In conversation with Dan Einwechter

Truck News

CAMBRIDGE, Ont. – Dan Einwechter, founder and CEO of Challenger Motor Freight, one of Canada’s most successful for-hire carriers operating nearly 1,500 trucks domestically and into the US, doesn’t pull any punches when discussing industry issues.

As he acknowledges in the following interview, that approach has at times earned him the scorn of his customers. Yet, he’s not about to change. And while he prefaces some of his comments by indicating he’s speaking as a 37-year industry veteran, and not necessarily on behalf of Challenger Motor Freight, he’s still not shy about ruffling a few feathers.

As the Canadian trucking industry continues its recovery from arguably the darkest time in its history, executive editor James Menzies caught up with Einwechter for a candid, wide-ranging conversation about the state of the industry, shipper-carrier collaboration, driver and owner/operator compensation and future technologies…

TN: Dan, it’s always customary to ask folks how business is, but let me ask you how rates are, because if rates are decent it seems everything else falls into place. How are rates?

Einwechter:  We started the journey last year of getting rates up, but we still have a long way to go. There’s the issue of, there needs to be fair and adequate compensation for all the participants: both the owners and the operators. We like to think we’re fair and we do the best we can, but we’d all like more. I think in some fleets in particular the owner/operators have taken it on the chin, as evidenced by the reduction of O/Os out there, period.

The bottom line is, the Canadian market is a little bit slower on the uptick to embrace some of the changes that are occurring south of the border. I don’t know if it’s because we feel we can weather any storm and we’re not willing to deal with the challenges and go talk to clients about rate increases, changing the structure and the style of the relationship, but those things are significant.

On the recruiting side, where it used to be you’d hire one out of 10 interviewees, now it’s one in 30, one in 40. The quality coming through the door (has deteriorated). What does that mean? Maybe we have to hire the people coming through the door and take on more intensive training in-house rather than expecting others to have trained them before they get to us. That comes at a cost. There are all these pressures that are there, so we need to have a more sustainable industry with more reasonable returns for the long-term.

I’ve had shippers get frustrated with me when I have attempted to discuss the future direction of the industry, whether it’s rates or employment, because I can be vocal about it and maybe at times I’ve been ahead of curve by a couple of years. I’m not talking on behalf of Challenger here, I’m talking on behalf of an industry I’ve been a 37-year participant in and making my comments based on that.

TN: When you talk to shippers about the cost pressures carriers are facing, do they get it? How receptive are they to the idea they’ve had a good run and rates are going to have to go up? Are they generally open-minded about rate increases?

Einwechter: There are very few that are going to be open-minded about rate increase because they’ve got their job to do and they have to protect their employer’s best interest. Objectively, many of them understand the issues that we’re facing, but subjectively they think that’s for everybody else, not for them. ‘I don’t want that rate increase in my backyard, let it go to someone else’s backyard.’ So as carriers, we need to have meaningful dialogue about how to go forward. But I can tell you, I think carriers are getting worn thin by having customers continually lecture them about what they need to do to get their costs down.

If a carrier tries to discuss with the client about how they can be more proactive and mitigate costs, in the past that hasn’t been received well. But the very intuitive customers love that. The ones that are the most proactive and engaging with their carrier base are the ones that are more likely to have an effective five-year logistics and distribution plan.

We have a couple shippers that are very intuitive; they could see this coming and have had carrier forums, carrier gatherings, where they sit down and say ‘How can we get through this collectively and meet everybody’s objectives as best as possible, mitigate our cost increases but help you get to where you need to be Mr. Carrier and Mr. Driver, so that what you proposed to us is sustainable?’ I love those shippers. It doesn’t mean you walk in and say ‘Nice to see you, Jim,’ give him a slap on the back and get a 10% increase, but if you quantify and qualify the issues at hand and try to be proactive, they’ll say ‘Okay, let’s work this one through.’

TN: Let’s talk about the recession. In the years leading up to it, Challenger diversified quite a lot by adding waste hauling and getting into specialties like the clean energy sector. How important was that in getting through the downturn?

Einwechter: It helped. It was a big capital cost; it’s not without its challenges. But it definitely helped to have that diversity because the van market in and of itself was horrible.

