April 1985 The Roemer Report
INSIDE THE NEW TEAMSTER CONTRACT:
One definition of a good agreement is one which makes neither party particularly happy. By that yardstick, the March 31 tentative agreement between Trucking Management, Inc. (TMI) and the International Brotherhood of Teamsters could be called a good agreement. Realistically, the tentative wage and benefit package does not improve the competitive posture of most unionized truckers. Nor does it deal with the structural economic problems that lie behind a 30% layoff rate for Teamster members. The tentative act raises wages for current employees by $1.50 hourly to $14.50 by 1988. Moreover, it increases benefits provided to 81 separate Teamster pension plans. Collectively, the new agreement reportedly will raise the total Teamster wage/benefit package by about 9.5% to $23 an hour, As with many other recent labor agreements, this contract also contains a provision for a lower initial wage for new hires. They'll now get 70% of the normal rate and will take three years to reach the top pay levels.
SAYONARA COLA: The Teamsters gave up on the long-cherished COLA provision that helped propel member wages through the stratosphere during the 70s. The agreement will cease the practice of shifting freight from union to non-union carriers within the same holding company. But it won't stop the far more prevalent "double-breasting" scenario of a holding company with unionized_subsidiaries from purchasing or establishing non-union operations. Jackie Presser should be credited with keeping the concept of a national freight agreement glued together. The trucking industry bargaining effort has been splintering. But an estimated 80% of the Teamsters in trucking are expected to be covered by the new agreement. Some 900 smaller carriers who now bargain independently with the union have apparently convinced their employees that they can't afford the terms of the new pact. They'll probably still continue agreements which pay about 15% less than standard Teamster wages.
WHERE ARE WE HEADING? First of all, there's nothing particularly unique about the current economics of the trucking industry and its impact on the growth of non-union versus union organizations. The construction industry may be indicative of the general trend trucking executives can see developing in our industry. The changing composition of the construction industry may have started a little earlier than trucking, but the same principles may well apply. There has been a rapid evolution in construction from union to nonunion companies. More than 60% of all current construction is by non-union firms and, if anything, this seems to be accelerating. The structural wage benefit differentials between union and non-union wages in our industry practically preordain greater growth for the latter at the expense of traditional carriers. The lower wage package for entry level workers is, in effect, an admission of these realities. The new agreement preserves the principle of a national freight agreement, but it probably does nothing to change the prevailing trend toward non-union trucking. Indeed, many futurists believe that a diminished role for labor unions In all sectors of our economy for the balance of this century is probable.
SURVEYING SOME KEY TRUCKING INDICATORS: Here's a summary of some key factors influencing the trucking industry, as complied by Distribution magazine: (1) Purchasing. There will be a continued increase in purchasing activity, according to a reliable index compiled by the National Assn. of Purchasing Agents. Purchasing activity is expected to grow at a moderate level throughout the year. (2) Truck Shipments. The publication distribution index points to a continued increase in truck shipments from an index of 142 in the first quarter to 144.3 in the second. Moreover, warehousing space utilization should continue expanding through the second quarter.(3) Diesel Prices. Full-serve diesel prices should reach $1.32 per gal Ion by the end of the second quarter, falling to $1.30 In the third quarter. Self-serve prices will moderate from $1.20 to $1.19 for the comparable periods. (4) Truck Tonna Moderate additional growth through the second quarter. (5) Trucking Costs. They'll remain very stable due to flat energy and fuel prices. From the perspective of distribution managers, the first half of 1985 shapes up as one of the most stable cost periods in the past 15 years.
DETROIT’S NEW STRATEGY: Since 1981, Detroit has used Japan's voluntary restraints as a time to re-tool. Now the automakers are emerging from their four-year cocoon with a new manufacturing and marketing focus -- the intermediate price range. Japan's cost advantages won't kill American competition in the mid-price and specialty arenas. Detroit plans to woo baby boomers weaned on Toyotas, Nissans and Hondas with better-equipped, more comfortable sedans and sports cars. Key contenders will be the Chrysler LeBaron GTS, the Oldsmobile Calais and the Pontiac Grand Am…Meanwhile, big changes are sweeping the small car market. In 1982, low-priced subcompacts comprised 30% of new car sales; last year, they accounted for just 15%, But the subcompact category is here to stay. Since Japan can build small cars for $2,300 to $2,600 less than we can, Detroit will flesh out its model lines with "captive imports" -- large quantities of Japanese made cars sold under American names, Thus, on the low end of the price scale, Detroit will be more distributor than manufacturer. But GM hopes to reverse this trend by the late 1980s with the introduction of its Saturn subcompacts -- a new breed of competitive American small cars.
THE INDUSTRIAL EXPANSION PAUSE: Despite the recovery, U,S. manufacturers are hesitating to build new plants here. The trade imbalance is giving them cause to pause as foreign goods take over leading roles in our purchasing scenarios. Simply stated, every import we buy contributes to the wages of overseas workers and boosts the amount of money they'll spend on goods in their own countries -- goods not made in America. U.S. factory orders are declining as a result. During January they slumped by .9%, following a smaller drop in December. Yet January saw increases in consumer income and expenditures-- a disturbing revelation. Clearly, the recalcitrant dollar is making our products too expensive both at home and abroad. In calculating the quarterly GNP, the Commerce Dept. analyzes personal, business and government expenditures, as well as the difference between exports and imports. The fact that our annual trade deficit has ballooned beyond $100 billion adds to fewer manufacturing jobs. For the month of February, unemployment decreased from 7.4 to 7,3. But service industries created 255,000 new Jobs while goods producers lost 137,000. Talk in Washington has turned to ways to make overseas markets more receptive to U.S. goods -- by toughening trade restrictions and weakening the dollar.
AUTOMATE, EMIGRATE, OR EVAPORATE: This expression sums up the choices faced by industrial concerns seeking to prosper in today's global economy. America's post-World War II industrial dominance, superior economy, and population boom were translated into economic decisions focusing on job generation. By contrast, Europe and Japan focused on productivity gains. Two specific trends now underscore the extraordinary Impact the productivity imperative is destined to have for the balance of the century. (1) Economies in almost all developed nations -- Europe, Japan, the U.S., and.others -- have been de-industrializing for the past 10 to 15 years. Unprecedented productivity gains in manufacturing will be required to stem these declines, (2) The reality of a global economy crushes the assumptions of our old closed economy. Company growth, development, and survival now hinge on being internationally competitive. Analyst Charles McMillian points out that what is already true in autos and steel will soon be true in silicon chips and engineering services. He predicts that the world's prime-age labor group (20-40 years old) will increase by 60% during the next 20 years. Competition for jobs will become far more intense, exerting powerful downward pressures on wage rates and living standards. With America's higher standard of living and cost structures, we can only compete by regaining a substantial lead in productivity.