Motor Truck Fleet Executive July August 2010

Mo oto torrtruck truck

Fleet Executive

C A N A D A ’ S

B U S I N E S S

JULY/AUGUST 2010

M A G A Z I N E

F O R

F L E E T

O W N E R S

TECHNOLOGY Why fleets are embracing electronic logbooks HUMAN RESOURCES Help struggling sales people recapture their confidence GREEN TRUCKING Can lighter-weight oils offer heavyweight protection?

TIME TO

GROW Are you planting the right seeds for the “reset” economy?

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contents July/August 2010

Vol.79, number 4

TIME TO

GROW

COVER STORY

TIME TO GROW . . . . . 25 From reengaging your sales force and securing better rates to executing mergers and real estate deals, read up on the strategies that can help you grow in a fragile economy.

FEATURES

19

E-BOOK LEADERS A growing number of fleets are embracing electronic logbooks – and enjoying dividends along the way.

22

HEAVY HITTERS Shell Canada says today’s lighter-weight oils offer heavyweight protection in the face of EPA2010 engine requirements.

28

RESTART YOUR (SALES) ENGINE Survival and prosperity in trucking depend on an in-depth understanding of the industry’s economics. Kickstart your company post-recession with these tips from Dan Goodwill of Dan Goodwill and Associates.

DEPARTMENTS tHE VIEW WItH LOU. . . . . . . . . . . . . . . . . . . . 6 There’s no time like the present to determine your best path out of the current economic mess, argues editorial director Lou Smyrlis.

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COmPEtItION WAtCH . . . . . . . . . . . . . . . . . . . 8 TransForce acquires oilfield transportation assets of Calgary-based EnQuest Energy Services; TransX Group of Companies appoints new president of US division; HGH unveils new 45,000 sq.-ft. headquarters in Caledon, Ont.; and more.

30

tAKING CARE OF BUSINESS . . . . . . . . . . . . . . . 10 Are you concerned about having sufficient monies to support a comfortable retirement? You may be a candidate for an Individual Pension Plan.

33

mY HR SPACE . . . . . . . . . . . . . . . . . . . . . . 12 Even the best salespeople can struggle, but when do managers need to step in with extra support? Here are some tips on how to beat burnout.

LOOK OUTWARD, NOW Carriers with clear strategic focus and intent stand to benefit most during the economic recovery. We offer a trio of strategic options for the rocky road ahead.

CARRIER CHAT Executives from three of Canada’s leading carriers get frank with editorial director Lou Smyrlis about the challenge of clawing their way back to the new normal.

DASHBOARD DEBUT We take you through the latest numbers from TransCore’s Canadian Freight Index and Nulogx’s Canadian General Freight Index in our new Dashboard section.

34

SHIPPERS SPEAK Some of the nation’s top shipper executives speak their minds about freight volumes, rates and capacity – though what they have to say may not be what you want to hear.

37

ROOM TO GROW Thinking about relocating your trucking business?

We offer you a snapshot of all your real estate options.

EQUIPmENt WAtCH . . . . . . . . . . . . . . . . . . . 14 The new Kenworth T700 is not only spacious and curvaceous, but also the perfect way to say goodbye to the manufacturer’s T2000 generation of big rig, says writer James Menzies.

INSIDE tHE NUmBERS . . . . . . . . . . . . . . . . . . 38 How many transportation sector-generated issuances have occurred in the past five months? Plus: a comparison of shipper perceptions of available capacity by mode and a look at motor carrier purchases of heavy-duty trucks this year based on region and carrier size.

july/august 2010

3

what’s on trucknews.com?

Blogs • Palmer Marketing president Lee Palmer kicks of his blogging tenure at trucknews.com with a list of his top 10 undisputable, post-recession business basics.

• Dan Goodwill of Dan Goodwill and Associates says there is enough positive economic news these days to suggest that we’re actually in the midst of a recovery – and that means freight rates are poised to start climbing.

• Kevin Snobel of Caravan Logistics takes some of the mystery out of insurance renewal with a comprehensive checklist.

• He’s interviewed hundreds of truckers over the years, but managing editor Adam Ledlow laments the lack of ladies behind the wheel. Where have all the women truck drivers gone?

Web TV: Transportation Matters • WHAT’S THE NEW NORMAL?: The worst recession of the post-War era has been followed by a fragile recovery. And that has left transport executives uncertain about how quickly things can turn around.

• INSIDE SPRING CREEK’S HYBRID LTL: We get inside Spring Creek’s hybrid LTL approach to service at the most recent Driving for Profit seminar.

• CFMS WRAP-UP: A look at highlights from this year’s Canadian Fleet Maintenance Seminar.

• GOLFING FOR WISHES: Trucking industry types came out in droves for the fifth annual Truck News/ Chevron charity golf event to raise money to make a child’s wish come true.

You Said It . . .

“A dispatcher has the most hated position in any transport company as he has to weigh both the good for the company and the requirements of the driver to get the job done. The two do not always match and this is when a dispatcher really shines. Putting the puzzle together day after day and very seldom with little reward other than the satisfaction that he made it through another shift and will gladly come back tomorrow and do it all over again. I have always said dispatchers are a breed all their own and my hat goes off to all of them. Keep up the good work people you are the best.”

– Ross responding to Ray Haight’s blog: Ray’s Rules for Dispatchers.

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We now TWEET! Follow us on Twitter Twitter.com/AdamLedlow Twitter.com/JamesMenzies Twitter.com/LouSmyrlis

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Motortruck

Fleet Executive

The View with Lou

is written and published for owners, managers and maintenance supervisors of those companies that operate, sell and service trucks, truck trailers and transit buses.

No better time than the present to determine your best path out of this mess

F

or at least 18 months now, I’ve been hearing about “zombie” truckers, motor carriers which are barely able to meet payroll from week to week yet somehow manage to hang on.

Their continued existence maintains the capacity overhang that deflates rates since freight volumes during this recovery, especially in the LTL sector, are not growing as quickly as during prior recoveries. No doubt their desperation to Lou Smyrlis, MCILT secure any business that can keep Editor them afloat for another week also lou@transportationmedia.ca contributes to depressed rates for the industry overall.

