Long Road To Recovery

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Q: We have carriers on the panel from across Canada, from TL and LTL, large and small. Looking at the economy, have we hit bottom?

Bruno Muller, Caron Transport: It’s fair to say it has stabilized. In Western Canada, the peaks and valleys are not as big as they were. Sales month-to-month were down as much as 42% compared to last year, but that has come up. It will take a while to get excess capacity out of the system though.

Eric Gignac, Guilbault Transport: In Quebec, TL rates are still down. LTL is feeling an increase in volume, but there are still shippers asking for rate decreases.

Vaughn Sturgeon, Warren Transport: We probably never bottom out in the Atlantic because we never boom either. There is still a great deal of uncertainty. The volumes seem to have stabilized, but rates are still falling.

Mark Seymour, Kriska Transportation: I think we’ve hit bottom because I can’t imagine how much further we can go. We are skimming off the bottom.

Mike McCarron, MSM Transportation: I’m not sure we’ll hit bottom until the banks pull the plug on the operators who are on the ropes.

Q: We all know the devastation that has occurred in the southbound US market and the capacity that has shifted from there to the Toronto-Montreal market, for example. Scott Smith, your company is a regional carrier that does not cross either provincial or international borders all that often. What has the market been like for your company? Vaughn Sturgeon, your company is a regional carrier focusing on the Atlantic provinces along with some Ontario-Maritime traffic. How is that market looking?

Scott Smith, JD Smith & Sons: There is desperation in the local marketplace as much as anywhere else. It’s like nothing I’ve ever seen. We had legacy structures and plans. We’ve had to really look at things that we hadn’t changed for a long time. It has been a very cleansing opportunity to be able to hit a reset button.

Vaughn Sturgeon, Warren Transport: Our company does about 30% of its business southbound. The regional market held better than the commoditized general freight mess. The local construction market in the Atlantic is doing well, but forestry and mining are horrible. The rates have got to get back to covering the full cost of the service. We all know that 2 + 2 = 4 but we all seem to be willing to settle for 3. And you know, trucks are an evil thing. We should hate them. At best they are a necessary evil. We get paid to move freight around and we should do it in the most efficient way possible. To get excited and go and buy 20 trucks every time something good happens is irresponsible.

Q: Has the recession permanently changed the way we do business? If so, what lessons have we learned?

Mike McCarron, MSM Transportation: If you haven’t learned you wouldn’t be sitting here. What we should have learned, is how much we devalue our service to customers and how little customers know about what we do behind the scenes. I was amazed to see how much we do for our customers behind the scenes.

Mark Seymour, Kriska Transportation: We’ve gained efficiencies by having our back against the wall and finding cost reductions that don’t compromise safety. We’ve become more efficient than we used to be. There are things such as wage cuts that are not permanent but slowing trucks down, I doubt we will go back to the Wild West.

Q: It’s quality revenue and return on investment that matter. Have we forgotten that lesson about profitability?

George Ledson, Cavalier Transportation: We’re our own worst enemies. Why do people feel their product doesn’t need to be properly paid for? It boggles the mind. Soon as the shipper says he can get a better rate down the street, we back off the rate.

Q: During the recession, the industry continued to be plagued by excess capacity. Volume was decreasing at a faster rate than carriers could shed capacity. Is capacity now adjusting and getting tighter? What message would you like to send to the industry in terms of capacity?

Dave Pogue, E.G. Gray Transport: It’s not all about who has the biggest fleet. If you’re lucky enough to have a mixture of equipment, it’s not as big a deal to leave some of it on the fence. If it has a certain amount of life left and rates are low, don’t be afraid to park a few trucks until things settle out. Moving into the first quarter, we are going to see volumes drop again. If you can’t fill your trucks, don’t fill them with low-paying freight. Park them.

Rob Penner, Bison Transport: If we can go through the toughest period in our era and still have excess capacity, I’m not sure we have learned our lesson about capacity. We should have proper escape plans so we can manage capacity. You should have a plan to flex your fleet and it should not be done on the backs of owner/operators. We are seeing a lot of that being done. We have reduced our capacity by about 15% by removing fleet trucks.

George Ledson, Cavalier Transportation: We can’t be giving it away all the time. Park it till the economy improves. It’s easier to park a tractor that is paid for though.

