Roemer Report – November 2006

LUCRATIVE HOLIDAY SALES PREDICTED: With lower gas prices these days and rising consumer confidence, shoppers are expected to be in the mood to spend this holiday season. The National Retail Federation predicts that the average U.S. shopper will spend $791 on holiday merchandise and an additional $100 on gifts for him or herself. Last year, consumers said they intended to spend $738. The biggest beneficiaries of consumer spending are expected to be department stores, online businesses, and stores that sell electronics. (1) Department stores. The survey found that a surprising 79.1 percent of young adult shoppers plan to shop at department stores, compared to 65.9 percent two years ago. “Young adults see the holiday season as a time to splurge, not skimp, on gifts for loved ones,” said one researcher. (2) Online businesses. Online holiday sales are predicted to rise to $32 billion, according to one researcher. The online buyer will spend on average $281 this season, up from $251 last year. The procrastinators among them may cause a crunch for package delivery companies, since more than a third of online shoppers said they expect to make purchases at the last minute and don’t mind paying extra for shipping and handling to ensure on-time delivery. (3) Electronics industry. Spending on electronic gifts is expected to increase to $21 billion this year and account for $195 of the average American’s gift budget. The top electronic gifts in order include: MP3 players, DVD players, digital cameras, computers, televisions, video game systems, and cell phones.

CONGESTION ALL AROUND: Congestion is not limited to the nation’s roadways. Problems with other modes of transportation—rail and water in particular—are causing increased delays for truckers who serve intermodal sites. During the last two decades, mergers and reorganizations have cut the rail system down to 172,000 miles, half of what it used to be. Another problem is upkeep; both modes of transportation are aging, and upkeep, much less expansions, are pricey. According to the Association of American Railroads, U.S. Class I freight railroads will have spent more than $8.3 billion this year laying new track, buying new equipment, and improving infrastructure. Meanwhile, the U.S. Army Corps of Engineers estimates that the average lock chamber is 45 years old, but there is no funding available to replace old locks. At heavy traffic areas, lock malfunctions can cause delays of six hours or more. Delays at rails and ports mean receiving trucks must wait. Owner-operator Kristie Hruby says that she and many other truckers often wait up to 18 hours for loads. In an effort to ease congestion, 35 states have developed intercity transportation plans, which encourage commuter train service as an alternative to highway travel. These plans, however, are proving extremely expensive and take years to implement. Other efforts include rescheduling. The nation’s busiest ports, Los Angeles and Long Beach, have added nightshifts, so traffic can move around the clock; they have also imposed fees for shipments during peak hours. These efforts seem to be working. “When I used to come to work in the morning, there was nothing but trucks,” said a spokeswoman for the port. “Now I still come in with trucks, but not the same amount.”

ENGINE SATISFACTION DOWN: A customer satisfaction survey finds that owners of 2004-model heavy-duty trucks report significantly more complaints about engines and poor mileage than the 2003-model owners did in the previous year. To meet emissions regulations, truck makers must continuously redesign engines and employ new technologies. Consequently, the average number of reported engine problems among owners of 2004 models has increased to 74 problems per 100 vehicles, compared to 46 problems per 100 vehicles among owners of 2003 models. “Whenever a new technology is employed, it takes a while to work the bugs out,” said a researcher with J.D. Power and Associates, the firm that performed the survey. “As times goes on and engines are better equipped and designed to follow the emission standards, the number of problems should gradually decline.” Of the four areas surveyed—engine quality, performance, cost, and warranty—customers were least happy with cost, especially when it came to routine engine maintenance and fuel efficiency. Reported fuel consumption declined to 5.72 mpg in 2006, compared to 5.91 mpg in 2005 and 6.04 mpg in 2004. The survey had good news for Caterpillar. For the sixth year, a Caterpillar engine ranked highest in the vocational segment, defined as trucks used in rugged job applications, such as dump trucks, concrete mixers, and garbage trucks.

