your broker should work with you to develop claims handling specifications as to how you would like any claim managed. You should always evaluate the insurer or third party administrator based on their track record of handling transportation claims as well as their willingness to handle claims per your specifications.

 

Lastly, your broker must be knowledgeable on safety services. A broker can help you evaluate safety services and programs from the insurer or an outside consultant. Some questions to ask: How will the services offered augment your current program? Does this particular consultant have experience in your industry segment? Does the safety consultant assigned to you have transportation experience in your segment? Your broker should help you evaluate these services.

 

In order to insulate your company from the price increases in 2009 it is important to be prepared for the insurance buying process. Your insurance program should be more than coverages and premiums; your insurance program should help you protect your bottom line and make you a better company. There has been a recent trend to find the best price and change brokers and insurers from year to year. In a hard market, buying on price alone could threaten the viability of your business.  

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Jim Milliar has 29 years of experience in the insurance and risk management profession.  Prior to joining Cottingham & Butler in June of 2007, Jim headed the Transportation Industry Segment for bank owned top ten national brokers.  Jim specializes in alternative risk financing programs which include but are not limited to large deductables, qualified self insurance, discount guarenteed costs and group and single parent captives.

Sleep Apnea—Emerging Concerns for Driver Safety

 GUEST COLUMNIST

Dana H. Hoffman

Attorney -  Young Moore Henderson P.A.

 

 

I.  What Is Sleep Apnea?

In individuals with sleep apnea, the upper airway is periodically blocked during sleep, causing complete obstruction (apnea) or incomplete obstruction (hypopnea) in airflow. These obstructions or pauses in breathing occur repeatedly during sleep. In severe cases, these obstructions can occur as frequently as every 30 seconds. The obstructions or pauses are followed by gasping and snoring sounds. Signs and symptoms of sleep apnea include cessation of breathing while asleep, gasping or choking while asleep, loud snoring, depression, heartburn, insomnia and erectile dysfunction. Individuals who are at risk for sleep apnea may also have a history of heart disease or stroke, hypertension, diabetes, or gastric reflux. Sleep apnea is a concern for commercial drivers because it prevents restorative sleep. Commercial drivers with sleep apnea can exhibit excessive daytime sleepiness, fatigue, and/or inattentiveness. Commercial drivers often mask these symptoms by compensating behaviors including use of caffeine. Untreated sleep apnea can result in crash rates 2 to 7 times higher than average.(Note 2)   The crashes are not only the result of a driver falling asleep, but are also due to fatigue due to the driver’s interrupted sleep. In addition, the driver himself faces long-term health consequences of untreated sleep apnea, including high blood pressure, diabetes and an increased risk of heart attack or stroke. Studies have shown that diagnosis and effective treatment protocols of sleep apnea reduce preventable crashes by 30%, reduce the median cost of crashes by almost 50%, improved driver retention rate by 60% and reduce health care costs by over 50%.

A sleep study called a polysomnagram is the gold standard for diagnosing sleep apnea. The study is administered and attended to by a sleep technician. The study allows the measurement of brain, heart, breathing and limb activity such as restless leg syndrome. Other diagnostic tools are available. Some studies allow for unattended monitoring. However, if a commercial driver is intentionally attempting to skew the results, then there is a risk that someone else could be substituted for the commercial driver during an unattended study.

The most common and effective treatment for sleep apnea is Continuous Positive Airway Pressure (CPAP). A mask, covering just the nose or the nose and mouth, is worn by the driver while sleeping. The device gently blows air into the individual’s throat to keep the airway pressure open. Other treatment options include surgical procedures to the uvula, ear, nose and/or throat, or the use of dental or oral appliances. Only drivers with the mildest cases of sleep apnea would be appropriate for use of the dental or oral appliances. Even with the use of these other treatment options, the driver may still need a CPAP machine. A repeat sleep study will be used to determine the effectiveness of the treatments and the ongoing need for a CPAP machine. As with any treatment, appropriate, effective, and ongoing use of the CPAP machine is key. For the commercial industry, utilizing technology to monitor the driver’s compliance is also key to avoiding federal violations and lawsuits. The biggest concern expressed by the Medical Review Board of the Federal Motor Carrier Safety Association pertains to methods for monitoring driver compliance.

