Roemer Report – December 2006

A SILVER LINING FOR REGIONALS: Although signs are pointing toward an economic slowdown, for some regional trucking companies, it’s business as usual. In general, regional trucking companies are doing better than their longer-haul counterparts. Both regional LTL and truckload carriers that handle short-haul freight  are faring better than their competitors, according to third quarter results. If the economy slows even more, can the regional companies keep their momentum? Trucking executives say yes, provided they stick to their goals, which include building density in regional lanes, expanding slowly into new regions, monitoring costs, and controlling shipping. Even then, a downturn in the economy is not without certain opportunities, says David Congdon, president of Old Dominion Freight Lines. “Historically, we’ve often found that downturns continue to provide us with organic growth opportunities within our existing network as well as opportunities to achieve our goals through further industry consolidation,” said Congdon. This latest quarter was Old Dominion’s tenth consecutive quarter of revenue growth above 20 percent, according to Chairman Earl E. Congdon. The credit for the growth, he says, goes to the company’s “consistent implementation of strategies,” including increasing its share of existing markets, increasing freight density, and earning a higher operating ratio per service center. The carrier’s goal is to double revenue to more than $2 billion by 2010. “We affirm these goals despite what appears to be a slowing economy,” said the chairman.

KICKING THE OIL HABIT: With Democrats controlling both houses of Congress next year, the general consensus is there will be more focus on developing alternative energy sources and reducing America’s dependence on oil-rich countries. Rep. John Dingell, D-Michigan, handily won re-election with 88 percent of the vote, and now that the Democrats have captured Congress, he will return to his former position as chairman of the Energy and Commerce Committee. Dingell has said he wants to cut the U.S. oil habit and promises to help make the United States “energy independent.” Likewise, Sherrod Brown, D-Ohio, who prevailed over the Republican incumbent Senator Mike DeWine, said he wants to turn Ohio into the “Silicon Valley of alternative energy.” While campaigning, he said that developing alternative energy sources would benefit businesses, workers, and farmers. Dingell says the Energy and Commerce Committee will focus on these areas: (1) Alternative fuels. Expect more attention on biomass fuels, such as ethanol made from corn, and tax breaks for wind and solar power and non-petroleum fuels. (2) Oil subsidies. Democrats are interested in halting some subsidies to oil companies and redirecting the money to developing alternative fuel technologies. (3) Conservation. Dingell said that America should have good conservation practices in place, because situations like the 1973 Arab oil embargo can have devastating effects.

SLOWDOWN ON THE HIGHWAYS? Since the early ’90s, devices that limit the speed at which trucks can travel have become common in new truck engines. There are no mandates requiring speed governors on commercial trucks—not yet, at least. The American Trucking Associations (ATA), backed by some of the country’s biggest truckload carriers, recently called on the Department of Transportation to limit the speed of new trucks to 68 mph. ATA’s petition comes just weeks after a group of trucking companies, including Schneider, J.B. Hunt, and U.S. Xpress, issued an even tougher request for limiting truck speeds. In a petition to the Federal Motor Carrier Safety Administration, the companies asked the agency to require all trucks—old and new—to be equipped with speed regulators set no higher than 68 mph. The ATA says it filed the petition to improve safety. “Moving the product contained in those vehicles is of vital importance,” said ATA CEO Bill Graves. “But of utmost importance is moving the product safely.” Although the issue is controversial among those in trucking, Graves said, “This is something we’re proud to lead on.” Not only would speed-governed trucks improve the safety of the nation’s highways, according to the ATA, but trucking companies would also enjoy fuel and maintenance cost savings, and congestion would be reduced due to fewer accidents.

WHAT A DRAG: If heavy-duty trucks adopt new aerodynamic technologies, the industry could save almost one billion gallons of fuel per year, according to a study by the Truck Manufacturers Association (TMA) and the U.S. Department of Energy. The study looked at a variety of design improvements that would reduce aerodynamic drag, improve fuel efficiency, and contribute to cleaner air. Technologies that were found to improve truck aerodynamics include: (1) Gap enclosures, which reduce the aerodynamic drag of the space between the tractor and trailer. (2) Side skirts, which improve aerodynamics and reduce airflow under the trailer in crosswinds. (3) Boat tails, which taper toward the back of the trailer and minimize the “wake” airflow. (4) Reconfigured side mirrors, which also reduce drag. When all these improvements are implemented on a single vehicle, the result can be as great as a 23 percent reduction in aerodynamic drag. And for every 2 percent reduction in aerodynamic drag, there is a 1 percent improvement in fuel efficiency. “To put this in perspective,” said Robert Clarke, president of the TMA, “if every tractor/van semi-trailer combination truck in operation in the U.S. adopted these technologies and improved fuel efficiency by 10 percent, it would translate into nearly one billion gallons per year of fuel savings.”

TOP CONCERNS FOR TRUCKING: The American Transportation Research Institute (ATRI) surveyed more than 4,000 trucking executives and found that the driver shortage ranked as the most critical issue facing the trucking industry, while diesel fuel issues came in a close second. Last year, diesel fuel ranked as the top concern for trucking executives. “With a growing economy, industry capacity issues are taking precedence over stabilizing/declining fuel prices,” the report stated. “The driver shortage is forcing companies to turn down freight transportation orders and raise driver compensation to historic levels.” ATRI proposes three strategies to improve the situation: (1) Enhance drivers’ image in recruitment campaigns to expand the pool of applicants. (2) Advocate for improved quality, funding, and availability of new entrant CDL training. While it is not known whether this would increase the number of driver candidates, it would likely improve driver safety and retention. (3) Work with the Veterans Administration to expand training opportunities for returning veterans or veterans who want to switch careers. Other top concerns, in order, include: driver retention, hours of service, congestion, government regulations, highway infrastructure, tort reform, tolls, and environmental issues.

DECLINING RISK: Not all insurance rates are rising. In many parts of the country, homeowners’ insurance costs are falling, and car insurance premiums are rising more slowly than the rate of inflation. In addition, companies are spending less than they did a year ago to protect themselves against employee injuries, lawsuits, and general liability claims. Even the costs of some life insurance and insurance against terrorism have fallen in recent years. The trend hasn’t reached health insurance, however, and homeowners in hurricane-prone areas like Florida still face high rates. But the widespread declines, according to The Wall Street Journal, suggest that many risks that touch Americans’ lives are on the decline. Because of safer cars and safer driving, car-collision claims have dropped in frequency, and because of improved technology, workplace-injury claims are also down. With Americans’ living longer, life insurance is getting cheaper. Americans “are getting better at controlling risk,” says a Harvard University professor. “In general, technological advance has made the world a safer place.” Insurance costs run in cycles, so it’s not clear yet whether the lower costs will persist.

THE LISTENING LEADER: Listening is an art. When someone is speaking, it requires the listener’s undivided attention and total concentration. Good listeners focus solely on the speaker and listen closely to spoken and unspoken messages. This means engaging in direct eye contact, offering warm responses, and refraining from interrupting. Listening is one of the most effective ways of learning what others—customers, colleagues, and stakeholders—value. Good listeners have a higher understanding and greater appreciation of others. Have you ever felt that you weren’t being heard, that your message wasn’t getting through? In those cases, it may be time to stop talking and time to start listening. The best way to foster listening in others is to listen to them. “Listening is not a solo performance—it is a connection and is most successful when circular,” writes Frances Hesselbein, CEO of the Leader to Leader Institute. “I listen, you respond; you listen, I respond.” In that circle of communication, messages get heard.

Wishing you a safe and joyful holiday season and a prosperous New Year
—From all of us at Roemer Insurance