I’ve also been hearing for the last 18 months that until the lending institutions pull the plug on these severe underperformers, the industry will continue to be mired in its overcapacity/low pricing glut. Well folks, we may be waiting for a long time for that to happen.

Elian Terner, director of investment banking for Scotia Capital, was at our recent Carrier Workshop, sponsored by PeopleNet Canada and conducted in partnership with Dan Goodwill and Associates.

Terner is a rising star in our industry and he provided his take on the industry’s future direction and what trucking executives must consider to best position their companies for the years ahead. You may not like what he had to say. Terner acknowledged that lenders have been reluctant to force delinquent operators into bankruptcy; used truck prices are still low enough lenders would not get much in return when selling off the equipment.

Would improved pricing for used iron change things? Perhaps, but as Terner pointed out, lending institutions don’t really want to be operating trucking businesses. “Generally speaking, they’re not in the business of seizing assets. That’s not what they want to do. In many ways, it’s better for them to keep the company alive,” he said.

So if the lending institutions don’t want to fix the industry’s problems, then what? We should be doing what needed to be done all along: fix them ourselves.

For companies looking to grow organically, there needs to be a focus on limiting capacity. As Mark Seymour of Kriska Transportation recently pointed out at TransCore’s strongly attended users confer6

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JULY/AUGUST 2010

VOL. 79

ence: “We are here to create a model we can live with for years rather than months.” That means not adding capacity unless absolutely certain of its long-term need and not getting trapped into other people’s pricing. Market share doesn’t mean a whole heck of a lot if you’re bleeding red while trying to achieve it.

For companies looking to grow by acquisition, Terner believes a number of attractive opportunities exist to acquire troubled carriers. “Consolidation will be a key theme for the trucking industry over the next several years…A highly competitive M&A market will be led by large firms focused on growth by acquisition and financial buyers with strong cash positions,” he says. But before that happens, the companies in a good position to be acquirers need to get over their current cautious approach. Few seem willing to risk making a bad investment so soon after recovering from a nasty recession.

Company executives looking to sell need to get over their “wait and see” attitude. Those who may want to sell seem to be held back by the cold reality that their company is not worth anywhere near what it used to be. Also, many independently owned and operated trucking firms in the Canadian market do not have firm succession plans in place and, in many cases, there are no family members waiting in the wings and interested in becoming second or thirdgeneration operators. Both those factors are pushing owners who could be selling towards a wait and see attitude. Yet, these are times when “wait and see” can have very negative consequences. That was made abundantly clear by the numbers provided by Terner.

Consider that back during the industry glory days of 2002 to 2007, when trucking company valuations were going off the chart, we hit a peak of 10.7x EBITDA. During the trough of the recession trucking company valuations fell to about 4.2x EBITDA, according to Terner. As he pointed out, can you imagine how much was lost by people who took a “wait and see” attitude because they did not properly understand the market trends and their company’s value?

A return to peak valuations will likely take another five to 10 years according to Terner and will require substantial sustained EBITDA growth.

Seems to me like there is no better time than the present for motor carriers to, as Terner put it, assess their strategic positioning and determine the best path forward. mt @ARTICLECATEGORY:129;

NO. 4

Editorial Director Lou Smyrlis (416) 510-6881 lou@TransportationMedia.ca Managing Editor Adam Ledlow (416) 510-6890 adam@TransportationMedia.ca Features Editor Julia Kuzeljevich (416) 510-6880 julia@TransportationMedia.ca Creative Director Mary Peligra mpeligra@bizinfogroup.ca Advertising Creative Directors Carolyn Brimer Beverley Richards Contributing Editors Ken Mark James Menzies Ian Putzger John G. Smith Carroll McCormick Harry Rudolfs Publisher Rob Wilkins (416) 510-5123 National Sales Manager Don Besler (416) 699-6966 Account Manager Brenda Grant (416) 494-3333 Production Manager Kim Collins (416) 510-6779 Circulation Manager Mary Garufi Video Production Manager Brad Ling Research Manager Laura Moffatt Vice President Publishing Alex Papanou President Bruce Creighton Head Office 12 Concorde Place, Suite 800 Toronto, Ont. M3C 4J2 Motortruck Fleet Executive is published by BIG Magazines LP, a division of Glacier BIG Holdings Company Ltd., a leading Canadian information company with interests in daily and community newspapers and business-to-business information services.

The contents of this publication may not be reproduced or transmitted in any form, either in part or full, including photocopying and recording, without the written consent of the copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without prior written consent.

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CompetitionWatch

TRANSFORCE has entered into a deal to acquire an equity interest in EnQuest Energy Services of Calgary, Alta., including the oilfield transportation assets such as Speedy Heavy Hauling. EnQuest provides energy services, primarily in the US, including the transportation of rigs, cranes, other oilfield equipment and oversize loads. The assets acquired by TransForce generate annual revenues of about US$50 million, the company reports. TransForce’s US subsidiary Hemphill Trucking will be integrated with the new companies, operating as Hemphill-Speedy, headquartered in Grand Junction, Colo. The deal is worth about US$32 million. TransForce has also secured $650 million in financing which it said it will use “for corporate purposes consistent with its established strategy.”

Canada’s largest trucking company secured the financing from 15 lenders, led by National Bank of Canada and Royal Bank of Canada.

It includes a $200 million five-year term loan and a $450 million revolving line of credit, the company announced.

TST OVERLAND EXPRESS has acquired a new 52-door cross-dock terminal in Calgary that will more than triple its capacity there, according to parent company TransForce. TST recently added direct line hauls from Dallas, Texas to Calgary, which it says reduces freight handling and transit times. That lane, and the anticipated increase in volumes, will be handled by the new Calgary terminal, the company says. In other news, TST Overland Express has also slashed delivery times from California and the southcentral US to two days to Vancouver and three days to Calgary. The company says the reduced delivery times are possible thanks to a direct line haul and proprietary technology. The direct line haul lanes run from Texas and Los Angeles to Calgary and Vancouver, reducing freight handling and transit times, the company claims. Its proprietary technology, meanwhile, has been designed specifically for expedited, efficient management of route and cross-border activity. Based on input from customers, brokers and Customs agencies, the systems ensure the required documentation is ready to go when required, reducing border delays, TST says.