II.   Why Should The Industry Be Concerned With Sleep Apnea?

First, the subject of sleep apnea among commercial drivers has been the focus of several governmental inquiries, many news articles and, unfortunately, an increasing number of lawsuits. On January 28, 2008, the Medical Review Board conducted a public hearing on sleep apnea. (Note 3)  The U.S. House of Representatives’ Committee on Transportation and Infrastructure met on July 24, 2008 for a hearing on “FMCSA’s progress in improving medical oversight of commercial drivers.”(Note 4)

Second, commercial drivers with sleep apnea are not “qualified” drivers. The Physical Qualifications and Examinations section (391.41(b)(4)) of the FMCSR provides that the driver must have “no medical history or clinical diagnosis of a respiratory dysfunction likely to interfere with his/her ability to control and drive a commercial motor vehicle safely”. Sleep apnea is specifically included as an example of respiratory dysfunction in the medical advisory criteria for this section: “[T]here are many conditions that interfere with oxygen exchange and may result in incapacitation, including . . . sleep apnea. If the medical examiner detects a respiratory dysfunction, that in any way is likely to interfere with the driver’s ability to safely control and drive a commercial motor vehicle, the driver must be referred to a specialist for further evaluation and therapy.”(Note 5)   The failure to treat or require treatment for sleep apnea can cause both the driver and his employer to be in violation. Under Frequently Asked Questions/Medical on the FMCSA’s website, the following question and answer appears:

Is Sleep Apnea Disqualifying?

Drivers should be disqualified until the diagnosis of sleep apnea has been ruled out or has been treated successfully. As a condition of continuing qualification, it is recommended that a CMV driver agree to continue uninterrupted therapy such as CPAP, etc./monitoring and undergo objective testing as required.

Narcolepsy and sleep apnea account for about 70% of EDS. EDS lasting from a few days to a few weeks should not limit a driver’s ability in the long run. However, persistent or chronic sleep disorders causing EDS can be a significant risk to the driver and the public. The examiner should consider general certification criteria at the initial and follow-up examinations:

 

• Severity and frequency of EDS
• Presence or absence of warning of attacks
• Possibility of sleep during driving
• Degree of symptomatic relief with treatment
• Compliance with treatment.

Commercial companies rely upon the DOT examiner to certify a commercial driver. The DOT examiner may rely upon the driver’s disclosure that he has had a clinical diagnosis of sleep apnea, or the medical examiner may carefully review certain signs or symptoms that are often attributable to sleep disorders. However, this current approach is ineffective if the driver intentionally fails to reveal a clinical diagnosis or intentionally avoids identifying such signs and symptoms. The current approach also allows commercial drivers to shop around for a cooperative examiner. A primary example of this situation occurred in Kansas in May of 2005 when a commercial driver struck and killed a mother and her two young children after falling asleep. The driver admitted that he had sleep apnea and had gone to several DOT examiners before being certified.

The prevalence of sleep apnea among commercial drivers, the difficulties of diagnosing, treating and monitoring compliance with treatment, and the safety risks that this condition poses to the general public was recently the subject of a presentation to the Medical Review Board of FMCSA. Recommendations currently under consideration by the Medical Review Board include:

 

1. Improve the knowledge of DOT medical examiners and adopt more stringent requirements for certifying who can be a DOT examiner,
2. Require a sleep apnea screening for drivers with a body mass index of 30 or greater with high blood pressure or heart disease before the medical examiner can issue a medical card,
3. Disqualify a driver with evidence of excessive daytime sleepiness or involved in a crash resulting from the driver falling asleep. An AHI of greater than 20 may result in driver disqualification until the driver is compliant with CPAP use,
4. Disqualify a driver with evidence of non-compliance with treatment for sleep apnea.(Note 6)

The Medical Review Board also received recommendations specific to treatment protocols. It has been recommended that a driver should be required to use a CPAP machine for a minimum of 4 hours every 24 hours and have a 70% compliance rate each week. Such use and compliance with a CPAP machine will result in a one year medical certification if the driver is compliant for three months. Thereafter, compliance rates will be checked every year. The ongoing concerns include issues with real time compliance monitoring for over-the-road drivers, drivers who intentionally try to evade the system, and the fact that CPAP machines are not designed for use in a tractor trailer.