Mike McCarron, MSM Transportation: There are shippers who are willing to use (low-price) carriers till they go out of business. They may be desperate too and they don’t care.

Bruno Muller, Caron Transport: It drives me crazy to hear this. It never gets brought up; the reason we have extra capacity is because we had finance companies willing to take risks they should not have. There were people buying trucks without putting down a nickel. I wonder if we would be in the mess we are in if the finance companies were not acting that way.

Julie Tanguay, MacKinnon Transport: The reason shippers can do this is because they have no accountability. They’re not the ones risking it every day; it’s us. And it’s not going to change until we as carriers do more self-policing.

Q: One of the more objectionable things to have come along in recent years is compliance fines, usually levied on a shipper by a consignee, but which some end up trying to pass along to carriers even when there is no contractual obligation for the carrier to do so. What is your company’s position on paying these fines and what advice do you have for other carriers?

Dave Pogue, E.G. Gray Transportation: Carriers can take a number of steps not to get fined. Pay the driver extra hours so he takes the right amount of time to get there. We also put a couple of extra keys in a box to make sure if one of the trucks doesn’t start, another one will. Our dispatchers will come in early to check driver progress when there are early appointments. If you take on customers who fine for non-compliance on deliveries, and you have satellite communications, use them. If you’ve got that backup, you may be able to get the fine reversed. Take extra steps to avoid entering into contracts with clients whose freight goes into compliance zones.

Scott Smith, J.D. Smith and Sons: We’re up front in our quotes on accessorials. We talk with our customers and focus on key performance indicators and overall performance, not just on one-off transactions. The client often views the thousand-dollar fines as insignificant. It’s not easy. We see it getting worse in terms of the retailers being illogical in some ways, i.e. expecting drivers waiting in line to run up to a gatehouse when there’s a line-up (to say that they’re backed up in line). The customers used to say phone ahead and we can avoid this. It’s getting more contentious.

Q: Over the last few years there appears to have been a change in thinking taking place in the industry with regard to the role of enforcement and regulation. At one time, it was probably inconceivable that you would have carriers supporting such things as mandatory activation of speed limiters or a universal mandate on
EOBRs (electronic on-board recorders). Why the change in thinking?

Julie Tanguay, MacKinnon Transport: The change in thinking comes from the realization that this industry has excess capacity because of literally no barriers to entry. Those who self-police also seem to be the ones parking their trucks. The quality of the equipment on the roads is not the same you used to see a couple of years ago. The government is not going to level the playing field for us. We can’t wait for the government; we have to actively push for EOBRs to create a level playing field. We would like to think there’s enough ethics in company leadership, but we have no choice but to push this and push it as much as possible.

Brian Taylor, Liberty Linehaul: For the most part, shippers care about price. The way we’ll differentiate ourselves is by doing other things to make efficiencies and to meet customer demand even if we can’t do it through Hours-of-Service. EOBRs will force carriers to compete on a different level. The way we would differentiate ourselves is on real service initiatives rather than on fastest time.

Rob Penner, Bison Transport: We are not getting paid for what we do, so getting more miles in is not going to help us. EOBRs and speed limiters are cost-saving measures. Our window of opportunity to have lots of carriers behind us on these initiatives probably ebbs and flows with the economy. As a group who is trying to manage responsibly, we have to look at things that level the playing field.

Q: For some time now, environmental considerations and regulations have become much more important issues having an impact on the industry. How much do the customers at this point really care, and what would be the tangible benefits of becoming green?

Rob Penner, Bison Transport: Right now it’s just price and we recognize it’s just price. We have deferred most of our 2010 purchases because we can’t find shippers willing to pay us 10-15% more for our zero emissions.

Scott Smith, J.D. Smith and Sons: Our customers have switched from sustainability plans to ‘how much less green can they give you.’ The last year has been about nothing but price. We do have someone on staff who has taken on the responsibility of taking on environmental assessments, not because shippers want it, but because it can provide cost savings -is there a benefit to us, i.e. running slower, in-house energy savings, etc.? It’s hard to have enthusiasm for that stuff when you’re living day-to-day.

Q: As you know, Ontario is now piloting the use of LCVs. Some have suggested that this means further downward pressure on freight rates -two-for-one specials, if you will. Some of you have a lot of experience with LCV operations. How do you respond to this?