TRANSX GROUP OF COMPANIES has appointed Ron Joseph as president of its US division, TransX USA. Company officials say Joseph is responsible for the expansion of the US truckload brokerage business and his appointment coincides with the launch of a new Web site, www.transxusa.com. Joseph, who reports to Louie Tolaini, president of TransX Group of Companies, has more than 30 years of transportation experience most recently at FedEx Ground as senior vice-president of linehaul, safety and maintenance.

Prior to FedEx, Joseph was first director then vice-president of Roadway Package System, being part of the team responsible for the company’s creation. Joseph’s accomplishments include numerous FedEx and ATA Awards.

HGH has unveiled its new 45,000-plus sq.-ft. headquarters, warehouse and shop. Perched on six acres of land at 34 Perdue Ct. in Caledon, just north of the fleet’s former head office in Brampton, the new facility boasts reflective blue-tinted glass, modern offices, a tractor-trailer wash bay, a 12,000 sq.-ft. shop and 15,000 sq.-ft. of warehouse space. Officials say the new terminal was built with drivers and owner/operators in mind. Drivers will soon be able to drop their truck at the terminal after a trip, enjoy their 36-hour reset period and then get back on the road without having to travel off-site to fuel up, weigh their load, wash their equipment or seek repairs. (The wash bay and shop are already up and running with the fuel island and in-ground scale yet to be installed). Company president Jas Shoker says he plans to grow the 100-truck fleet by 25% within a year, and is launching an LTL division as well as a new direct service to Mexico.

US-based ESTES has launched a new three-day service to Calgary and Edmonton from six terminals in Texas and Oklahoma. The company says it’s able to offer the new service thanks to improvements in freight processing, reduced freight handling and the use of direct lanes into Alberta, reducing service to Edmonton and Calgary from five days to three. The company will provide three-day service to Calgary and Edmonton from its terminals in Houston, Temple, San Antonio, Dallas, Fort Worth and Oklahoma City. Estes says it has consolidated freight at inland regional gateways to achieve higher efficiency, avoiding congested border terminals and improving its document processing capabilities in advance of arrival at the Canadian border. mt

For daily COMPETITION WATCH news go to www.trucknews.com or subscribe to our bi-weekly e-newsletter.

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Taking Care of Business

planning for profitable tomorrow Are you a candidate for an Individual Pension Plan?

I

n general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Will you have sufficient monies to support a comfortable retirement? I pondered this same question and heard about a new pension product that could be the answer.

I spoke with Marc Henein and Matt Berry, both wealth advisers with Scotia McLeod at their Brampton office.

What is an IPP? According to Henein, “An IPP is a defined benefit pension plan that can provide greater tax deferred contributions than those available through a Registered Retirement Savings Plan (RRSP). Unlike an RRSP, it uses a formula to set a specific monthly pension that is promised at retirement. An IPP is subject to the provisions of the Income Tax Act which govern defined benefit pension plans.

The plan provides for an annual pension that is equal to a percentage of an employee’s T4 (or T4PS) income times years of employment to a maximum defined amount. Employer contributions to fund the pension are determined by an actuary.”

The current thinking is that this would be for someone over the age of 40; their maximum IPP contributions will exceed those of RRSPs. It is also possible to fund for previous years’ pension benefits going back as far as 1991. Funding of these past service benefits can result in significant deductible contributions for the employer.

Heinen believes that the ideal IPP candidate is likely a business owner or incorporated professional earning around $100,000 or more, and who is over 40. The candidate must have T4 income to generate pension’s benefits. Dividend income, income from a sole proprietorship or partnership does not qualify.

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So what are the advantages?

Branch manager Matt Berry said that, “Annual contribution amounts are larger than RRSP contributions. These can be made retroactive back to 1991 with pastservice contributions.”

Contributions are tax deductible for the employer. Employer contributions must be exempt from CPP/QPP and other payroll taxes. Berry believes that there is a good possibility of making additional contributions for early retirement benefits. Employees are not taxed until withdrawals from the plan are made. Pension benefits are creditor protected under pension legislation.

And what about any disadvantages?

Heinen said there are “significant regulatory compliance requirements. Set-up and annual maintenance costs can be $3,000 or greater, and may increase if past service benefits are provided. Assets may be locked in by provincial pension legislation. Required annual employer contributions need to be considered. And a surplus may reduce future contributions.”

What are the current year contributions?

Once an IPP is established, the employer must make ongoing contributions to keep the plan funded. In order to determine the contribution amount, an actuarial valuation is required when an IPP is opened, and every three years thereafter. Future RRSP contributions by the individual will likely be impossible due to the size of the pension adjustment reported on the IPP benefits earned.

Contributions made within 120 days of the corporate year-end are deductible in the immediately preceding corporate year.

An IPP may be established after the corporate year-end, but must be submitted for registration before the calendar year’s end.

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile specializes in the sale of mid-market companies.

Mark can be contacted at www.mercantilemergersacquisitions.com.

What do you mean by past service?

“When past service is funded, the Income Tax Act requires that RRSP contributions made for that period of time either be withdrawn or transferred to the IPP in order to offset the cost of past service,” Berry said.

“The amount is called a Past Service Pension Adjustment (PSPA). It is the sum of the pension adjustments that would have arisen during those years, had the pension plan been in place. The transfer of RRSP assets to the IPP is tax free. Most people choose to transfer existing RRSP assets to the IPP to satisfy the PSPA. A transfer can only be completed once the IPP has been accepted for registration by CRA. In many cases, Scotia McLeod is able to facilitate this as an inkind transfer. Once the RRSP assets are transferred into the IPP account they cease to be treated as RRSP money and form part of the IPP. The remaining deductible past service costs are either paid by the company in a lump sum, or amortized over a specified period up to a maximum of 15 years.”

I also learned that investments that are RRSP eligible generally qualify for an IPP, and can be managed in a similar way as a selfdirected RRSP. The contributions increase the closer the employee gets to retirement, as there is less time to accumulate the assets in the plan to fund the required pension. mt

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m

the human edge

y

H

R

beating burnout Even the best salespeople can struggle, but when do managers need to step in with added support?

A

ny economic downturn can be rough on a fleet’s sales force.

Even the top performers in the group can suddenly find it difficult to secure a sale. They begin to lose faith in their abilities. Nothing appears to work the way that it should, and life appears to spiral out of control. The feelings of burnout become difficult to escape.

