Leaders: Taking risks and changing the rules

For the keynote session at the Driving for Profit seminar, Fleet Executive publisher Lou Smyrlis conversed with Kretsinger, president and COO of American Central Transport (ACT), before his term at the helm of the TCA concluded.

Smyrlis: You followed both your father and your grandfather into transport law before you joined your father’s trucking company. What was the attraction?

Kretsinger: They have some things in common. I’m from an industry—the legal industry—which has a bad image. And in trucking there are a few bad apples that spoil the bunch.

I did come to it in an unusual way, I practised law for 17 years. My practice had a lock when trucking was deregulated. It was kind of the wild west. The 80s and 90s—that’s when you saw the J.P. Douglases and the Swifts and Schneiders and Knights, and so on, grow like crazy.

When you get into the business I did, it takes a couple of years to adjust, because lawyers are trained to avoid risk, and as you all know, we are in a very risky business, and unless you park the trucks and take the keys away, it’s hard to avoid that. Lawyers tend to focus on ‘how can I stop anything bad from happening because we charged you for that advice?’ We don’t want bad things to happen and then get blamed. But it was a good background and I think law teaches you a number of things. It teaches you to be forward-thinking. It teaches you to hear both sides of an argument before you your conclusion. It teaches you to go after facts. And it teaches you sometimes to be able to take a position you may not personally agree with, but that’s the best position at the time.

Smyrlis: You’re right. Lawyers are adverse to risk. Their whole purpose is to make sure the risk is mitigated. How do you overcome that background and all of the sudden being willing to take risk as a businessman?

Kretsinger: I think what I do is weigh risk a lot. I look at my world somewhat still like a lawyer. I look at it as a castle, and I need to build my moats. I see the things that could attack us. It’s true for all of you. We live in an environment where there’s a lot of enemies that could offend you at any time. But the risk is getting different in business. There is a lot of legal risk—for example, owner/operators. We are 70% owner/operators. In America a lot of government people want to do away with owner/operators, and they want to make them employees. Why? They want the money. But I want the drivers and the drivers want to be owner/operators and they are very productive, efficient people, so looking at something like that, you have to say: if I stay in the owner/operator business, which is increasingly risky, where is that threat coming from? Payroll taxes? Obamacare? Workers’ comp? Unemployment? What does that look like? How many dollars does that not insure?

If I switch over to the company model, on the other hand, what does that cost? Where is that risk coming? Other examples [earlier in the day] mentioned the ‘equal opportunity screw truckers agency’ [the US federal Office of Equal Rights] we have. They sued Old Dominion for pulling an alcoholic out of the truck because he was disabled. What would a defence lawyer tell you about putting alcoholics in trucks? Don’t hire anybody with a DWI in the last 10 years. What does the EOEC (Equal Opportunity Employment Commission) say? Oh let him go to rehab, be nice to him.

You get these issues of safety versus fairness. And everybody wants to be fair and everybody wants to be safe but sometimes you can’t be both. So you have to weigh in: what are the odds of having this guy in a truck. He’s going to have a wreck. The lawyer is going to say that. And what’s is the wreck going to cost? And is that insured? On the other hand, if I don’t [put the driver in the truck], what’s going to happen?

It’s becoming a sophisticated business and that’s why I think networking, like what you’re doing here, like what we do at TCA, is becoming a critical survival skill. I don’t think you can sit in your office by yourself apart from your colleagues and have your people butter you up because they all work for you, and understand how do deal with these things. You need to be out with your peers like you are today.

Smyrlis: Speaking about learning how to take risk, I found there are several situations where you are taking some risk. Prior to the recession, ACT’s recruitment policy was to hire quality drivers with industry experience within the last year. Since then, you’ve developed a driver recruiting program that targets returning military veterans and former drivers. And these folks may not have been behind the wheel for years. Why the change in approach?

