A smart carrier manager: 'When you’re not making money we are not making money.'
Eric Stoner – Government Section, Panther Expedited Services
In February 2012, I attended a conference of owners of smaller second tier expediters sponsored by Sylectus. The new CEO of Express-1, Bradley Jacobs, gave a speech followed by open questions from the audience. Mr. Jacobs is a hedge fund manager whose firm had recently invested 150 million dollars in Express-1. Brad (his preferred handle) is publicly known best for his purchase and turnaround of a small mom-and-pop company called United Rental. He stated that he was attracted to the investment potential in the expediting business because of two factors. It is a highly fragmented business sector with lots of players and collectively generates billions of dollars in revenue.
With his business experience and expertise, he is looking for opportunities to consolidate and purchase businesses within the sector to quickly grow a medium size company into a major player. In fact, during his speech he gazed out over the audience and stated, “I will be buying several of the companies that are here today”. I could just hear the cha-ching going off in the heads of the business owners present. When a hedge fund invests $150 million in a company the size of Express-1, they get to pick the management team, and in this case it’s Jacobs and his team who are now in charge. And this is a good thing. Prior to his investment, Express-1’s stock, XPO, was trading at about $6/share. Now it’s trading at about $22.
During his speech, Brad stated that one “crisis” the expediting industry faces and will continue to face in the long term is the issue of “capacity”. When the suits talk about “capacity” they are referring to you and I and our trucks. As the economy grows and the need for the specialized handling of freight significantly increases, the industry’s capacity will not keep up with the demand of freight offerings. He foresees this as a chronic problem of a crisis nature. In discussing this issue, he lamented with frustration, the lack of loyalty among owner/operators, “For a nickel a mile” a contractor will think nothing of hopping from carrier to carrier. During the question and answer period, I asked, in response to the capacity crisis, would he consider acquiring his own fleet and hire drivers? He basically answered that he could not see how that business model could maintain the long term level of profitability that he was seeking and that was not a viable solution to the capacity crisis; too many assets and employees eating up profit margins.
This brings me to share my reflections and experience on the issues of contractor/driver loyalty and productivity. I’ll focus on three main topics:
- The Zero-Sum Game vs. Synergy
- Owner/Operator, Driver, Retention and Loyalty
- Increasing Driver Productivity
The quote by Eric Stoner above seems like a total “duh” to most of us, but my experience with drivers and carrier employees suggests that there are still a significant number who wake up each morning thinking they are on the wrong side of capitalism. This thought engenders an attitude which follows the “Laws of Scarcity” vs. “Laws of Abundance” or a working relationship based on The Zero-Sum Game vs. Synergy. In the Zero-Sum Game, in order for one to win someone else must lose. There is a “screwee” and a “screwor” and the only way to win it is to not get screwed or to screw the other. But in a synergistic relationship, the whole, or the results, are greater than the sum of the parts. Each party recognizes that their highest level of success lies in the success of others.
For the past 50 years, trucking companies been dealing with outrageous turnover rates and that issue sees no resolution. Low pay, poor working conditions, long absences from home are the main contributors. Fast forward to today and the issues are the same, except carriers now function as if this is the new normal. There are lots of talk, fluff, smoke and mirrors, window dressing and good ole boy pats on the back, but it’s still the same old, low pay, poor working conditions and long absences from home. Carriers are living in the house they built and can’t imagine doing something different.
A new approach to his dilemma is for carries to promote synergy among parties with a shared interest on a regular basis, and to ask the other, “What can I do that is within my control to help you be successful?” When was the last time that you asked your carrier that question or your carrier asked you that question, or an O/O asked their drivers? A good way to start the dialogue is to first ask the other, “How do you measure success?” Then it becomes natural to ask “How can I help you be successful?” I submit that it is the carriers who should be the first one to ask the questions. After all, they think they’re the ones wearing the big boy pants, and what a great way to role model.
To those outside of the trucking industry, the driver turnover rate of even the best carriers is beyond comprehension. You’re bragging if your turnover rate is below 50%. I spoke to one small carrier at the Sylectus conference who said his turnover rate was 300%! Carries seem to be stuck in the paradigm that driver loyalty is best garnered by the application of “The Golden Rule” and a warm folksy/family attitude towards contractors. I call this the “Uncle Buck Approach”. Certainly these are extra-ordinary values and very effective, but most carriers make this claim and there are ZERO dollars allocated to this activity in a manager’s budget. The carrier boss just says to his or her staff, “Y‘all be respectful, be friendly, and be professional to our drivers and customers or you find yourself driving a truck.”
There is a fallacy to the “family” retention concept stated above that can turn around and bite the unwary driver very savagely. If you’ve been driving any length of time, you become quickly aware the true pecking order in this business is:
- Fleet Owner/Operator
- One truck O/O
If a driver’s behavior, in any way, threatens the business relationship of the customer/carrier, you’ll be shocked at how quickly you will be ordered back to the yard to turn in your gear and sign your termination papers. And, how little will be left over in your escrow account as you receive your last check. Well, so much for that warm touchy-feely stuff. Uncle Buck becomes the Terminator
So, how do carriers build driver loyalty and retention and at the same time increase driver productivity? In Part ll, I will expand my thoughts on the topic, but basically it revolves around the time proven business notion that to make money one has to spend money. But how and which drivers does the carrier reward for a job well done.
“Check your mirrors and keep’r between the lines.”
gary and barb