The cost of employee burnout is not limited to reduced sales revenue, either. A 2009 survey by careerbuilder.com found that one-third of polled companies were worried about the way this mindset will affect their ability to keep the best staff.

Professor Michael Leiter, director of the Centre for Organizational Research and Development at Acadia University, suggests there are three stages of burnout.

It begins to emerge as exhaustion. To compound matters, people need to invest more time into personal care as they begin to age. “They might still be using the solution that worked great when they were a decade younger,” he observes. “The whole balance isn’t working.”

The exhaustion leads to “presenteeism” when employees lose their focus on different tasks. “It takes a fair bit of energy to be enthusiastic,” Leiter adds.

Then the sense of confidence begins to crumble. One issue simply piles on the next, making worries of failure a self-fulfilling prophesy.

And the stress may not be limited to the workplace. When commission cheques begin to shrink, members of the sales team may have trouble meeting personal financial obligations. That can lead to challenges at home.

“If they’re already struggling with other issues, with relationship issues, it may be the proverbial straw that breaks the camel’s back,” notes Mark Arnold, director of Ottawa’s Family Services Employee Assistance Program (fseap).

Executives can spot the troublesome signs of burnout by watching for changes in behaviour, he says. Sociable employees may suddenly appear to be withdrawn. Traditionally quiet employees may begin to lash out at their coworkers. “If it lasts a few days or more, then you might want to chat,” he says.

The first discussion can be as simple as asking whether everything is okay.

“People will react differently. Some will shut down. Others, it gives them permission to talk. They may be hiding a lot inside,” Arnold explains. But even the discussions about performance can have a posi-

To find a HR Essentials workshop in your region contact:

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tive tone. Executives can point out something such as, “You’ve missed a sales meeting for several weeks in a row, but that’s not like you.”

Depending on the nature of the underlying issues, there may be the need to talk about the support of an Employee Assistance Program (EAP). “EAP counseling isn’t just for people at the edge of the cliff. You want to normalize it,” he adds. “A lot of employees don’t even know they have these programs.”

The layoff of fellow employees can contribute to the challenge as well. The need to accomplish excessive workloads over an extended period of time can certainly contribute to burnout, according to research by Health Canada. Another issue can be the lack of influence over daily tasks. There may also be a perceived lack of balance between effort and rewards, whether they come in the form of status, financial gains, or career advancement.

Workers may then begin to struggle with sleep, begin to drink, feel depressed or feel angry. That is when they are more likely to become distracted, make dangerous errors in judgment, and even put their bodies under stress – increasing the chance of physical injuries such as sprains and strains.

But it is possible to re-energize these employees. Leiter, for example, sees a value in using team building exercises to renew a sense of enthusiasm about a fleet’s common vision. Once that happens, co-workers will begin to hold each other accountable for different tasks and help to focus everyone’s efforts. “When under pressure – and so much of the economy has been under pressure – groups can pull together and become a tighter team,” he says.

The best solutions of all will often come from the employees themselves, adds professor Chris Higgins of the Richard Ivey School of Business at the University of Western Ontario. The different approaches can be collected during retreats where teams have the opportunity to discuss what they can do to make themselves more successful.

“It is a state of mind,” he says of those who feel burned out. “And it takes time to change behaviour.” mt Funded by the Government of Canada’s Sector Council Program, the Canadian Trucking HR Council (CTHRC) is an incorporated not-for-profit organizations that helps attract, train and retain workers for Canada’s trucking industry. For more information, visit www.cthrc.com.

AMTA www.amta.ca

PEI Trucking Sector Council www.peitsc.ca

Ontario Trucking Association www.ontruck.org

Trucking Human Resources Sector Council, Atlantic info@thrsc.com

S

p

a

c

e

inside the numbers

levels of agreement with driver shortage statements agree

strongly agree

The shortage is one of the top two concerns for our company

27%

34%

We’re unable to find enough qualified d rivers

29%

29%

Licensed d rivers are available but not many qualified

36%

driver categories by fleet size

40%

Reasons for truck driver shortage by fleet size Reasons for driver shortage There is no shortage

Fleet size

company drivers

Owner/Operators

agency/leased drivers

<10 trucks

66.6%

32.5%

0.9%

10-49 trucks

80.2%

16.9%

2.9%

50-99 trucks

78.2%

20.4%

1.4%

100+ trucks

64.3%

27.7%

8.0%

Overall

70.6%

27.3%

2.1%

<10 trucks

10-49 trucks

50—99 trucks

100+ trucks

Overall

2.3%

2.8%

1.1%

1.6%

2.3%

Quality of life/poor working cond itions

45.1%

38.4%

46.7%

45.0%

43.5%

Not paid enough

44.0%

29.1%

34.4%

32.6%

38.5%

Not attractive occupation for youth

32.0%

36.2%

54.4%

47.3%

35.9%

Aging work force

33.8%

36.4%

24.4%

55.0%

35.8%

I ncrease or changes in regulations for d rivers

24.5%

26.6%

24.4%

14.0%

24.0%

Training schools not provid ing ad equate training

19.0%

22.0%

22.2%

18.6%

20.0%

Drivers jumping from company to company

13.3%

18.9%

15.6%

8.5%

14.4%

Rapid growth/increased d emand

8.9%

15.3%

5.6%

10.9%

10.5%

Bord er or security issues

8.9%

10.7%

12.2%

11.6%

9.8%

Training costs too high

9.4%

9.0%

4.4%

6.2%

8.7%

Poor management of d rivers

9.3%

5.9%

6.7%

6.2%

8.0%

Trad itional sources of d rivers no longer there

6.3%

4.8%

2.2%

7.0%

5.7%

Too many trucks on the road

3.4%

1.4%

0.0%

1.6%

2.5%

Other

10.5%

15.8%

17.8%

7.8%

12.1%

ANOTHER DRIVER SHORTAGE IS JUST AN ECONOMIC UPTICK AWAY. CAN WE SOLVE IT THIS TIME?

