The Roemer Report November 1984

THE ROAD AHEAD:

The trucking industry won't be in overdrive in 1985, but it should be cruising at a speed sufficient to keep revenues in good shape. The current consensus is that the economy will grow at about half of the hefty 7% pace of the past year. Not bad considering the fact that growth of 7% isn't sustainable over the long haul anyway. The strength of the recovery should undergo a litmus test during the next 30 days…the strategic Christmas buying season. If consumers continue to spend freely, you can probably take a strong 1985 to the bank. If they don't, Paul Volcker and the Fed are likely to engineer another drop in interest rates. They face no immediate worry about reigniting inflation… now in the lowly 4% range. Truckers should stay particularly close to their industrial customers. The next phase of the recovery is likely to be powered by a 10% surge in business outlays for new giants and equipment. What are the odds for a good trucking year? consider this. Just three of the 19 economists advising the Business Council, an outfit that includes the nation's top corporate executives, see any risk of an economic slump In 1985.

OPEC AND TRUCKING: Ours was an industry visited by several plagues during the last half of the 1970s. One of the least understood yet corrosive developments was an OPEC-engineered explosion in global oil prices. Apart from the obvious impact on diesel prices, these oil price increases sapped an enormous amount of resilience out of our economy…depriving truckers of an incalculable volume of freight. We provide this as background because W.F. Roemer believes our industry could be moving into an economic environment that represents a mirror image of the late 70s. This should include moderating or dropping energy prices, very low inflation, and sustained economic growth…particularly in the heavy durable commodities that keep this industry rolling. Putting it another way, the winners and losers of the late 70s could be trading places over the balance of the 80s.

For example, just about alI the heavy commodity categories stand to witness significant capital infusions and production increases. And this is music for trucking. OPEC has lost much of its previous clout…perhaps forever. Some see declining energy prices through the balance of the century. Since energy is present as a component or cost in virtually all major products, the positive consequences are clearly profound.

THE CLINT EASTWOOD MARKETING STRATEGY: "Every man’s got to know his limitations.”It's one of those memorable one-liners from a Clint Eastwood flick that is perhaps relevant to today's trucking market. A case in point ls Viking Freight System, Inc. of Santa Clara, California…featured in the December 3 Issue of Forbes. Viking's earnings for the nine months ending September 29 were up 118%. Perhaps more revealing are its operating expenses as a percentage of revenues- now about 92.8% compared to our industry average of 95%.

Still, the outfit recently had a brief flirtation with trucking's Twilight Zone. Viking was in a financial groove for most of the 70s…an Intrastate, non-union carrier commanding premium prices by securing mostly LTL shipments and delivering gangbusters service. That's when it lost sight of its limitations. Buoyed by its success, Viking went on a buying binge, acquiring operating rights in five neighboring western states. In all, it spent $35 million to double its terminals and fill them with trucks. It couldn’t swallow what had been bitten off. Traffic in Viking’s traditional California market began dropping off as the principals—Richard and Rangy Bangham—hustled business in the markets. Viking’s stock dropped like a rock from $21.50 a share. It is now back up only to $12. The Bangham brothers went back to basics and hired a financial officer. They began to concentrate on their strength—business development. Making the jump from an intrastate to a major regional carrier, it turns out, is an awesome task even for the most profitable of outfits.

LESSONS FROM THE UPS TALKS: Last month we discussed the “atomization” of trucking…a phenomenon with most truckers steering clear of formal participation in Trucking Management Inc. (TMI) bargaining on a new master freight pact with the Teamsters. Yet another element destined to contribute to this breakdown in this industry’s once uniform bargaining structure is the current status of the Teamsters and its president Jackie Presser. The mid-September battle within the union over a proposed Presser-negotiated settlement with United Parcel Service suggests that Mr. Presser’s clout with his own membership isn’t anything close to that of the union’s traditional iron-fisted leadership. The IBT President was roundly criticized for negotiating a secret agreement with UPS and announcing it at a hastily called news conference. A federal judge ordered a second vote on the pact, arguing that Teamster members had been denied an opportunity to make an informed decision on the agreement. This is just the most recent of several embarrassing episodes for Presser and the Teamster leadership over the past year. Close observers suggest that they bring into question the union’s ability to sell an agreement to its own members…a factor that surely complicates upcoming negotiations on a National Master Freight Agreement. Hence, the principal parties in the negotiations—TMI and the Teamsters—both have considerably less clout than the last time around the table. The question is whether or not the agreement they ultimately reach will have any real clout in today’s trucking market.

CONTRACT TRADE BAIT: The tentative contract extension between the Teamsters and UPS could foreshadow some provisions in the ultimate NMFA pact. It starts with a wage differential for new hires. Labor now constitutes about 60 to 65% of a carrier’s operating costs. With a 35% wage difference between union works and their non-union counterparts, it’s pretty obvious that the bottom line is going to be for the unionized trucking industry. TMI negotiators will likely be bargaining for actual pay cuts as well as a new hire policy. Greater work rule flexibility and the ability to maintain non-union operations and subcontracting rights will also be industry goals. For their part, the Teamsters will be seeking more money, greater job security, some limitation on non-union operations and limits on a carrier’s ability to acquire or maintain such operations. There’s now a vast gap between the NMFA and market-based labor costs. Closing it is a matter of survival for all concerned.

ONE MINUTE TO SALES SUCCESS: Here are some insights for truckers who are interested in polishing up their sales efforts. It’s no secret that 20% of all salespeople generate 80% of all sales. Larry Wilson, co-author of The One Minute Sales Person and president of Wilson Learning Corp., has another conviction. He believes that 80% of a sales-person’s successes come from just 20% of his or her tries. This is the crux of Wilson’s multi-million dollar sales strategy, based not on shortcuts but on maximizing that extra minute. He notes that top-flight sales people have a distinctive sales philosophy. Instead of focusing on making the sale, they’re primarily concerned with solving the customer’s problem. They take time to determine the prospect’s needs and to help him/her recognize them. Wilson calls this “selling on purpose”—understanding the reason behind every sale. Selling on purpose also serves as a stress reducer. The salesperson finds that he or she is no longer trying to convince customers to act against their wills. Furthermore, satisfied clients add up to repeat business and glowing referrals…Another aspect of the successful sales philosophy is self-management. This involves selecting long- and short-term goals, visualizing them as already achieved, and periodically measuring your present performance against your targets. Wilson advocates both One Minute Praisings and One Minute Reprimands. Pause to congratulate yourself when you’ve done something well or to note mistakes when you fail. But be sure to criticize the behavior, not the self. High self-esteem is the most powerful generator of high sales.