Eric Gignac, Guilbault Transport: LCVs are one of the best ways to reduce your costs, and improve your bottom line. But the savings shouldn’t automatically be passed on to the customer. I never heard a customer or carrier in Quebec, where we’ve been doing LCVs for 20 years, ask for the LCV price. What I’m hearing here in Ontario scares me. You need a shipper who gives you two truckloads at the same time at the same place with the same appointment time with legal weight. If you have that in Ontario, you’re lucky. We don’t have that in Quebec. You have savings, but you also have extra costs: permits, and paying more for the driver.

Rob Penner, Bison Transport: If you have them (LCVs) you love them, and if you don’t, the rate situation skews your opinion. There are lots of costs: training, monitoring, increased tractor to trailer ratios, etc. But the positive is that it’s a much more specialized market. If you are going to get into that market you have to be willing to invest and manage your business very responsibly. For our organization, if we didn’t have LCVs we probably wouldn’t have half the freight we do.

Q: Drivers have been paid on a productivity basis for most of the industry’s history. This is a reflection of the difficulties associated with monitoring a remote work force. However, with GPs and possibly EOBRs, you really can get a handle in terms of the driver’s performance. Is it time to pay drivers by the hour?

Vaughn Sturgeon, Warren Transport: If you think the driving force is going to continue on without demanding changes, you are fooling yourselves. Canada is approaching 70% of its population in the current workforce. We have a demographic tsunami heading our way. We are going to need to attract new people who are not used to our pay practices. They are just not going to put up with it.

Bruno Muller, Caron Transportation: The whole discussion in this industry is how much more can we squeeze out of the driver. We are in for a crash down the road. There’s no new blood coming into this industry If you are totally honest and account for what the driver gets paid for the total amount of hours he puts in, the guy is basically working for minimum wage most of the time. I don’t think there is any way to soften this. I believe drivers are underpaid not 5% or 10%, I think drastic numbers. And that carries through to the owner/operators. When the economy picks up, we haven’t got a chance of competing with other industries, especially when you look at Alberta and the oil situation. And there will never come a day when we have a computer driving a truck. Take it to heart; we have a problem: Our people don’t get paid enough and it’s going to hurt us big time down the road.

Brian Taylor, Liberty Linehaul: It’s the inability to properly manage relationships with shippers that leads carriers to try to squeeze drivers. Drivers may help us manage our own capacity. Given a chance, I think we can compete with carriers of any size by looking at that human element more and more.

Q: How do carriers get back in the driver’s seat?

Mark Seymour, Kriska Transport: You do what you have to do if you feel it’s the right decision at the right time for your organization. We’re in a crisis, and we’ve met past crises head-on in the past with solutions: the driver shortage, HR, drugs and alcohol, and other burning issues. All of these things seem secondary now because now we’re looking at a financial crisis. Our customers continue to take because we continue to give. We give because we feel that’s right. We have to stop that. We have to stop giving. We have given too much. We have to stop giving and start getting back. Everything we had to give has been given. We have to deal with this very aggressively, in small doses and collectively. The only people going to fix the financial crisis are those in the industry who control price. You can’t blame it on customers; customers will inevitably pay what they need to based on what the market will allow. Our quality of revenue plummeted 18% at Kriska the last 12 months. Grab a point, grab three till you start getting it back. It may take five years, but it has to start coming back. This is the hot button right now. It’s a revenue issue now, not a cost one. All the low-hanging fruit has been taken.

Mike McCarron, MSM Transportation: We’re all desperate, and we have to stop blaming everyone else. Start saying no to customers, and stop devaluing service. We have to park the trucks and walk away from deals that won’t make sense. We can’t cut any more without drastically affecting the service. We have to start taking control, and taking control of the third parties. This is the worst crisis we’ve had, but we are in the driver’s seat.

Rob Penner, Bison Transport: There’s an art in knowing when to say no, and you have to always balance it. For decades, we’ve called ourselves a service industry and not a commodity. The evidence suggests we are a commodity.

Bruno Muller, Caron Transportation: If you’re in danger of losing a piece of business, and you know you need a certain increase to have a certain type of margin, the
only time it’s difficult to ask for this is if you’re trying to be greedy. If you aren’t making any money on the account, let it go. That’s the basic fundamentals of business. I have literally kicked million-dollar per year accounts out the door because they wouldn’t agree to an increase.

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