Although motor carriers have been more concerned about laying off drivers and owner/operators over the past 12-18 months, the driver shortage that has plagued trucking for well over a decade will likely return as the economy rebounds. Prior to the recession, six in 10 trucking fleets surveyed for research conducted on behalf of the CanadianTrucking Human Resources Council, agreed that the shortage of Class 1/A truck drivers was one of the top two concerns for their companies.The concern was particularly strong among for-hire carriers with 50 or more trucks in their fleet. Almost six in 10 also agreed that they were not able to find enough qualified drivers and again the concern rose with the number of trucks in a particular fleet. How can that be the case when “truck driver” is one of the top three occupations among Canadian males?The CTHRC research found that fleet executives were not concerned about the total number of licensed drivers available, but rather the number who were actually qualified to drive for them. The research also delved into fleet executive perceptions about the reasons behind the shortage. The perceived quality of life and poor working conditions that come with the job topped the list followed by the concern that drivers are not paid enough, a remark often echoed in fleet executive panels hosted byTransportation Media.Those issues, in combination with the fact the current pool of drivers is aging and concerns that driving truck is not an attractive occupation for youth, present significant hurdles to overcoming the expected driver shortage once the economy resumes its stride.

Saskatchewan Trucking Association www.sasktrucking.com

British Columbia Trucking Association www.bctrucking.com

Manitoba Trucking Association www.trucking.mb.ca

Camo-route www.camo-route.com

Or Contact the Canadian Trucking Human Resources Council, info@cthrc.com or 613 244 4800

july/august 2010

13

EquipmentWatch The new Kenworth T700 is Spacious and Curvacious ‘If you were a fan of the T2, and I count myself as one, then you can take comfort in knowing there’s an even better truck waiting in the wings. It makes it easier to say good-bye.’

By James Menzies

T

he T2000 era at Kenworth has come to an end and rising from its ashes is a truck that’s every bit as good, and then some.

The new Kenworth T700 has retained much of the styling that made the T2 stand out on the road: a wide, imposing wire mesh grille, sloped hood and broad stance. By using computational fluid dynamics (CFD), engineers have designed a truck that’s aerodynamically superior to its predecessor without sacrificing aesthetics or interior space. Perhaps it’s not fair to compare the T700 to the T2000 – after all, it’s a completely new design, not just the reworking of an old model that’s being put out to pasture. Nonetheless, the T2000 was retired to make room for the T700, so comparisons are inevitable.

The T2000 had its detractors, but occasional complaints of wind noise and cab sway won’t haunt its replacement. The solid door closes firmly and excellent insulation keeps wind and road noise about as muted as one could hope. The suspensions on the two versions I recently drove (Kenworth AG130 Front Air Ride 13.2K on the front and Kenworth AG400 40K on the rear of both tractors) provided a smooth ride absent of any rocking. The smoothshifting UltraShift Plus surely contributed to that as well.

It was hard to find fault with any aspect of how the T700 performed on the road and the fact it’s aerodynamic as well as comfortable and fun to drive is a bonus – a bonus that pays big dividends, mind you. And how about that aero?

According to Kenworth, the T700 is its most aerodynamic vehicle ever, boasting 3% less drag than the fuel-efficient, narrownosed T660. Somehow, that’s been accomplished without eating into the spacious interior which includes 60 cubic feet of storage, 25 more cubic feet of roominess than the T660 and a towering, 8-ft. “cathedral” ceiling that allows a driver to comfortably sit upright in the top bunk. This may be the ultimate team truck. Better 14

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yet, it’s a truck that makes financial sense in a package that even classicstyled truck fans can appreciate. It’s a slippery truck that doesn’t look too slippery, yet through the miracles of CFD every possible point of unecessary air flow interruption has been eliminated through subtle design enhancements. Little things, like flush-mounting the LED marker lights and providing a nearly seamless transition between components such as the hood, fenders, windshield, roof and bumper.

The T700 also employs Kenworth’s excellent forward lighting system, with halogen bulbs that provide 44% better illumination that tranditional sealed beam lamps. It’s a marked improvement, both functionally and stylistically, from the round, pupil-shaped headlights of the T2.

Inside, the T700’s dash is intuitive with easy to reach switches and an optional SmartWheel that I would consider a must-have spec’. It puts frequently-used controls such as cruise and the engine brake at your fingertips so you don’t have to reach for the desired rocker switches. The SmartWheel also features a flasher button that allows you to effortlessly blink your lights – a common courtesy that seems to be not so common anymore. Spec’ing the SmartWheel encourages courteous driving and promotes the use of cruise control – seems like a no-brainer to me.

New to Kenworth is a pre-trip inspection assistant that cycles through the lights so a driver doesn’t have to return to the cab multiple times as he or she does a walk-around.

On the dash, Kenworth’s driver display provides bite-sized nuggets of information without overwhelming the driver. It provides a sweet spot indicator to promote fuel-efficient driving and the driver can cycle through other messages as required. I kept it on the sweet spot indicator, which provided assurance that I was getting the most out of the engine – which wasn’t difficult with the UltraShift Plus.

EquipmentWatch I’ve written plenty about the UltraShift Plus in the past, so I won’t go into much detail here except to say I like the way Kenworth packages the leverless console out of the way, creating even more space between the seats – an ample 30 inches in the T700’s case. The arm rests swing back behind the seats to clear up even more space at the entrance into the roomy, 75-inch Aerodyne sleeper cab. It wouldn’t take much to dress this sleeper cab up beautifully – it comes with an optional flat panel TV mount and drawer-style fridge as well as plenty of lighting. This is a sleeper cab you can live in.

Under the hood Kenworth was kind enough to provide two similarly-spec’d T700s on my recent test drive, one featuring the Cummins ISX15 under the hood and the other powered by Paccar’s own, all-new MX. However, it was difficult to draw an apples-to-apples comparison since the Cummins was rated at 425 hp, 1,550/1,7509 lb.-ft. torque at 1,200 rpm while the MX was rated at 485 hp and 1,650

lb.-ft. of torque at 1,100 rpm. Still, both engines were more than capable of pulling my 80,000-lb GVW load up the long uphill grade just before Exit 215 on I-5 south of Mount Vernon. Both engine brakes were remarkably quiet, a welcomed, if unintended, benefit from the noise-reducing qualities of the SCR system.

Truth be told, it was difficult to tell the difference between the two engines.

