October 1984 The Roemer Report

IS THE U.S. HEADED FOR LONG-RANGE ECONOMIC GROWTH?

High produc­tivity paired with a rapidly swelling workforce could mean GNP growth of 5% to 6% per year. So contends Pierre Rinfret, president of Rinfret Associates, International financial consultants.Writing recently in Business Week, Rinfret claimed that the current economic recovery is not a short-term phenomenon.It is the result of base­line changes destined to reshape the American economy. Many people are pessimistic about long-range growth, largely because the past decade brought no real gain in productivity. But Rinfret believes the recession years of 1980-82 launched radical economic change. Businesses became cost-conscious and streamlined their operations to improve productivity. The workforce began to change as well, embracing women and blacks in unprecedented numbers. It's this combination of rising productivity and employment that leads Rinfret to his optimistic conclusions. He projects a 7% annual rate of real economic growth, based on a 2% labor growth added to a 5% gain in GNP. Rinfret is also encouraged by today's slightly higher than normal unemployment rate. It promises room for further expansion, he says.

THE "ATOMIZATION" OF TRUCKING: Remember the way the trucking industry used to conduct collective bargaining? Those days appear to be gone forever. Not too many years ago, this in­ dustry's bargaining arm, Trucking Management Inc. (TMI), would sit down with Teamster negotiators and hammer out what was genuinely an industry-wide master freight agreement. As we approach the start of this winter's bargaining, the word is that less than 30 large trucking employers have given their bargaining proxy to TMI. That compares to the 125 firms -that were represented by TMI during the last round of talks. Obviously, many carriers believe the massive structural changes in this industry in recent years make a nationwide agreement a museum piece. TMI members still reportedly employ 50% to 60% of industry Teamsters.

This can hardly be called a powerful and united bargaining front…at least by the standards of previous agreements. What appears to be unfolding is an "atomization" of the bargaining process in the unionized trucking sector. Many firms are apparently sitting on the fence wafting to see if TMI negotiates something they can live with before swallowing it.

A TWO-TIERED INDUSTRY: We have previously reported on the likely development of a two-tiered trucking system as a probable long­ term product of industry-wide deregulation. Some of this nation's biggest outfits--Consolidated Freightways, Roadway Express, Yellow Freight, etc.--seem well-positioned to engage in nationwide truck ing. Moreover, they will probably continue to participate in a nationwide agreement that contributes to their self-interest. The case for national bargaining participation by the legions of smaller outfits in this industry is much less clear-cut. Last month, 55 smalI and midsize truckers met in Chicago to discuss forming a bargaining unit that would seek a less expensive settlement from the Teamsters than the probable TMI pact. There is apparently a fear by many that a new member voting formula adopted by TMI (a weighted voting formula based on company workforce size) could force them to sign an agreement they cannot afford. The reality is that countless informal Teamster-company arrangements already exist that differ substantially from the current master freight pact. It might be that the industry-wide pact becomes the norm for the biggest outfits. But the real world relevance or benefit of such an agreement for the vast majority of companies in this industry may simply no longer be there.

FROM COLLECTIVE TO CONCESSION BARGAINING: The past three years have witnessed a reversal in management-labor relations. No longer is the question "How high can unions hike wages and benefits?" but rather "How much must workers give up to keep their jobs?" Since 1981, American workers have surrendered to management $10 billion in wages and benefits.

According to a Conference Board study of 500 major companies,a third of them asked for changes in unexpired labor contracts last year. The firms won a whopping 60 of their proposed concessions. Labor stood firm in defense of only one cause -- the COLA. Yet management succeeded in eliminating even that in nearly half its contract re-negotiations.

This new bite-the-bullet labor philosophy will be an enduring trend, not a temporary setback. The industries hardest hit fall into one or both of these broad categories: Those recently deregulated -- such as trucking and airlines -- and those facing tough foreign competition -- like steel and auto. But businesses that see cheaper labor as the solution to their profit problems may be courting a time bomb. They're unlikely to push for the technological advances needed to secure a lasting competitive edge.

RECENT LABOR AGREEMENTS SHOW SURPRISING WAGE RESTRAINT: D. Quinn Mills, a professor of business administration at the Harvard Business School, has tracked wage settlements in the past few years and suggests that recent settlements show a moderation that "is amazing because the second full year of economic expansion. The attendant decline In unemployment is normally accompanied by much higher wage settlements than the rise of 3.5 to 4% that the government is expected to report for the third quarter."What's behind this historic degree of wage moderation? Mills cites the same elements we've listed above…a wave of imports, a strong dollar, and deregulation. He also suggests that a growing anti-labor sentiment in Washington and within the broader spectrum of public opinion is also a very significant factor.

WALL STREET LOOKS AT TRUCKING: And, with a much more favorable disposition than it has for some time. That at least is the essence from an article in the October 17-30 issue of Financial World. The more positive economic outlook for trucking stocks is largely predicated on anticipated favorable economic circumstances through 1985. Truckers generally reported flat or falling earnings for the first half of 1984. Last month, however, carriers were able to recover some ground by pushing through price increases of about 30%...something that could only be done in an improving economy. Paine Webber's James Voytko seems to be one of the more optimistic Industry analysts around. He cites "tight capacity utilization and extraordinary traffic gains" over the past year as signs that truckers are regaining some of their pricing power.

TRUCKING AND THE "JUST-IN-TIME" AGE: Vanguard manufacturers across the country are adopting "Just-In-time" (JIT) assembly systems. By moving products straight from supplier to factory for immediate use on the line, the JIT approach slashes warehousing and inventory stockpiling costs and speeds up production. More than 1,000 plants are already using some form of JIT manufacturing. But for maximum output, JIT production mandates JIT transportation. Truckers seeking a competitive edge must shift into high gear now. So far, only a handful are offering JIT service although many claim they can…One route to success may be the "good neighbor" pol Icy, ideal for regional carriers. Those looking for a piece of the JIT pie are moving closer to manufacturers. As they do, look for a boom in short-haul trucking. Coast-to-coast carriers may be well-advised to set up regional services ASAP…For the short term, the auto industry will probably figure most prominently in JIT production. Chrysler and AMC are already experimenting with JIT delivery systems, and the results to date are impressive -- greater revenues for both the manufacturers and their carriers…Truckers may soon face JIT competition from rail and al shippers. One insider offers this tip: Be prepared to serve industry as it -- and not the carrier -- sees fit.

A REMINDER: In past Issues, we have advised you of the escalating insurance costs in the trucking industry. If you are concerned about the rising cost of casualty insurance, contact W.F. Roemer. We've made it our business to be on the cutting edge of state-of-the-art insurance programs for quality truckers.