TruckExec

Driver Shortage: Operating Strategies for Trucking Companies during a Driver Shortage

A new webinar has been added to CostDown Consulting's website library that overviews what trucking companies should do to offset the impact of a driver shortage.  Here's the link:

 

 
 

 

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

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

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

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

Improve Cash Flow

Fourth Quarter 2008 has found many trucking companies having difficulty securing credit.  Those fortunate enough to have access have found the costs of borrowing have skyrocketed.

In our industry, receipt of revenue trails expenses by 30-90 days;  a difficult challenge even in a healthy economy due to the high costs and frequent payment demands of fuel and labor. 

As a result, managing Cash Flow - cash collected vs. cash paid out in a certain period - has become a survival factor for most carriers.  Here's an outline of activities that can help carriers improve cash flow :

• REDUCE COSTS - audit operations for cost reductions.  Lowering expenses automatically improves Cash Flow.
• MANAGE WAGES - reduce and defer payroll obligations where possible.
• IMPROVE SPEED OF COLLECTIONS - Reducing the number of Days Outstanding on Collectables will get you your money sooner.
• REDUCE INVENTORY - lower inventory levels means less money sitting on the shelf.
• MANAGE ACCOUNTS PAYABLE - extending credit terms and taking advantage of discounts will also improve Cash Flow performance.

For a more detailed description of activities you can perform to improve Cash Flow, read the  Managing Cash Flow  white paper in our web library.

Owner-Operators: Exit Strategy Needed?

Government pressures continue to grow and threaten the owner-operator model used by many trucking companies.  IRS court victories over FedEx Ground coupled with the Attorney General of California’s recent efforts to sue trucking companies over their alleged misclassification of owner-operators are making a lot of trucking companies nervous.

Threats against the non-employee status of owner-operators will continue to grow as ballooning federal and state budget deficits force treasuries to look for more revenue; in this case the perceived tax money not paid by employers for FICA and unemployment insurance.

Additionally, individual owner-operator law suit filings will most likely escalate as successful court decisions supporting governmental efforts increase and the lure of obtaining employee status complete with paid taxes and benefits becomes more and more attractive.

Most likely, we’re years and millions (and millions) of dollars in legal fees away from a definitive decision in the courts.  That doesn’t mean however that we shouldn’t consider our alternatives now.  If your company utilizes owner-operators, you may at least want to consider what your exit strategy might be. Possible strategies include:

·         Attrition – quit hiring owner-operators.  Going forward you only add company drivers to your fleet.

·         Buy-Outs – compile a lease expiration and residual value schedule from your owner-operators to determine buy out options. When a lease expires, convert the owner-operator to a company driver and make a purchase decision on his equipment based on residual value and your current fleet profile.

·         Employee Owner-Operators – used by the courier industry, these are employees (company pays taxes, provides benefits) that get paid wages and truck pay. posted 9/19/2008

Impact of High Fuel Prices on the Logistics Industry

It's always important to understand the customer's perspective and strategies and thanks to an August 2008 study published by Eye for Transport,  we have that ability.

The report, entitled 'The Impact of High Fuel Prices on the Logistics Industry' outlines the views of 892 respondents comprised of senior executives from manufacturing, retailing, 3PLs, freight forwarders and carriers.

Some of the interesting observations include: 

• 61% believe carriers are exploiting fuel surcharges
• More than half stated they are pushing inventory costs closer to final destination through increased inventory levels
• Over 40% said larger loads are being shipped
• 58% said they passed fuel price variances on to the customer

A free copy of the 14 page report can be found at the Eye for Transport website.

Trucking: The Most Dangerous Profession

A report conducted by the Washington State  Department of Labor and Industries tagged Trucking as the most dangerous profession in the state of Washington in terms of injuries and fatalities. 

The 58 page report entitled 'Preventing Injuries in the Trucking Industry'  ranked the rate of injuries by group; with Specialized Trucking having the least amount of injuries and Couriers and Messengers having the highest. 

The study also provided solutions for preventing injuries, with a focus on 5 causes of injuries:

1.  Musculoskeletal Disorders  2.  Falls from Elevation   3.  Falls from the same Level  4.  Struck by or against a Vehicle (non-collision) 5.  Struck by a Vehicle (Collision).