A more discerning Cummins afficianado will no doubt find some subtle nuances, real or imagined, that will allow Cummins to retain its loyal following. But Paccar has produced a worthy alternative to the ISX – and once its promises of a million mile life expectancy are industry-tested, it will no doubt develop its own legion of followers.

Like Pepsi and Coke, both engines will satisfy, but customers will no doubt develop their individual preferences.

The Paccar folks pride themselves on the quietness of the new MX – and for good reason. It is indeed a quiet engine, thanks in part to the use of compacted graphite iron (CGI) not only on the

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But while the MX was quiet, the Cummins too seems to have gotten quieter,

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which may be a tribute to the insulation package and other noice-reducing features of the Kenworth cabs themselves.

The bottom line when it comes to engine selection is that with the departure of Caterpillar from the North American onhighway market, customers once again have a choice, and it’s a choice between two fine engines.

Emissions system Speaking of engines, the EPA2010compliant emissions package featuring selective catalytic reduction (SCR) can be packaged in one of four ways: right-hand under passenger access step (with a clear back of cab); horizontal crossover (offering the ability to shift weight forward and maximize frame space); vertical independent (allowing maximum frame space and clear access to PTOs); and horizontal series (for medium-duty offerings only).

Giving credit to the Kenworth engineering department, vocational product manager Samantha Parlier said the entire SCR emissions system including the DPF are now packaged as tightly as the DPF alone was in 2007.

The horizontal crossover configuration is expected to be most popular on highway trucks with sleeper cabs, Parlier predicted.

The exhaust travels through the DPF, crosses over the driveline and enters the mixing pipe which is housed above the SCR canister.

Kenworth has a multi-stage derate strategy for when diesel exhaust fluid (DEF) runs low, and at no point does it involve putting the brakes on the truck at highway speeds. As long as the DEF tank remains at greater than 10% full, it’s business as usual.

Once it reaches the 10% mark, a DEF warning lamp lights up on the dash. At 5% full, the lamp begins flashing and it is soon accompanied by the Check Engine light.

If DEF levels aren’t replenished, the engine will suffer a 25% power derate – enough to get the driver’s attention but not to render the vehicle undriveable.

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EquipmentWatch “It’s enough that the operator knows something is going on but it won’t hamper their ability to continue operating at freeway speeds,” Parlier explained. Once the driver shuts the truck down, however, there’s no getting back to highway speeds without adding DEF. A driver will be limited to five mph upon restarting the truck unless DEF is added, allowing them to limp along to a fuel station but little else.

Many EPA2010-related messages have been added to Kenworth’s driver information centre, to ensure drivers are warned of the emissions systems’ requirements. New messages include ‘Exhaust SCR DEF Service Required’ – a note that drivers will hope to avoid, since it indicates the wrong fluid may have been added to the DEF tank.

Also new in 2010 is a message that indicates the DPF Regeneration Inhibit switch has been activated. Drivers have been known to activate the switch to prevent DPF regenerations and keep exhaust temperatures low, when fueling for instance, only to forget they did so. The DPF would

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clog prematurely as a result, negatively affecting fuel economy and necessitating an early cleaning.

You can remove the inhibit switch altogether, but Parlier advised against that, confident the new warning message alone will solve the problem.

Unique to Kenworth is the ability to spec’ any sized DEF tank, provided it meets EPA requirements. Parlier says other OEMs allow you to spec’ only the size of the fuel tanks and then slap on the corresponding-sized DEF tank.

“It may seem trivial, but if you’re a customer and you know you want that large tank because of the way your route goes and a small tank may not get you there, you can spec’ a larger tank,” she said.

Customers can also choose to have the tank mounted on either side of the vehicle to optimize compatibility with their own fuel islands or DEF dispensing equipment.

Final thoughts The T2 had its detractors, but any shortcomings have been fixed in the T700. The T700 appears to be a better built truck allaround. The T2’s strong points, such as visibility, driveability, aerodynamics and spaciousness, have only been enhanced with the T700’s design.

If you were a fan of the T2, and I count myself as one, then you can take comfort in knowing there’s an even better truck waiting in the wings. It makes it easier to say good-bye.

Not only is the T700 a worthy successor to the T2000, it also gives the popular T660 a run for its money. I drove both trucks on my trip to Kenworth Country in the Pacific Northwest and there’s plenty to like about both rides. If I were a regional driver, the T660 would be my Kenworth.

But it’s hard to beat the roomy interior of the T700 if you’re living out of your truck for any length of time, especially with a partner. It will be interesting to see which of these models proves more successful

once fleets and owner/operators have had the chance to vote with their pocketbooks.

With the driver shortage on the brink of re-emerging, company drivers may have some influence as well. I’m told T700 pricing is still being determined, but it’s likely to be comparable to the T660.

The T700 is a truck that drivers can be proud to drive and owners can buy knowing that with its aerodynamics and quality craftsmanship, it makes smart business sense as well. mt

Kenworth boasts completely clear BOC

By James Menzies RENTON, Wash. – One of the highlights of Kenworth’s EPA2010 truck lineup is what it claims to be the industry’s only completely clear back-of-cab (BOC) – both above and below the frame rail.

Samantha Parlier, vocational product marketing manager with Kenworth, showed off this accomplishment during a recent visit to Kenworth headquarters.

The great enabler is an aptly-named, 6.5-gallon Clear Back of Cab DEF Tank which sits cleverly tucked over top the fuel tank.

“Kenworth is the only OEM that allows you to run SCR with a completely clear back of cab both above and below the frame rails,” Parlier said. “We can package the batteries, fuel tank, DEF tank and the exhaust system underneath the cab and that little 5.6-gallon tank is the reason we can do that.”

That engineering achievement is likely to be popular with vocational truck body builders. Another treat for body builders is they can relocate all the tanks and pumps found on a Kenworth truck to accommodate their own requirements.

The completely clear BOC was showcased on a Kenworth T800 extended cab dump truck, although the extended cab isn’t necessary to achieve the clear BOC, Parlier said.

TechnologySolutions

e-book leaders A growing number of fleets are embracing electronic logbooks, and enjoying dividends along the way

By John G. Smith

T

he pages of a driver’s logbook get little in the way of respect. Drivers openly mock the documents by calling them “comic books,” whether they are referring to ways the Hours-of-Service data can be manipulated or how the simple slip of a pencil might lead to a fine from an overzealous enforcement officer. Even the Canadian Trucking Alliance has called the approach to recordkeeping nothing less than “antiquated.”