I’ve explained this to people, James, in these terms: If you look at what (American Trucking Associations chief economist) Bob Costello said, his analysis said there was a freight recession in the US in August 2006, one year after we moved into our lovely corporate facility.

That was in the US. It was further exacerbated from a Canadian perspective because of the rapid escalation of the Canadian dollar. So many carriers were involved in cross-border trade in some fashion. Our export markets were decimated, so the southbound loads that had a certain implied rate attached to it in our analysis were altered because shippers were shutting down, diminishing production or changing their rate structures. So for Canadians it became a double-edged sword above and beyond what was happening in the US.

For us, we are both a significant cross-border and east-west carrier. Then a lot of cross-border carriers trying to live another life jumped into the domestic market and beat that market up with no rhyme or reason. It was tough.

TN: Was there ever a time when you thought Challenger might not make it through?

Einwechter: You know what, our slogan is ‘We go the distance’ and failure is not in my vocabulary, so no. Now did I wake up at 3:10 in the morning a lot of times and think about the things that were on my mind, like the general economy and the rapid escalation of the Canadian dollar? Yes.

Locally here, we had clients like Michelin, NCR, MTD and Lazy-Boy that we did north- and southbound business for. If you look at just the southbound business we did for those companies in this marketplace – never mind the warehousing and logistics portion – that was $25 million a year in revenue that went away because they shut down. We had to fill those voids.
GM filed for protection and we were a huge carrier for GM. At one point in time they owed me $7 million. But they paid it all. They paid every carrier because they needed carriers and warehousemen to be essential services.

The positive that came out about that is, as I tell my team, we learned how to handle adversity very well and it showed the depth and the skill of the team in being able to adjust and replace that business, which a smaller company with fewer resources would not have been able to do.

TN: Speaking of smaller carriers, you started out with one truck. Could you replicate the success you have had in today’s environment? Is there any hope for the one-truck owner/operator who wants to build a large fleet?

Einwechter: I’ve seen some small companies that started off and have done well, whether they have 50 or 100 trucks, they’ve done okay. So I’d say, yes, they could succeed. It’s up to them and how they handle risk and how they fund their risk. It’s maybe less likely, but still possible. But back then we had a much freer reign in many ways as an industry – whether from a regulatory perspective or compliance – we’d just go. It was definitely a different time.

People say ‘Isn’t that nice, Einwechter, you were able to do that and now the same guy you were back then, you’re complaining about entering the marketplace.’ My response to that is that it’s a different time. We have more responsibilities placed on our shoulders today, both financial and safety, employment regulations, how we treat our employees, our obligations to society – it’s dramatically more complex.

TN: Now that we’ve emerged from the darkest period of this downturn, we’ve seen a pickup in mergers and acquisitions activity. Are you in that game or do you prefer to grow your fleet more organically?

Einwechter: We will not increase our fleet size here by buying more trucks to grow. What we would consider doing is looking at acquisitions we’d be able to bolt on. I have no desire to go out there and buy somebody else’s headaches. The MacKinnon (van division) acquisition by Contrans is a good example of a bolt-on acquisition; they were able to bolt that right on and add 60 or 80 drivers in the process.

TN: Unlike in the past, the industry has thus far shown some restraint in adding capacity as volumes have recovered. Fleets are just now buying trucks and it’s mostly replacement demand that’s driving new truck sales. Do you expect that to continue?

Einwechter: You know what, the trucks aren’t going to be the limiter anyways, it’s going to be the drivers. The general age of not just the driver force, but also the ownership in this industry is older.

We had a young, dynamic, aggressive ownership group coinciding with deregulation. We were baby boomers and that demographic coincided with deregulation, and if you look at how deregulated markets work, they go through a 20- to 30-year period of adjustment. So we’ve adjusted, we deregulated and now we’re self-regulating to a better way and I think because of 2008 and because of the other challenges we face, carriers are saying there’s a better way than to throw capacity at industry. Look at the railroads; they don’t throw capacity, they limit it, they control it and I think we can learn a lesson from them.

TN: We touched on the shortage of drivers. Do you think in your career we’ll see a transition to hourly pay?

