July 1987 The Roemer Report

Trucking Industry Still Adjusting to Tax Reform

How is the trucking industry faring so far under tax reform? The eight months since passage of the Tax Reform Act have been difficult -- partly because of uncertainties in the act itself. Tax reform wiped out investment tax credits andsome deductions, but it permits faster depreciation and lowers the top corporatetax rate.What's also troubling the industry is the act's complexity and the problem of interpreting key provisions. While the act was supposed to simplify tax administration, it's actually having the opposite effect. The 20% cutback in deductibility for business meals, for example, has swamped trucking companies with more cord keeping. Carriers and their accountants are still waiting for firm IRS guidelines on certain categories of business travel expenses. There's also confusion in the industry about depreciation rules. According to an AmericanTrucking Associations' economist, some operators still don't know they'reeligibleforthree-yearwrite-off contractors. The alternative minimum tax (AMT) requirement is another complexity, though somewhat easier for trucking companies than many other businesses. The new law may bring far-reaching changes in pension plans, once the IRS has issued regulations. It will be a major problem for the industry if the "employee leasing" concept is extended to owner­ operators for pension purposes.

INFLATION REVIVES COLA AS BARGAINING ISSUE: Remember COLA -- the cost-of-living adjustment that the Teamsters and other unions have been giving up? Believed to be disappearing from laborcontracts, COLA is suddenly coming back as an important bargaining issue for some unions.Renewed inflation is the reason: unions fear a loss of real wages unless pay rates are automatically tied to increases in the Consumer Price Index (CPI). The COLA resurgence faces strong management opposition, however, and early tests are coming. A New York Times report hints that GM and Ford might like to eliminate COLA clauses in their next contracts with the UAW. With inflation back at a 5% annual rate, COLA forced GM to increase hourly wages15 cents in June. Though modest compared with hefty COLA boosts of the 1970s, this was a reminder of the unexpected ways COLA increases can upset wage cost projections. Finding COLA, a wild card, managements made weighty concessions to get it out of contracts. Trucking companies, for example, paid for higher pension and health benefits in exchange for eliminating COLA fromTeamster agreements.Other managements made similar trades, with the result that less than 40% of unionized workers have COLA today, compared with more than 61% in 1976. With the CPI rising, though, some workers want COLA back- for the same reason management didn't like it.

THE GOOD AND BAD NEWS FOR AUTO SUPPLIERS: For U.S. auto parts companies the heat is definitely on. This $85 billion industry is straining to keep pace with a cost-cutting drive initiated by the Big Three automakers. Under increasing pressure from Japan, Detroit is turning more and more of its business over to suppliers. The hope is that they can slash costs where General Motors, Ford and Chrysler could not. This amounts to both good and bad news for suppliers:more potential business but also tighter cost restraints and keener competition.Some suppliers haven't raised prices in five years even though their own costs keep climbing. Shaping this tense scenario are three major trends: (1) Automakers are reducing the number of suppliers they deal with in order to simplify purchasing. (2) Lower-cost foreign suppliers area answering a growing portion of Detroit's demand for parts.(3) "Transplants" (Japanese companies producing their cars here) tend to rely either on imported parts or on parts manufactured here by Japanese-owned firms.... A supplier shakeout is clearly at hand. Those most likely to survive will model themselves after Japanese suppliers, offering frequent ITT deliveries, consistent quality, competitive prices and multi-year contracts.

ELECTRONIC INTERCHANGES MAY TRANSFORM BULK TRUCKING: With more plants using just-in-time deliveries, Industry Week reports, plant managers need up-to-the-minute information about status of shipments. That's why centralized information systems called electronic data interchanges (EDIs) are now being tested in the bulk-load trucking industry. With EDI, a computerized bill-of-lading system linked to a central location provides almost instantaneous information between shippers and consignees.Several independent EDIs are now operating, but Rollins (leasing) and Matlack (bulk-trucking) may help point the way for the industry. They're jointly operating an EDI in Wilmington, Delaware, which will speed information processing for their 18,000 vehicles and 250 locations. This offers so many advantages that bulk truckers will have to connect into such a system in order to survive into 1990, one company thinks.It could become mandatory, since many large shippers may eventually require carriers to handle billing and data transfers electronically. One clear benefit of an EDI for truckers is speedy. accurate billing.An EDI also reduces manual paperwork and the hazards of lost or damaged documents. Besides serving customers, the Rollins-Matlack system is used internally to allocate trucks to locations at different times to meet peak demands. The system even schedules the cleaning of trucks after shipments are made.

OPTIMAL RESULTS,COMPETITION AND COOPERATION: Traditionally, negotiators have approached their role from one of two sides. One seeks compromise, the other victory. Blind adherence to either approach can be counterproductive. Negotiators prone to concessions may seriouslyweaken their position; warriors may overlook options that are beneficial.Negotiators should instead realize that the process of bargaining is a means, not the end. The end is an agreement which meets their minimal standards. That is the bottom line, and the negotiator must make it clear that once it is established, he will not go under it. If a deadlock results, negotiators should try to determine the interests, issues and position of the opposition. They are not always obvious, but once recognized, a limited agreement can often be reached, and that can lead to larger pacts. After all, it isn't necessary that every detail be nailed down; that can be done later by third parties or in reopened bargaining. Experts claim that openness, notpower plays. makes for successful negotiations.Those who are flexible will generally fare better than those who are not.

WHY UNIONS LOSE CERTIFICATION: Along with a continuing erosion of membership and influence, U.S. labor unions are also decertified at more than 600 bargaining units yearly. What causes decertification -" in effect, a decision by rank-and-file members to fire their unions and their labor leadership? According to a report in Personnel Journal, three perceptions of members help lead to decertifications: (1) Union seen as not responsive to members. (2) Union not needed for representation. (3) Union benefits not worth the cost. Most decertifications took place at small companies, with less than 10% at large firms.Could the decertification trend reach out to giant firms like GM and USX? That's still not clear, but it may be more of a possibility than before. An important survey indicates, for example, that an increasing number of workers at larger firms are at odds with their unions on vital matters. The alienation is greatest among recently hired workers,but even some seniority workers don't value their unions highly. "Because union value is perceived as low, decertification is more likely," the report said. This could make even the larger firms more vulnerable to decertification. Unions are also threatened by the enlightened and sophisticated approaches employers now take in dealing with personnel problems.

SOME ESSENTIALS FOR COMPANY SUCCESS: Dun and Bradstreet reports that nearly 90% of the more than 400,000 businesses that are dissolved each year fail because of incompetent management. Sure, we all make mistakes. But here are suggestions for avoiding some of the most common and costly management pitfalls: (1) Build a qualified management team.Make sure that the people you hire have experience broad enough to cover all essential bases. Hire and promote according to a clear set of specifications. (2) Establish sound relationships with parent companies and venture capitalists.Errors here range from poor communication to downright deceit -- and they all have tragic endings.(3) Focus onenhancing strengths, not on curing weaknesses.Paying too much attention to a company's shortcomings depletes valuable resources better spent elsewhere. (4) Hire competent support professionals. Ascertain in advance that your attorneys and accountants are adept at handling your particular needs. (5) Distinguish the guts of success from the gloss. Entrepreneurs run the risk of getting so caught up in the fun of a new venture that they lose sight of its substance. (6) Control costs. New projects have a very rapid "burn rate." Left unchecked, costs tend to zoom astronomically.