Maybe there should be little surprise that a growing number of fleets have abandoned the documents altogether.

Molson Coors Canada’s Ontario fleet adopted electronic logbooks about four years ago, and Steve Ropp would never think of going back to their paper counterparts. “There’s no doubt in my mind that it pays for itself,” says the distribution manager who oversees a private fleet of 34 power units and 80 slip-seating drivers. The ongoing tracking and review of paper log sheets was a cumbersome task at best, but with the click of a mouse, the fleet’s planners now have direct access to specific truck locations and every driver’s available Hoursof-Service.

It would be hard to disagree with the suggestion that the paperwork represents an administrative burden. Drivers probably spend anywhere from 15 to 30 minutes a day filling out the daily log sheets and tracking every change in duty status with the lines on a graph. “Electronic logs are doing a lot of the logging for them. That frees up driving time,” says Jamie Williams, president of PeopleNet Canada.

“What happens if I give a driver twoand-a-half hours a week back to them? Can they drive more hours? Can they rest more? You can add a whole lot more miles to a truck and to a driver’s pocket,” agrees Mike Ham, vice-president of Shaw Tracking. After years of asking drivers to assume new responsibilities, this is one of the few examples of something that will actually remove a task from the list, he adds. “They really just want to drive and the company wants them to drive.”

The returns on the investment may not end there.

Williams, for example, cites research that fleets with electronic logs tend to be safer than their counterparts, recording about 44% fewer out-of-service vehicles and 65% fewer moving violations. Some of the difference may reflect the fact that the early adopters of the technology may be more progressive and safety conscious than their counterparts. But the fleets are also recording 66.7% fewer out-of-service drivers, some of which may be the result of nothing more than reduced errors in the paperwork.

“If a driver has missed something by mistake, even wrote something by mistake – and it’s simple to do – that’s a compliance issue,” he says.

Every sheet of paper also represents an administrative cost around auditing, submitting and purging the related data. Fleets that outsource the work can pay as much as $15 to $30 per month to process a single driver’s paper logbook.

“Right now, a fleet of my size has no less than one person feeding manually scripted

log sheets through a log reader system,” agrees Mark Seymour, president and CEO of Kriska, an Ontario-based fleet with about 400 power units, 50 of which are now equipped with electronic logs.

Aside from reducing these costs, the added information from an electronic logbook could help a fleet to improve overall productivity. “If I have a better planning tool that I can push into my operations team ... I’m going to have a better tool for on-time delivery, customer satisfaction,” Ham explains.

“But if there is a paper exercise, there is absolutely no visibility to the planning and operations team as to what is happening right now.

You’re at the hands of what the driver is telling you or what you are seeing through updates to telematics. A lot of it is on a wing and a prayer.”

With the digital tools in place, dispatchers who hear about an unexpected load can determine exactly how many hours that drivers have available. The real-time view can even help to eliminate service delays that are caused when drivers run out of allowable driving hours.

The technology behind the systems has come a long way in a short period of time.

Look no further than the experience at Molson Coors. The fleet’s first generation of electronic logs required drivers to download the data from a card whenever they returned to a fleet yard. That was replaced by a solution that delivered data over an analog signal which offered sporadic service and relatively slow downloads. The digital system introduced three years ago is the fastest of all. july/august 2010

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TechnologySolutions In some respects, today’s electronic logbooks are all built on a similar infrastructure: a mobile communications device is coupled with a GPS and data from an electronic control module, while information about duty status and work history is shown on an in-cab display. But there are questions to be asked when comparing the options.

When comparing one system to the next, Molson Coors’ Ropp suggests that it is important to establish how frequently any data will be downloaded. “You want as much data as you can get,” he explains, “and normally there is a fee every time you want to access that data.” While the fleet initially downloaded the data every eight hours, more frequent downloads makes it possible to track a truck, observe a driver’s status and send a message to reroute the load in a couple of minutes.

Brad Aitken, TransCore’s business development director, has some other questions. First of all, how is the driver’s status communicated to dispatchers? The systems can use everything from satellite signals to cell or WiFi connections. And how accurate is the GPS? This will play a role in whether the system can validate the city or town where the driver is located. For that matter, how is the driver’s status validated in real-time with the truck’s actual activity? This will be important when someone is booking time in a sleeper berth while a co-driver moves the truck down the highway. “How are violations highlighted?” he adds. “What type of audit and management reports are available from the system?”

Ham also refers to the need to ask about the customer support that will be provided for everyone from the drivers to the operations team. Most suppliers suggest that it takes less than an hour to teach a driver how to learn an in-cab interface, but someone will still need to address any questions. “You’re asking me to take a leap of faith,” he says. “And what happens to my [software] application? Will it live on? Do I have to upgrade my hardware?” In addition to that, there will be a need to be sure that the supplier recognizes all of the related compliance issues. There are differences in the regulations

between Canada, the US and areas north of the 60th Parallel.

Like any technology on a truck, there will be ongoing costs involved, but those have dropped dramatically. “Our offerings now are probably less than most fleets pay on their cellphone bills,” Williams says as an example. An onboard system that taps into an engine’s J1708 communications interface, delivering live information from the truck and driver alike, costs about $60 to $70 per month per user.

But there is one other cost that fleets still need to consider – even if it may be asked behind closed doors.

“Introduction of electronic logs require fleets to operate within the HOS regulations, which may reduce mileage driven and impact fleet costs on certain lanes,” Aitken admits. “Many drivers are reluctant to use electronic logs as it may require additional layovers or reduced income ... drivers will require training and need to realize the benefits to the entire industry with better safety records.”

Drivers would certainly lose the chance to alter a logbook to reclaim something like the one-and-a-half hours of driving time that are lost while stuck in a traffic jam. “Most people, if honest, would admit ‘I’d do the same thing,’” Seymour says. “The traditional truck driver paid by the mile is faced with these situations and e-logs are taking that away.” Still, his fleet is taking the steady march toward electronic logs. “Inevitably it’s the way of the future, so why not be ahead of the curve as opposed to being behind it?”