Einwechter: There’s a whole bunch that needs to be discussed around that. It’s not a matter of being paid by the hour, by the mile, whatever, it’s a matter of fairness and equity in how they’re paid.

Most European drivers are paid a salary or by the hour and their experience isn’t that much different. It’s not how you pay as long as you pay fairly. I think when you have an activity-based pay system in any industry, there are some that will always question the fairness and equity of it. I think we have done the right thing in trying to be fair and equitable. Can we improve as we go forward? That’s how we proceed as a society. Where activity-based pay really becomes attacked is when drivers are working for carriers that operate sub-par equipment and they’re breaking down for extended periods of time with no activity.
I’ve had people say ‘If you pay by the hour, it’ll be different.’ I don’t know if their net pay would be much different at all, or if just the pay structure would be different. So let’s not confuse that if paying by the hour, it’s suddenly Nirvana and they’re going to buy a house on the hill.

It might change eventually. But my drivers love what they do. Is it a tough job? Absolutely, it is. But it’s also exciting, rewarding, interesting. It’s a job where people who don’t want to be harnessed in a factory or in a standstill position someplace, they relish it and cherish it. Some people like it and some don’t, but there’s this whole dynamic that needs to be addressed. It’s how you treat the drivers. We think we treat our drivers well.

TN: So if not hourly pay, what types of adjustments will need to be made to make this industry more appealing to new drivers?

Einwechter: I think there’s going to be a whole bunch of different ones. It’s how you change the workflow. We may have a four-and-three program where one driver goes out for four days in the truck and one guy who maybe wants to work part-time runs it three days, so you have to try to design runs around that. We’ll have to try to get people home more. There’s no one solution to that. And it’s not just us, other industries are going through the same thing. We’re going to solve the problem, it’s just a matter of how. I can tell you we will only solve it through a collaborative approach with our clients.

TN: Many owner/operators got into the business because they have this dream of cruising down the highway in a brand new, longnose tractor. Now, those trucks cost well over $100,000. Is that dream still viable?

Einwechter: Maybe not a brand new, fancy, non-aerodynamic truck, but it depends on the revenue they’re getting, how well they manage their affairs and how well they maintain their truck.

All those things that were there 20 years ago are there now, but the fuel economy is a bigger issue now than it was then. I remember when I started driving for Erb Transport when I was 18. They would sell gas to us for our cars for 25 cents a gallon. At 25 cents a gallon for gas or diesel, it wasn’t as critical whether you got four miles per gallon or five miles per gallon. Now at $4 per gallon, the fuel issue becomes much more critical. We’ve had owner/operators come in – good operators as far as safety and interaction with our clients and performance on the road – saying ‘Gee, I’m spinning my wheels.’ We’d walk them through it and their fuel economy was abysmal.

We’ve had some owner/operators where our safety department has taken the time and helped them go from 5.5 mpg to 7.5 mpg just by changing driving techniques. We have incentives for safety and fuel economy for our operators, and we’ve seen where one truck was shared by two drivers, one driver’s mileage was two mpg better than the other guy’s and he’s getting his fuel bonus and the other guy isn’t. So we spend some time with him and now he’s getting his economy up just by changing his driving.

TN: You’re an equipment guy. What technology do you think will help you get to the next level in terms of fuel economy? Are you a believer in natural gas?

Einwechter: We ran five natural gas test trucks here going back nearly four years now. They were on our waste division hauling 140,000 lbs GVW and they did a phenomenal job. There were some programming glitches, we had fueling challenges because of the capacity of the tanks, things you’d expect to occur because it was in its infancy.

I really didn’t know how far it would go or how attractive it would be. My biggest fear is, everybody says how great and how cheap that fuel is and the caveat is as long as there’s no road tax, yes it’s cheap. There’s no road tax on it, but if we converted all the trucks to natural gas, guess what that would do to the coffer for road tax. That’s always been a scary point. The International announcement last week with Clean Energy in the US (read about it on pg. 70), I found that very intriguing. They took a problem and found a different way to approach it and that will help, I believe, get that to the next level. Six months ago I would’ve still said I’m not really sure. Now I would tell you, boy that looks pretty intriguing.

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