October 1985 The Roemer Report

MANAGING IN A MATURE TRUCKING INDUSTRY:

Slower growth and more moderate profits are the hallmarks of an industry leaving its fast growth phase and making the transition to maturity. The post-deregulation trucking industry, in our judgment, clearly falls in this category. Such a trucking environment will continue to be typified by increased competi­tion for market share based on price and service along with very savvy shippers. How does a trucking outfit distinguish or position itself in our "mature" industry? We recommend Michael E. Porter's book, Competitive Strategy, as an innovative guide to creative survival in a mature market. Porter suggests that knowledgeable managers must recognize the strategic implications of this shift. During transition, pay more attention to costing, pricing and process innovation. Refine your service and consolidate market share. Avoid strategic pitfalls by re­viewing company performance and industry conditions so as to accurately analyze competitive position. Meet or beat competitors on price and service. Above all, counsels Porter, revise organizational goals to meet new realities. Adjust standards of acceptable growth and profits to meet the slower-growth climate. Demand more discipline from your organization: tighter budgeting, better environment controls, improved accounts receivable procedures. With opportunities for personal advancement limited, explore alternative ways to motivate both managers and workers. Consider decentralization to eliminate excessive overhead and improve coordination. The transition to maturity makes special demands on the manager: new goals, new skills, even a new "company climate."

CREATIVE TRUCKING: There has been a major emphasis on improving productivity within trucking operations, thanks to today's intense pressure on profits. But, productivity, alone, can't guarantee your outfit's future profitability. Innovation can be a major weapon in building your market share. Creating uncommon new ways of delivering transportation services and meeting the needs of your customers is a major step in overcoming the ever present pressure to cut rates to secure business. Two trends could be particularly relevant for truckers who are interested in "re-inventing" themselves. The first is called "consultative selling." This means abandoning the traditional shopworn sales pitch and converting your sales people to listeners and customer/ prospect intelligence gathers. Knowing how to ask the right questions and giving your customers and prospects the chance to fully explain their transport needs is a basic but usually overlooked essential. The second marketing trend is the "value-added" approach…Adding new serv­ices and dimensions in a customer relationship. Under this approach, the "value" that the shipper receives from doing business with you ex­ceeds the cost of the transportation service, itself. This may sound "blue sky," but it's precisely the method most of the nation's fastest growing firms are using to grow…And it's particularly useful in mature businesses such as trucking.

JUST-IN-TIME TRUCKING: Here's just one example of the "value-added" ap­ proach discussed above. Just-in-time freight delivery. Faced with ram­pant competition, shippers are paring down operations. Reducing inven­tory is a natural outgrowth of this trend, since warehouse stock ties up expensive capital. Many truckers are developing innovative service pro­grams to provide just-in-time delivery. They require extraordinary commitment from all involved. But with reliability as their goal, motor carriers are having remarkable success. They rely heavily on computerized support programs to trace and expedite shipments. Some outfits have terminal systems that customers can access to enhance the exchange of information. Industry leaders say each JIT request requires a customized approach. To measure service performance, many carriers assign expediters to follow each piece of freight through the system. The key is consistency. Foul-ups or delays can ruin a carrier's credibility, and prove costly for the customers. To prevent these mistakes, trucking companies use a variety of systems…

(1) Computer Tracing Programs. Each trucking terminal can access a central shipment infor­mation database to monitor freight in transit... (2) Transit Timetables. These allow customers to plan and schedule deliveries…(3) Express Lane Service. These direct load lanes move freight between major regional markets…(4) Direct Access Terminals. To monitor freight shipment status, customers or shippers can access carrier computers for information.

ALL TRANSPORT MODES WILL INCREASE RATES: Whether by land, sea or air, transportation rate hikes are expected in the coming year. Freight carriers are still fiercely competitive, offering discounts and deals to entire customers. But years of suppressed pricing has forced the transportation industry to push rates upward. To cover increased labor, insur­ance and operating costs, analysts predict rates will jump between 2.B% and 8.8%. Some of the largest increases will show up in the trucking industry. Minimum charge motor carrier service is expected to jump by 7.3%. UTL service and small package truck hauls are both estimated to increase over 5%. Completing the line-up, analysts say truckload rates will also increase, but only a slim 3.4%. For those who want to know what other transportation modes are up to, here's a rundown of other freight carrier rate predictions… (1) Railroad Carriage. Rates for boxcar, bulk and TOFC/COFC rail service should increase an average 4.5%. Since rail rates are traditionally cheap, the modest rate hikes should meet little resistance. Analysts predict rail service will become more popular, even capturing some trucking business…(2) Waterway Shipment. Inland waterway and ocean freight service expects hefty rate increases, 6.4% and 8.8%, respectively. Since waterway pricing has been virtually stagnant, the hikes are not surprising... (3) Air Freight. In this hotly competi­tive industry, overnight delivery service is a popular attraction. Analysts predict air services to climb an average 4.3%.

STEEL WARS: Cutthroat competition has long plagued the American steel industry. Foreign imports created the severest problems, but also sparked needed industry reform. As a result, analysts were predicting a much healthier industry by this fall. But a new wave of price slashing threatens to hurt steel mill performance. This time, foreign imports are not pri­marily to blame. Faced with declining demand for domestic steel, U.S. producers are bat­tling each other for new orders. This aggressive competition comes at a poor time. With tremendous gains in efficiency and cost reduction, steel companies were beginning to reap the benefits. But falling market prices will bog down their progress. Moreover, analysts say foreign imports still inflict some pressure on U.S. steelmakers. Despite President Reagan's 1984 import control program, foreign producers hold a 21.9% U.S. market share. Im­ port controls may eventually lower that figure, but some observers are skeptical the measures will help. They fear resulting gains will be offset by losses in other production areas.

Still, even a short-term boost in profits could incite Unions to demand higher wages. The steel industry would then face yet another battle, with potentially disasterous results.

DRUCKER'S DO's AND DON'T's: Innovation is the result of systematic creation, contends Peter Drucker, management expert and author. Strokes of genius are both rare and fleeting, seldom surviving the transition from great idea to practical success. Hence Drucker subscribes to certain principles of innovation -- a few do's and don't's for the pragmatic cre­ative process… Do's: (1) Analyze innovative opportunities on both the corporate and eco­nomic level. These include product successes and failures, industry upheavals, demographics, changing consumer tastes and new technologies. (2) Perceive -- as well as conceive -- ideas. Innovation demands not only careful thought, but also an active search for new input. Break out of old habits; learn to look, listen and ask. (3) Focus and simplify. Each innovation should have only one application, which is so obvious people will say, "Why didn't I think of that?" (4) Start small. The most promising ideas initially require few people, little money and a limited market. Starting on a grander scale makes adjustments too slow and ex­pensive... Don't's: (1) Don't try to be clever. Anything too sophisticated is bound to fail. (2) Don't diversify too early. You'll dissipate your energy and resources. (3) Don't innovate for the future; target today. Even projects that require long lead times should have some immediate applications.