Kretsinger:  We’re all dealing with drivers and you’ve got to continually look at what you’re doing. I think the difference pre-recession and now is we always hired new drivers. Now everybody wants those same drivers. It used to be companies would just hire anyone. With CSA and all of that they don’t do that anymore. We’ve come up with a couple of programs. Historically if a guy didn’t have recent experience, we would not hire him. We started a program we call ReActivate—our company is called ACT—where we would take these guys, put them out and train them for two weeks. We’d have a protocol and if the trainer felt they could meet that, we’d let them drive. They’ve turned out to be great drivers.

We tried the military. I can say that has not worked. Now I don’t know, maybe these people after four or five tours of Afghanistan don’t want to get in a truck and leave their family. I don’t know what the problem is but we can’t seem to find an interest in those folks. Maybe other companies have been more successful.

On driver pay, that has probably been the most radical change. What all of us are seeing—I know you’re seeing it—is our costs go up faster than our rates. We call that margin squeeze. That’s not sustainable. So what is the answer to that? The only logical answer is you have to get more productivity. You have to get more from what you have. The thing we noticed a few years ago is some of our worst drivers are some of the best paid, because of tenure. And some of our best guys, were lower paid because they had only been with us a while.

So we went to a pay-performance model where our company drivers’ pay resets every six months, based on how they perform. We do it in the office all the time. You look around at your employees. Some are better than others. Probably your pay reflects that. But we’ve always, as an industry, treated all drivers the same. But they’re not the same. Some work harder than others. Some get better fuel than others. Some are safer and some are more professional and show up on time. We’re experimenting with that.

Smyrlis: That makes a lot of sense. But there’s also the reality that someone who used to make X amount now because you’re basing it on performance is now perhaps going to make less than he was getting.

Kretsinger: One thing we’ve found as Americans, we’re a little slow. They’re always happy when their pay goes up and always unhappy when their pay goes down. It took us a couple of years to figure that out. Actually the way we’ve got it set, we pay from US$0.36 to US$0.45 cents. My US$0.45 cent drivers are more efficient and make me more money than my US$0.36 cent ones. So we try very hard to get them up, but if a guy goes from US$0.40 to US$0.36 and he leaves after trying, that’s probably a good thing for us because he’s getting terrible fuel economy, or whatever.

Smyrlis: What results are you seeing? I imagine part of the reason you did this other than wanting to pay in a more fair way, is to drive an attitude change—that the better performer you are, the more money you’ll make. Are you seeing a change in attitude amongst your drivers in how they’re driving?

Kretsinger:  Mostly. The key to this is you have to have something that is very hard to get, and that is fleet managers acting like managers. They want to act like dispatchers, but we’ve been working very hard on that. We’ve seen people—we have one lady who never got six miles per gallon get eight all year. She has improved. I found some old hillbilly from Jonesboro, Arkansas, been with us 15 years, I just learned he drives with his jake brake on. Are you kidding me? He thinks that’s what it’s supposed to be. And you can’t convince him otherwise. He wont’ be happy with his pay.

Smyrlis: You mentioned you need managers to actually manage for this to work. Give me an idea of some of the things you need your managers to be doing with the drivers.

Kretsinger: One of the things we’ve struggled with for a couple of years, and we’ve got fixed now is technology. We needed a driver’s scorecard that you can see—that they can see—is objective and accurate to work off of. We finally got one. A couple of other things: phone recording, so if you call in we record it for quality assurance purposes, and we actually are. There is a place on the scorecard to put in notes about when they talked to a driver and what they said, so we can reference it and we can go back an listen, to help them improve.

Ten years ago, we didn’t have any idea what they were doing. Now with the data and technology, the driver is not alone in his cab. The fleet manager is not alone at his desk. We have visibility into that, and once you see what people are doing, these things just suggest themselves.

Smyrlis: How did you get buy-in from the truckers?

Kretsinger: The timing was good. In the recession, our freight dropped 25%, so we cut our fleet from 400 trucks to 300. So we called on the drivers who we laid off—who were obviously not our best ones. Everybody took a paycut. I took one. Drivers took one. Office took one. It was bad times. It was survival. When the clouds started to lift in 2010, and drivers looked to return, we said, ‘OK, we’re going to put everybody back and raise the drivers’ [rate] but I have to have something in return. No more will I ever just give raises for the sake of it

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With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics.

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