Although the Federal Motor Carrier Safety Administration has not yet approved and adopted any of the recommendations submitted by the Medical Expert Panel and the Medical Review Board, at least some of the recommendations are expected to be adopted. Given the prevalence of this topic, industry leaders should be aware of and responding to this problem. While larger carriers may have more financial resources to address sleep apnea within its driver population, the duty for all carriers of any size is the same—to ensure an FMCSR-qualified driver. Some efforts implemented by carriers include making an initial assessment during the hiring process. This assessment would include a review of the medical qualifications long form to identify any known signs and symptoms of sleep apnea, the use of a web-based screening questionnaire, and communication with DOT clinics. The duty on the industry does not stop with the hiring process since drivers who may not have sleep apnea when hired may develop it over the course of their employment. The risk of sleep apnea increases with age. In addition, several factors inherent in the commercial transportation industry, including sedentary lifestyle, poor diet, little exercise and irregular sleep patterns, add to this risk. Carriers should prepare, implement and follow through on a fatigue prevention and wellness program. A successful program should be proactive in managing fatigue issues and identifying the impact of medical issues, including sleep apnea. An effective program should also include an ongoing training and awareness program. Finally, employers can facilitate a driver’s sleep apnea problems by ensuring proper rest through consecutive hours of sleep when the driver can implement treatment protocols such as the use of a CPAP machine.

 

Despite the challenges, carriers must respond or be subject to liability exposure following a sleep apnea-related crash or incident. Exposure can equally arise from a carrier who has failed to implement a sleep apnea/fatigue and wellness program and carriers who have implemented a plan, but failed to follow through with that plan.

 

The future is coming, and it includes sleep apnea.  Some would say that the future is already here.

 

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Footnotes:

Title:  This article is reproduced with permission from a presentation presented by Tom DiSalvi (Schneider National, Inc.), Dana Hoffman (Young Moore & Henderson) and Wendy Sullivan (Precision Pulmonary Diagnostics).

2. According to data compiled by the National Highway Traffic Safety Administration, 7% of all serious truck crashes in which the commercial driver was at fault were attributable to the driver being asleep, which could have occurred for a variety of reasons including sleep apnea. A study sponsored by the FMCSA and the American Transportation Research Institute of the American Trucking Association determined that 28% of commercial truck drivers have mild to severe sleep apnea.

3. The Medical Review Board is commissioned to advise the FMCSA on the medical guidelines for commercial drivers.

4. The hearing was intended to focus on efforts to address eight outstanding National Transportation Safety Board recommendations and several congressional mandates to insure that commercial driver’s license holders are medically fit to drive.

5. The FMCSR recognizes that these recommendations are simply guidance and that the medical examiner may, but is not required to, accept these recommendations. However, while the medical examiner certifies a commercial driver at the time of exam, a motor carrier qualifies the driver every time he puts him in a truck. To this end, Section 3 90.3(d) of the FMCSR allows employers to have more stringent medical requirements.

6. A meeting summary from the Medical Review Board’s January 28, 2008 meeting on Sleep Apnea can be found at www.mrb.fmcsa.dot.gov\. The Medical Expert Panel which made presentations and submitted reports to the Medical Review Board submitted 14 recommendations specifically related to sleep apnea to replace the FMCSA’s current guidelines. These recommendations are also included within the meeting summary.

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Dana H. Hoffman is a shareholder at Young Moore & Henderson, PA located in Raleigh, North Carolina and an active representative of the trucking industry for more than 18 years. Dana’s practice routinely takes her across the state of North Carolina for appearances in State and Federal courts on behalf of her clients.

Top 10 Trucking Critical Issues

In October, the American Transportation Research Institute issued results for their 2008 annual survey of Top 10 Critical Issues for the Trucking Industry.  The results are provided in the table below along with the results from the previous 3 years.

Comparing annual results provides the following insights:

1. The 'Economy' debuted as a critical issue for the first time in the 4 year history provided by the study.  Of even greater significance is the fact it debuted as critical issue #2.
2. 'Fuel' and 'Driver Shortages' were in the top 3 concerns for all 4 years.
3. 'Government Regulation' continues to move up as a critical concern for the Industry.  In 2008, it was ranked as #4.

Full survey results can be viewed at the following link:  ATRI 2008 Top 10 Critical Issues for Trucking.

--  Joe White -- TruckExec Publisher / CEO CostDown Consulting