Post-mortem of a costly recession

by James Menzies

MISSISSAUGA, Ont. –By now, everyone has seen the much-discussed Nike commercial in which the voice of Tiger Woods’ late father said to the golfer: “I want to find out what your thinking was, I want to find out what your feelings are -and did you learn anything?”

While the question was taken out of context, the suggestion was that Tiger’s late father was referring to the golfer’s well-documented off-course transgressions. Meanwhile a similar scene was playing out at the Capitol Banquet Hall in Mississauga during the latest Driving for Profit seminar. Only this time it was the voice of Transportation Media editorial director Lou Smyrlis asking a panel of three courageous fleet managers what their thinking was and, of course, ‘did you learn anything?’ from the recession.

The recession Smyrlis was reffering to has hammered the trucking industry over the past couple years. While it’s finally loosening its grip on the Canadian trucking industry, mistakes were made and lessons learned.

Candidly fielding questions about the impact of the recession and how to take advantage of the recovery were: Mark Bylsma, Spring Creek Carriers; Trevor Kurtz, Kurtz Trucking; and Rob Penner, Bison Transport. The three crowded onto a single sofa while a philosophical Smyrlis asked them what they’ve learned from the recession. Bylsma admitted Spring Creek made mistakes early on in the downturn, by adding about 30 trucks during an uncertain time.

“We recognized at that point in time that some of our growth initiatives were costing us money and new lanes we developed were running at a loss and we were taking our attention off our core lanes,” Bylsma admitted. He said the company has learned to shift away from an “if we build it, they will come” mentality when building new lanes.

“We thought we’d start the lane, let customers know and three months or six months later it will be a profitable lane,” Bylsma reasoned. “We were missing the forest

for the trees. Now, we haven’t grown all that much, one or two trucks here or there strictly when there’s a need for it with an inhouse client.”

Bison’s Penner is hopeful other trucking companies have also learned valuable lessons about managing growth -but he remains skeptical.

“I’d like to say growth is one of those things that our industry has learned, but I don’t necessarily believe that,” he said, admitting Bison itself “hasn’t been labeled conservative in too many things and growth is one of them.” Penner added “We are going to get pressured into making decisions and taking chances, and our economy and successful organizations have always grown and done well because they take risks.”

Penner said it’s too early to be considering growth strategies, however, when rates have been hammered by 20% or more and gaining back lost ground may take years. Bylsma said Spring Creek has managed to maintain its rates with most of its direct customers.

“At a certain point in time, you have to put a value on your service and it needs to be reflected in your rates,” he said. What Bylsma has noted is not only downward pressure on rates, but corresponding upward pressure on service. Shippers paying LTL rates, for instance, are expecting next day deliveries to Toronto from the Great Lakes states -essentially expecting expedited service at LTL rates.

“Once you’ve done it once or twice, they come to expect next day delivery,” he said. “All of a sudden, your third-party LTL rate and your expedited service becomes the expectation.”

All three trucking company executives admitted the industry is still suffering the effects of excess capacity, which is exacerbated by the low cost of used equipment.

“You can buy a reefer now for next to nothing, so there were a lot of guys that went out and bought one and figured ‘Hey, I’m going to haul pharmaceuticals or HazMat’,” said Kurtz.

Injecting some humour into the seminar, Penner shared his own highly-scientific capacity barometer: “We know there’s still too many trucks out there because our competitors are still working.”

Once the chuckles subsided, he said volumes seem to be picking up and the company is beginning to gain some traction when discussing rates with customers. But it’ll be a long time before rates reach pre-recession levels, he predicted. Kurtz agreed.

“You can name your price going to Sioux Falls, South Dakota, but trying to go to Chicago, Atlanta and those places is still brutal,” he said. “It’s going to be a long time before those heavy lanes come around. Squeezing rates up is next to impossible right now and we’re working every day just to keep what we’ve got.”

On coping with the recession, the three fleets on the panel all employed different strategies. Kurtz said his company froze salaries and had to scrap a “second trip” bonus -but driver pay rates remained in tact. The recession hit Kurtz Trucking later than most, Kurtz said, but when it did hit, it hit hard.

“For the first time ever in the history of our company, we were going through the numbers and saying ‘How are we going to become more efficient and still allow all these guys to make their house payments’?” he recalled. “That was the biggest battle. My brothers and I would meet every two weeks, go over what we did last week and what we’re going to do next week to right-size things.”

Bylsma said Spring Creek didn’t have to lay off any employees, although it left certain positions unfilled when people left the company. It didn’t reduce salaries but it froze driver pay rates and salaries.

Penner said Bison also made it through without reducing pay for drivers or other staff.

“We didn’t roll back anyone’s wages in any way, shape or form,” he said. “We’ve taken the approach of having the right number of trucks and keeping them rolling. We kept our pay-for-performance strategies in tact.”

Penner said Bison did eliminate about 200 trucks -mostly company trucks -from its fleet by simply letting the leases expire. The benefit of leasing trucks on four-year cycles is that the fleet can contract by 25% in any given year, he pointed out.

Penner took issue with fleets that downsize on the backs of their owner/operators, which does nothing to address excess capacity in the marketplace.

“One thing we found odd when talking to different fleets about reducing capacity over the last two years is the first trucks they shed are the owner/operators,” Penner said. “But that doesn’t reduce capacity it just forces them into taking another job somewhere. If we all relied on owner/operators, we’d never have much hope of managing our capacity. Our decision to let them go isn’t their decision to go out of business, they will now compete against me tomorrow.”

A surprising benefit of the recent hard times for Bison Transport was that it provided opportunities for everyone to step up and contribute to the ongoing success of the company. Management employed a bottom-up strategy for improving efficiency and controlling costs, which has resulted in great ideas from some unexpected sources.

“We’re developing our next level of leadership,” Penner said, “some that we expected, some that are complete surprises.”

Going forward, Smyrlis asked for advice on how trucking companies can gain back some of the rate losses they suffered through the recession.

“Educate the client,” advised Bylsma. “On the direct client basis, it is all about the relationship. On the 3PL side, it’s linked 100% to capacity and as that shifts, we’ll be able to command higher rates.”

Bylsma said he shows customers bulletins from industry associations that call for rate increases and tries to educate them on the cost pressures facing the trucking industry.

Kurtz echoed those remarks, noting the best customers want to be informed about industry issues such as the costly new emissions requirements and CSA 2010.

“If you just go in and say ‘I need a rate increase to buy new trucks and pay for fuel,’ they don’t care,” he said. “My cust
omers who have stuck with me want to know what’s going on. They care.” As for the others, “I can’t wait for the day I don’t have a truck for them,” he admitted.

“Information is key,” added Penner. “It’s a lot more science than it is guts, like it once was and I think you have to have lots of good tools and systems and communication to ensure people understand why we’re doing what we’re doing and asking for what we’re asking for.”

Did any good come of the recession and the difficulties of the past couple years? Bylsma thinks so. “I look at our survival as a success story,” he said. “We had to get more involved in the organizational side of things. We got back into a micromanaging situation where we’re keeping an eye on every expense and consolidating loads where we have to. How do we get more freight on the truck? How do we get more deliveries and pickups out of our drivers? We (management) often wonder how well-off would we be today if we were this efficient five years ago?”

“If I was this efficient in 2004 and 2005, I’d be retired -and I ain’t that old,” joked Kurtz. “I’m excited about the future. If we can stay this efficient and stay positive and keep everyone focused on what they’re doing…when this ship turns around I think we’re all going to win.”

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