BEWARE OF DROP-OFF EDGES: The AAA Foundation for Traffic Safety has found that roads with edges that drop off can make vehicle crashes far more serious than crashes on other roads. Drop-off edges occur when shoulders are lower than the edge of the paved road. Such edges may be caused by pavement break, erosion, wear, inadequate maintenance, or resurfacing projects that do not keep shoulders level with the paved road surface. Crashes associated with pavement edge drop-off are infrequent, yet they are often very severe and occur more frequently on two-lane rural roads. Accidents on such roads are more than twice as likely to be fatal, according to the AAA study. A crash along a pavement edge that drops off at least two inches can make it difficult for the driver to return safely to the road. The AAA Foundation for Traffic Safety recommends providing paved shoulders that are at minimum two feet wide wherever practical.

CAUSE FOR DISCONTENT: A new study finds that drivers are generally not happy about being paid by the mile. The problem, according to the University of Arkansas researchers, is that per-mile pay does not allow drivers control over their performance. “It’s not that drivers are not paid enough per mile,” says one researcher. “It’s the total number of miles that’s a problem. Many drivers are frustrated because they don’t have control over the number of miles they drive. Because they’re paid by the mile, they want to keep rolling.” Drivers at 75 percent of the companies surveyed listed “not enough driving hours/runs scheduled” as a problem. Researchers believe that alternative pay systems, such as hourly or yearly salaries, could improve driver turnover rates, which averaged 28 percent among companies in the study. Other factors that cause turnover include problems with supervisors, pension plans or the lack of them, and annual performance reviews that drivers consider subjective. The study noted that one thing that makes drivers happy is access to computers and other technology that lets them communicate with their supervisors as well as their families.

RETIREMENT PLANNING: The Pension Protection Act of 2006, considered by some to be the most significant piece of retirement plan legislation in 30 years, is expected to change the way companies offer retirement benefits. The legislation emphasizes employee-funded retirement plans and encourages employees to take personal responsibility for their own financial security at retirement. Consider these highlights of the new plan: (1) Automated 401(k) plans. The new law offers incentives to employers who initiate an automatic enrollment plan. Under the automated plan, all employees would participate in a 401(k) plan unless they opt out. (2) More advice. Employers have always hesitated when it comes to offering financial advice to workers. The new law, however, provides significant legal protection to encourage companies to provide employees with unbiased retirement-planning advice. (3) Higher limits made permanent. In 2001, new legislation allowed for higher contributions to 401(k) programs and “catch-up” contributions for those 50 and older; these changes, however, were set to expire in 2010. The Pension Protection Act makes these changes permanent. (4) IRA deposits. The new law allows those with a federal tax refund to direct deposit it into an IRA.

FOSTER A CULTURE OF DISCOVERY: Although the term “learning organization” has been around for more than a decade now, two authors say they prefer “discovering organization.” Chip R. Bell and Billjack R. Bell, authors of Magnetic Service, explain that “learning” suggests adding to existing knowledge, while “discovering” means “actively searching, deliberately exploring, and finding.” What can leaders do to foster a culture of discovery? Here’s what the authors recommend: (1) Ask questions at every opportunity. Demonstrate your passion for learning by constantly asking managers and employees about customers’ experience and progress on projects. These questions are not meant to “check up” on employees, but to search for new information that may prove valuable. (2) Tell stories. Stories are a great way to communicate meaning, stir inquiry, and instruct. When FedEx employees tell the story of a front-line employee who authorized a private jet to transport equipment needed to rescue young Jessica McClure from a well in Texas, they are really saying, “We are empowered to make decisions on behalf of customers.” (3) Deliver constructive feedback. Instead of an accusatory, “You were wrong to do that,” ask, “What might be the impact of your actions?” Provide honest, clear feedback that leaves no doubts in the listener’s mind.

Nearly all men can stand adversity, but if you want to test a man’s character, give him power.—Abraham Lincoln