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Decisions 2004 – CEO Forum – Advice From the Top

It's not often that you can get 12 of the industry's most respected CEOs to set aside their competitive differences and share their strategies for success, but that's exactly what the OTA orchestrated...

It’s not often that you can get 12 of the industry’s most respected CEOs to set aside their competitive differences and share their strategies for success, but that’s exactly what the OTA orchestrated with its first executive forum.

The forum, held in conjunction with the OTA annual convention, was a virtual who’s who of trucking industry executives and it produced some forward-thinking and hard-edged advice for carriers looking to improve their operating practices.

Q. What are the keys to success?

Don Streuber: Recognize and treat your drivers as your most valuable assets. Understand what is quality revenue for your business model and don’t be afraid to fire bad pieces of revenue. Know your costs inside and out.

Rick Gaetz: Know what your market is and don’t allow your customers to push you into markets and areas you don’t want to be in. Do what you say you are going to do for your customer but remember that’s a two-way street.

Stan Dunford: We have a focus on quality of revenue. I’m a firm believer that the quality of revenue that you go after has a proportionate impact on every other operating cost that you have. Start with quality of revenue and you will find out that your CVOR improves, your driver retention improves, every operating aspect improves in direct correlation. Learn to say no and learn to find customers that are interested in your long-term viability. If they are not, get out of there.

Mark Seymour: Alignment of staff and customers who are committed to the success of your organization. If you don’t have staff or customers who are committed to your success, then you can have a bigger problem than you are able to overcome.

Gary King: Hire the best people possible and treat them the way you would like to be treated. Look for the business that fits the assets you employ. Good fit increases margins.

Q. What can carriers do to manage their insurance costs?

Brian Taylor: You need to be aware of what drives your costs on insurance – We’ve communicated a lot of times directly with the insurance company, even going down to their office. Although I have a very good broker, I feel that no one can explain better what our business is about and what we are doing to reduce their costs.

Evan MacKinnon: There is an opportunity to negotiate with your broker a broker’s fee rather than paying the percentage commission. There have been lots of carriers talking about receiving 40-50% increases and there is no reason the broker needs a 40-50% increase. You can negotiate a deal with them to look after your insurance. It can make a big difference in what you pay. Also, don’t go to market every year because the underwriters get so tired of looking at your file they don’t bother to put the effort into it. Take a real good shot at the market every three years and the underwriters will look at the file thoroughly and give it their best shot in terms of pricing.

Don Streuber: Insurance is an area that trucking companies don’t understand fully. You have to find a broker that you can partner with. You need somebody who can be your advocate, fighting on your behalf. And recognize the things you need to communicate such as the quality of the driver you are hiring. Understand where there are flexibilities in how policies are structured and determine the best model for your operation. Manage your assets as tightly as you can because every incident is a black mark that increases insurance costs.

Dan Einwechter: Do not trust your insurance agent to develop the profile on your company. Do it yourself and then you have a template from which to work year to year.

Mark Seymour: Take on more risk. If you believe strongly in your principles, there’s always an option to take more risk. We began self insuring a few years ago for collision because we believe firmly that taking that risk was something we were prepared to do. You want to be seen as a low risk client.

Q. What can carriers do to moderate the impact of the high Canadian dollar?

Serge Gagnon: You will not be in business if you don’t address it. It’s very simple – you’re losing 20%. You have no choice. When we did the budget in 2002 we did it with the U.S. dollar at $1.54 (CDN). We were facing a choice. We told customers we either change that or we walk away from the business. It was their choice. As of September, we don’t have any more problems with currency.

Brian Taylor: We all got caught up on the upside the last few years and thought of U.S. currency as an asset and now it’s a liability. The only option you have is to reprice. You can also hedge that liability by making your payables in U.S. dollars equal your receivables in U.S. dollars.

Dan Einwechter: You can forward trade your currency with the bank a year or two out and that will cover you a little bit. With clients we’ve had to either go back to them and put a currency surcharge in place or sit down with them and say here’s what the exchange rate was when those rates went into play. But I still get carriers calling me asking what they can do about the currency situation. The problem started in January. If you’re asking in November what to do, I tell you now, if you’ve done nothing, kiss yourself goodbye, I want your drivers.

Mark Seymour: We have to believe that raising rates because of the dollar is not creating an opportunity for U.S. carriers to come to Canada because they have to appease their labor force and their labor force does not want to deal with the border. If they can keep their assets busy south of the border and not have to deal with the border, that’s exactly what they want to do.

Q. What are the main current challenges with security and how should they be dealt with?

George Ledson: Everybody who knows what’s going on is getting into the FAST program. But if your shippers are not in the FAST program, you’re nowhere. You have to get your customers to buy in. We are educating the shippers through notices and meetings. A lot of the shippers don’t even seem to know about this program yet. If you’re an LTL carrier with 10 shipments on your truck and nine of them are FAST approved and one of them is not, you will be sitting in the slow lane.

Stan Dunford: You won’t have any drivers left if you are not FAST approved. If your guys are in line and they are being passed by guys in the FAST lane, they won’t have a future with your company…You have to be in the face of the customer, explaining to him that with this driver shortage comes a responsibility on his behalf. If he wants to get his product to market, maintain market share and be sure the product is delivered in a financially sound way with the right kind of driver meeting hours of service – he’s going to have to get on that program pretty quickly or he is going to lose the drivers that he’s got. The sales pitch on the shortage of drivers has to be set up at a level or two higher that it has been.

Rick Gaetz: Obviously everyone buys into the fact that we need greater border security and easy trade between the two greatest trade partners in the world. At the end of the day it’s going to be a more secure system but it’s going to cost more. And you can not incur any costs without finding a way to pass them through to the customer from a pricing perspective – not a surcharge perspective, customers don’t want to hear that. You can’t deny the additional costs; you’ve got to recover them.

Mark Seymour: We know the impact of not being part of FAST. Our customers don’t and we have to deliver that message and create a punitive measure for those customers that don’t want to be part of FAST. We need to have trucks moving efficiently through the border and customers have to buy into that and the only way they will is if there is a punitive measure if they don’t.

Q. How can you reconcile the costs of compliance with the need to return a profit?

Claude Robert: I want to be able to sleep at night. You want to comply because you want to make sure that never, ever is one of your drivers involved in anything because of you not doing your job. It is also a measure of quality. If you invest in safety and security, in the shor
t term costs will go up. But over the long term you will be making all the right decisions to reduce your costs. If you don’t know the cost of something you do nothing to correct it. But once you invest in maintenance to comply with regulations, then you start to spec your vehicle differently. There will come a time that you will see that it’s cheaper to be compliant.

Don Streuber: The best thing we can do for our drivers is respect them. And how can you respect your drivers when you ask them to run illegal? How can you respect your driver when you accept not following the rules as part of your culture? Complying is simply one of the business factors we have to deal with. It’s no different than changing equipment costs, maintenance costs or insurance costs. It’s simply a cost of production. If we know our cost we can go to our customers and price our service at a level that allows us to be profitable, compliant and respectful to our drivers.

Gary Babcock: The cost of compliance is rather simple to figure out. How many of us would be around without a CVOR? Non-compliance leads to the loss of your CVOR. It behooves all of us to be as safe as we can be. Money spent on compliance is money well spent.

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