April 1986 The Roemer Report

Trucking and the New Economy

The transformation of the U.S. economy and its impact on trucking is a theme we have emphasized recently in this report. Here are more specifics for senior trucking executives seeking to stay on the cutting edge of changes. Manufacturing in America is dying. That's the popular appraisal underscored by an almost continuous stream of news stories on employee layoffs. Exam­ ple: The domestic steel industry which employed nearly 400,000 pro­ duction employees in 1979 now employs about 200,000. Bad news for truckers, right? Wrong! Georgia State University economic forecaster Donald Rataczak says it best: "Manufacturing as a goods producer isn't dying--manufacturing as an employer is." Federal Reserve econ­ omist Michael Bryan calculates that manufacturing's share of the gross national product has remained fairly steady at 24% for the past 35 years. Our point is that the negative news stories about manufactur­ ing employment don't necessarily have a relationship to freight volume. We see manufacturing going the route of agriculture. More output (and freight volume) but far less employment. It simply is a natural evo­ lutionary step that occurs as industry embraces new technology and automates.

WHERE THE MARGINS ARE: Now to the strategic matter of trans­ portation pricing and profitability. The very biggest manufac­ turers are now competing in a global marketplace and are clearly under intense market-driven cost pressures. Indeed these cost pressures are pushed through the entire service/supplier system… including trucking services. Our point is that the very biggest industrials now have very thin margins. Hence, their truckers are bound to share the pain. But, consider the case of medium­ or small-size producers who are serving smaller and unique market niches. They typically have smaller freight volume but bigger margins. Here is an area where the astute trucker can build a relationship outside of the white heat of pricing wars and "commodity" trucking. It obviously takes more of these companies to build up a solid book of trucking business. But, once done, these customers offer a degree of diversity and staying power that is tough to match.

TRUCKING INSURANCE UPDATE: Time magazine recently carried a cover story on the liability insurance crisis…one which we think essen­ tially validates what we've been saying for the past year. Now that the mainstream media have begun to examine the problem, we'd hope that the public consensus necessary for tort reform would begin to develop. Bills aimed at cutting the burden of litigation and climb­ing insurance premiums are pouring into both the states and Washington. We look for the fastest relief this side of R-O-L-A-I-D-S to come from the states. An incredible 1OOO-plus bills addressing this issue have been introduced at the state level. Is there a bellwether state? As is often the case, California is the place to watch. There is a measure on the California June ballot that would abolish joint and several liability for noneconomic losses. As we've reported previously, this is the so-called 11deep-pocket11 doctrine that allows an entity only marginally at fault in an accident to bear the full financial responsibility for an occurrence, including pain and suffering. This is predictably being opposed--as is almost all tort reform--by the Trial Lawyers Association. But, many see the measure as "a shot that will be heard around the nation, if not the world."

WASHINGTON MOVES CLUMSILY: Reform legislation at the federal level runs into the full force of some pretty powerful consumer and legal interests. The National Insurance Consumer Organization (NICO) charges that our industry has been involved in a systematic program of collusion to raise insurance prices and circumvent the legal process. The Insurance Information Institute says that this doesn't square with reality. There are now 20,000 insurance companies competing with each other. Moreover, the industry suffered a pre-tax loss of $5.4 billion in 1985, seeing 40 property and casualty insurance providers go out of business in the past two years. It's a pretty ineffective conspiracy, from our point of view. At any rate, Senate Commerce Committee Chairman John C. Danforth (R.,Mo.) has put together a pretty solid bill. It combines reform of the civil justice system with a compensation to give genuinely injured parties fair and fast relief. A key provision is that it takes the matter of compensation out of the court system and puts it into an arbitration system.

A REAGAN INITIATIVE: The President has a Tort Policy Group which will soon be recommending an Administration bill. It will eliminate "joint and several liability" and put a cap on jury awards. Significantly, it does not contain a consumer compensation system. Here's where political reality comes in. The Reagan bill is likely to be more probusiness. But consumers and trial lawyers will find it unacceptable--fighting it to the hilt. The Danforth bill would have a less dramatic impact, but it might be navigated through the consumer/ legal opposition. So what's the bottom line here? As is typically the case, Washington will be tied up by competing interest groups. Look for the states to act more decisively soon. Washington will then jump in to ratify what is then the new reality.

UNLEASHING COMPANY SUCCESS: One of the most incisive of recent business books is The Vital Difference, a handbook on "energizing" the company. Co-authors Frederick G. Harmon and Garry Jacobs believe leading companies are distin­ guished by their creative organizational psyches. Stimulating environments don't just happen, however. They are the result of a sustained and deliberate company-wide effort, which includes the following steps…Choice of--and commitment to--a specific goal: What do you want the organization to become? Embrace the idea before embarking on the quest. Make sure all employees know what's at stake and how they personally affect the outcome…Understanding the sequence: Deep change is a monumental project. Accept that many extra demands will be made on everyone in terms of attitude and skill development.

The individual is, after all, the microcosm of the organization. Evolution begins with his/her personal conversion…A harmonious approach: Optimal growth occurs when people work in concert under their own volition. Foster, don t order, positive results. Help people see themselves as working together toward an inherently rewarding goal.

THE NITTY GRITTY OF CREATIVE GROWTH: Here are some of Harmon and Jacobs' prac­ tical strategies for corporate rebirth: (1) Define the highest level of growth you believe your organization can attain. Investigate what it would take to function at that pitch…in terms of structure, personnel, technology, market and capital. Then compare your findings with the status quo and devise an action plan to close the gap. (2) Categorize all company functions according to hierarchy. Look for interrelationships, especially between departments.

Explore ways to coordinate and streamline functions…Harmon and Jacobs also suggest some small steps with big impacts…Teach one new skill to each worker…Raise the average education requirement for new hires…Give a little more attention to all workers…Finally, offer incentives to people who demonstrate a free-will commitment to learning, training or innovating.