The Roemer Report February 1986
Crossing a Threshold
The continuing drop in world oil prices has probably now reached the point where trucking executives should re conceptualize the prospects and opportunities for the coming year… indeed the balance of the decade. We have written previously about the broad and generally positive transportation consequences of plum meting oil prices. However, like many others, we did not anticipate today's precipitous decline in oil prices…now evolving into a good old-fashioned price war. In general, we'd suggest revising your freight projections upward. Truckers could well experience the eco nomic mirror image of the freight environment during the past reces sion. That market was artificially dropped down by spiraling oil prices. Now, the continuing drop in oil is producing just the reverse effect. The consequences here are very positive and very profound on trucking. Consider the following: About 20% of the world's commerce... involves oil. It's the world's largest commodity. Oil prices are, now being set free for the first time since the 1930's and the days of the Texas Railroad Commission.
OPTIMISTIC NEW SCENARIOS: What specific product/market impacts do we foresee for truckers? (1) Inflation and unemployment rates will continue to decline. Interest rates have probably still not bottomed out. (2) People will likely be buying bigger cars and driving more. (3) Products that are produced with petroleum -- plastics, some synthetics, fertilizers - will drop. Translation? Industry, retailing and farming get an unexpected boost. (4) Nonresidential and residential con struction will both get an additional kick out of dropping interest rates. (5) Big money center banks could be hurting from increasingly shaky loans to oil producing nations such as Mexico. By and large, these widespread indications suggest a much more upbeat trucking scenario…one which we think the industry fully deserves.
TODAY'S TRUCKING INSURANCE OVERVIEW: We believe the prospect of de clining interest rates suggests that the current level of trucking insurance rates is unlikely to decline in the near future. Current market rates suggest that insurance firms cannot expect an increase in outside investment income and will continue pricing coverage almost entirely based upon underwriting standards. F. Roemer is acutely aware of the fact that today's trucking insurance costs are partic ularly tough on smaller outfits. Their costs remain very difficult to pass on to shippers because of post-deregulation rate pressures. We have been in this business for over 50 years…in both good and bad markets. We'll be glad to provide individualized input and some recommendations to you if you need it. Contact Richard L. Weaver, VP of our Transportation Division. Is anything being done to try to bring today's liability insurance rates down? Yes. Keep in mind that insurance losses have exploded in recent years and most of the big houses are in marginal shape. The rising costs of defending law suits and settling jury awards remain a financial plague the industry has yet to conquer. Many in our industry and within business groups affected by today's insurance costs are pushing for changes in liability laws and caps on jury awards and lawyers' fees. Plaintiffs' lawyers and consumer groups say that we are merely pressing Congress to limit our exposure, But, here's a straight shot. In today's litigious society, insurance companies are simply viewed as easy hits with deep pockets. Nobody stops to reflect on the ultimate costs these jury awards pass through the entire insurance pricing structure. As with all insurance cycles, today's rate levels are unlikely to be permanent. For example, today's sparsity of providers should ultimately increase as new players move into the market. Again, call us at 419-475-5151 for more details.
IF IT'S NOT BROKE, IT'S FRAGILE: No doubt you can recall your last performance review. But when did your outfit have its last checkup? Don't wait till it breaks to fix it, cautions William F. Albert, an organizational planning con sultant for Amoco Corp. Internal and external shifts force all companies into flux. Most respond to change by accommodating it: choosing the least disrup tive adjustment. Albert calls this treating the symptom, not the disease.
Propelling a company forward requires fine-tuning -- via organizational reviews. Here's how… (1) Actively involve key executives. This includes the head of the department or office to be studied. If orders "trickle down," the project is doomed before it starts. A resentful manager can sabotage a study by crippling communication channels. (2) Structure the evaluation. Establish scope, standards and format, as well as the members of the study team. Ideally, one evaluator should be from the department under scrutiny. This adds credence to the analysis. (3) Document your proposal. Include background material, significant findings, recommendations including alternatives), and projected staff and cost effects. (4) Present it to the department head. If possible, meet away from his/her office to reduce distractions. Negotiate implementation procedures, securing a commitment to follow through.
REDEFINING INNOVATION: Does innovation refer to product or process? It is both. Still, the processes of innovation remain one of the most misunderstood and underutilized tools in the enhancement of growth and profitability. We think of a product inventor as an innovator. But what about the process innova tor…the individual who stimulates growth through physical distribution im provements, better vendor relationships, incisive new sale strategies, compet itive pricing plans or efficient new administrative procedures? Consider the case of a business growth goal to achieve a 10% rate of return on net assets.
The goal can be achieved in a number of ways that include: (1) The generation of a higher sales volume with no significant increase in the asset base. (2) A high product price. (3) Reduced overall costs. Innovation can be a key element in bringing about any or all three of these scenarios. To a significant degree, innovation can be restated as follows…Innovation is ideas implemented prof itably and successfully . Such a definition also underscores one of the axioms of intrapreneurship. “Innovation goals support corporate goals."
THE INDUSTRIAL REVOLUTION, PHASE TWO: Like an earthquake that rattles windows, recent economic tremors are alarming…but not to worry. Shifts in the world economy signify a departure from the traditional ways people produce goods and services and bring them to market. It's the Industrial Revolution, Phase II. So say two MIT professors who have made a ten-year study of U.S. and European business trends. Michael J. Piore and Charles F. Sabel see an Age of Crafts manship emerging from today's economic turbulence. Their landmark book, The Second Industrial Revolution, heralds a new dawn for small businesses. The authors claim that mass production, plagued by labor unrest, rigid work rules, and outdated machinery, will take a back seat to craft production as a growth catalyst. Highly skilled craftsmen are free from big business's strict hierar chy. Hence, they can adjust their tools and products according to technology and the demands of a fluid, diverse market. Whether it's a bow to Zen philoso phy or the "smaller is better" mindset, Piore and Sabel have struck a nerve with their theory of flexible specialization.