Over the past few weeks I’ve had the good fortune to interview some of the most respected leaders in the motor carrier industry. I discussed with them the impact of the recession and how it has changed the trucking industry and how that will affect carrier decisions ranging from capacity to rates going forward.
First up is a two-part blog containing the highlights of my conversation with Mark Seymour, head of Kriska Transportation. (By the way, if you find these discussions to be of interest, be sure to join us this May 26th in Toronto for our 2nd annual Maximizing Profitability Workshop, organized jointly with Dan Goodwill & Associates. It’s full of good advice to help you manage your way in the reset economy.)
Now here’s what Mark Seymour had to say:
Q: Most people in trucking would say that the best thing about 2009 is that it’s over. Yet I’m sure there are some good things to come out of the recession. How is Kriska a better company today by surviving the challenges of 2009?
Seymour: We are more efficient because we’ve had to be. As good as anyone thought they were, they’ve had to find new and better ways to get things done. From that perspective I would say we are better. We are better at identifying costs and waste and pulling it out of the system. But there just wasn’t that much waste in the system to be able to give back to the magnitude that we have in terms of rates. When we pull out of this, those are valuable lessons that we can’t forget but we’ve got certain things we have to address, such as wages. Driving a truck is a very challenging job with a lot of regulation and a lot of time away from home and eventually in order to retain and attract people to this industry we have to address pay. It has been nothing but contracting the last couple of years because it represents such a significant portion of our costs. For most TL carriers, wages represent 30-40% of our cost base thus the reason for the pressure there.
Q: How will the efficiencies you’ve gained impact your dealings with shippers?
Seymour: There will come a day soon as the economy picks up when capacity will be tight again and it will be hard to find reliable, competitively priced and stable carriers. Efficiency and quality should be important to customers because if you have aligned yourself with anything less, you are putting your product to market at risk.
Q: How will the trucking industry that emerges from the recession be significantly different than the one that entered the recession?
Seymour: I hope before anybody gets in a growth mode again they are going to be in a repair mode first. I would hope there will be a limit to capacity growth in favor of repairing the balance sheet damage that has been done the last couple of years. There has been a lot of damage done and I think it will take years to repair. In a stable year you get a 5% rate increase in TL. We’ve experienced a contraction in pricing in the TL market between 15% and 25% over the past 24 months, exclusive of surcharges. We didn’t have that much to play with and give back yet we did. Five percent increases compounded over the next three years are only going to take us back to where we started. We have to take the initiative to address this problem. Shippers are not going to address this issue for us. We all have to get serious about doing it; it has to happen.
Q: How do you get solidarity in an industry of 10,000 carriers embroiled in cut-throat competition?
Seymour: I don’t know how you get solidarity but the issues have to be addressed. The market always prevails and sorts out its weakness. This will get fixed because it simply can’t continue. There is a lot of desperation in the market right now amongst carriers for volume and shippers are taking advantage of that. You can’t blame them. The convergence of the two makes for very interesting times. It’s a buyer’s market. The shippers will take all that we will give and we seem to be willing to give more than we have available. It’s really crazy. We have to start educating shippers that this is not sustainable. We require a certain amount of income to operate responsible, sustainable businesses. As an industry our operating ratios at the best of times have been in the mid to low 90s for the best operators. How can we give back 15-25% and have it be sustainable? You can’t. Worse, some are trying to stretch out payment terms. We’re not banks. We pay fuel and wages every 7-14 days and that’s 75-80% of our operating cost. We need to be paid faster, not slower.
Q: How will this impact the shipper-carrier relationship going forward?
Seymour: Shippers need carriers and the opposite is also very true. No one wins when you continue to grind one another. It may have short term benefits and it may appear to be saving money but it’s not a good long term strategy. We all know that. Shippers are trying to capitalize so intently on this desperation in the market they are bidding the business every time they think they can take another cut out of it. How are we supposed to operate our business with strategy and continued investment when the relationships with customers are potentially coming and going? You can’t. At the end of the day, we all want to give our customers what they want and pay for. In order to provide that, we have to build long term relationships and strategy together. Not one year at a time. That’s managing chaos, not partnering.