Study data was based on the period from 1997 - 2005.

Green Policy

Let’s be honest.  For most of us our Green Policy is motivated by the green color of money, not the re-greening of our planet.  The reduction in CO2 emissions as a result of industry fuel conservation efforts is a benefit derived primarily from our financial, not environmental, concerns.

Nothing wrong with that.  As executives, we have fiduciary responsibility to our stockholders and/or owners, and social responsibility to the communities in which we operate.  Reducing fuel consumption serves both of those purposes.

However, the time will soon come when our shippers demand that we have a broad, comprehensive Trucking Green Policy; one that goes well beyond the single focus of fuel conservation. Unfortunately, most truckers today are a far distance from having such a policy.

To illustrate the gap, ask yourself this:  “How many of the truckers that have joined SmartWay recycle bottles from their Coke machines and paper from their printers?”  When the motivation to make change shifts away from financial gain, we tend to lose interest in the environmental opportunity.

Developing a comprehensive Green Policy will take time and in some areas involve additional costs. Most of us will probably agree that Shippers will eventually require all carriers to have such a policy, so developing and easing into 'Green Trucking' now might be a good strategy.

Here are some example areas that could be considered for your Green Policy:

·         Recycling – bottles, paper, batteries, metals, fluids. Take discarded electronics to approved recyclers – not landfills.

·         Waste Reduction Policy

·         Energy efficient fixtures, appliances

·         Water Conservation – low flow fixtures, minimal use training

·         Storm Water Audit and Policy

·         Company Car Policy based on high mileage or hybrid vehicles

·         Vendor selection based on environmental factors

·         Employee education on resource conservation

What are Drivers Saying About Your Company?

If you aren't aware of Internet based Truck Driver Forums, you should be.

These electronic forums serve as opportunities for drivers to post their thoughts (and more importantly read the thoughts of other drivers) concerning the good and bad points about working for current and past trucking company employers.

Not important?  Think again.  Some of the recent posts on The Truckers Report (Link to Truckers Report) concerning trucking companies have approached 100,000 views.  That's a lot of potential drivers influenced towards or away from your company.

In this forum, there are two areas of particular importance:

• Report a Bad Company here
• Discuss Your Favorite Trucking Company here

Without revealing to which area a particular company was listed, here are some of the stats:

• Swift - Views:   76,859
• TMC Transportation - Views:  97,799 
• Schneider National - Views:  66,979
• J B Hunt - Views:  44,054
• etc...

Virtually every large carrier can be found at this and other forums.  So what should a carrier do?   If you are sincerely interested in improving Driver Recruiting and Driver Retention, here's my recommendations:

1. Monitor Driver Forums on a regular basis.
2. Respond to those posts that are inaccurate.  Be honest and up front with forum members.  Identify yourself as a company official wanting to 'set the record straight'.
3. Be honest and up front with yourself.  Take note of the consistent complaints and find ways to fix them.

Capacity - Are Truckers to Blame?

Speaking at ATA's National Accounting and Finance Committee in March of 2008 Kevin Knight, Chairman and CEO of Knight Transportation explained that the 2006 pre-buy of tractors added excess equipment into the market and caused equipment utilization to drop by 5-6% for carriers.   Much of the Trucking Capacity decline we have been experiencing is the result of our own buying initiatives.

In July of 2006 I wrote a Letter to the Editor of  Transport Topics ( letter ) that addressed the same issue -  over buying of fleet can lead to capacity issues and depressed used truck pricing.

The point is this:  As an Industry, we created much of the over capacity that plagues us today (obviously the economy plays a large part also). 

The follow up question is this:  As an Industry, are our current actions laying the ground work for future under capacity?

Consider the following:

• Trucking companies are selling equipment overseas to reduce depreciation/lease costs and improve revenue/truck performance
• Governor setting set backs designed to conserve fuel have reduced driver productivity
• Truckers have significantly reduced orders for new equipment - Truck manufacturers report greatly reduced sales for the first 6 months of 2008 compared to same period last year (Sterling down 48.1%, Volvo down 17.5%, Freightliner down 32.9% to name a few)