The onset of CSA 2010 safety records in the US is already putting an added focus on Hours-of-Service, and assigns the maximum number of points to fatigue-related issues. Logbook violations will quickly reach allowable thresholds as a result. That will make accurate Hours-of-Service data more important than ever.

And it is expected to be only a matter of time before every fleet has to use the devices.

“We do it because it’s the right thing to do,” adds Seymour. “If it saves accidents, if it saves bumpers, if it saves lives, if it saves time, then that’s the residual benefit of all this.” mt

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Punching above their weight class Shell says today’s lighter-weight oils offer heavyweight protection B y

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hell Canada held a recent customer information session to espouse the fuel economy benefits of moving to a lighter weight oil and to prepare customers for EPA2010 engine requirements.

The Shell Fleet 2010 Technology Symposium featured the company’s global experts, who urged fleets in attendance to consider moving to a lighter weight oil, such as a 10W-30, from the 15W-40 most fleets are currently comfortable with. It’s a trend that’s already underway in Europe, noted OEM technical manager Dan Arcy, and is beginning to appear here in North America as well. He noted Mercedes-Benz’s factory fill in Europe is a 5W-40 and Volvo and Mack have made a 10W-30 their factory fill in North America.

Still, about 90% of heavy-duty engine oil sold in the US is of the 15W-40 variety, with 10W-30 and 5W-40 synthetic oils only slightly more popular here in Canada. Recent testing, however, has shown fuel economy can be gained by moving to a lighter weight oil, without sacrificing engine protection or durability.

“The viscosity grade of the oil gives you that fuel economy benefit,” Arcy explained, suggesting a 1.6% fuel economy improvement can be achieved simply by moving from a 15W-40 to a 10W-30.

Arcy said it’s like swimming laps in a pool filled with water rather than honey – the lighter weight oil provides less resistance.

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where the fuel savings are coming from – the ability to move that oil through the engine.”

While a 1.6% fuel economy improvement may seem insignificant, Arcy warned against grandiose claims of larger fuel savings and pointed out 1.6% can save an operator $960 per truck each year based on 120,000 miles per year at 6 mpg with diesel costing US$3/gallon.

By that same math, a 100-truck fleet could save about $96,000 per year.

“We’ve been able to demonstrate that the wear performance remains the same and the oil consumption remains about the same as it was with the 15W40,” Arcy said.

Preparing for 2010 Shell also addressed the new generation of smog-free engines that are coming on line this year, noting that for the first time a new emissions requirement has not required a new engine formulation.

Arcy said oil companies “overformulated” the API CJ-4 category of heavy-duty engine oils introduced in 2007 so that they’d be able to handle current engine requirements.

“Every year, we went through an emissions change, we also went through an oil change starting back in 1998,” Arcy said. “In 2010, this is the first time we have not needed to make any changes. The API CJ-4 quality engine oils are the engine oils recom-

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mended for 2010-emissions engines, so you can check that box off.”

However, Arcy did make some suggestions on how fleets can prepare to integrate new generation EPA2010-compliant engines into their fleets, specifically those using selective catalytic reduction (SCR) exhaust aftertreatment. For starters, with the introduction of a new liquid (Diesel Exhaust Fluid), Arcy said technicians and drivers should be trained on the importance of keeping their fluids straight. While it would be difficult to mistake diesel for DEF, or vice-versa, misfills are a concern and an action plan should be put in place in case they should occur.

“Is anybody going to put the wrong fluid in there? It’s absolutely going to happen,” he said of the new DEF tank, which will have a blue cap to minimize the risk of misfueling. “Diesel fuel is going to go in there by accident or you’re going to see DEF end up in the fuel tank. These are things that need to be thought out when you’re training drivers.”

Drivers, Arcy said, should be instructed not to start the vehicle if they realize they’ve added DEF to their diesel tank, since the fluid is 67.5% water.

“If they start the truck up, they’re 20 miles down the road (when problems arise) and now you’ve got a $300 tow bill on top of it,” he said. “If these mistakes are made, they have to call (the terminal) and work through the procedures you have in place. It may mean pulling and draining that tank, but the last thing you want to do is drive.”

At the shop, Arcy said fleets will have to determine whether they want to stock DEF on-site and whether their bays are configured for its storage.

“If it was me owning a fleet, I’d want to have it on-site. Anytime a truck comes in, I’d fill it up for him because that’s one less chance of a driver out there accidentally putting the wrong product in,” he reasoned. It’s possible drivers will be able to avoid filling up their DEF tanks altogether, since DEF will be consumed at a 2% rate compared to diesel. Arcy noted a 13-gallon DEF tank will get a driver about 6,300 kms between refills.

“You’re talking about having to fill up every few weeks, not all the time,” he said.

Oil analysis Shell’s Arcy also discussed the merits of employing an oil analysis program to extend drain intervals. The first step in establishing an oil analysis program is to ensure all information is entered correctly, he stressed. Poor record-keeping or data entry can leave a fleet looking for answers and playing the blame game.

Arcy spoke of one fleet that saw its soot levels double on certain vehicles and began blaming everyone from the engine manufacturer to the oil supplier.

It was eventually discovered that one of the fleet’s shops doubled drain intervals from 20,000 to 40,000 miles without communicating the change to the other shop.

“All the information has to be filled out properly,” Arcy said.

From there, consistency is key. Even changes in how the oil sample is pulled (hot vs. cold engine or from the sump vs. the dipstick tube) can throw off an analysis.

“Those things have to be taken into consideration and standardized in order to get the best results,” Arcy said.

An oil analysis program will measure three types of metals: wear metals, contaminant metals and additive metals. Each will tell a story. For instance, Shell Rotella T 15W-40 has a calcium baseline of 2,300 parts per million (ppm). A drop to 1,000 ppm may indicate hydraulic oil was mistakenly added in place of engine oil. The key to a successful oil analysis program is timeliness – pulling and submitting oil samples on a regular basis and then taking the time to read each report when it’s received.

“Quite frequently, people get this report in the mail, they open the filing cabinet and file it. You’ve gotta look at them – filing these doesn’t do any good!” Arcy stressed. And the same can be said for collecting and submitting samples. “It’s meant to be done rapidly,” he explained. “Don’t sit on them until you have a box full. If they’re sitting on the shelf for 30 days, it doesn’t do you any good if you have a coolant leak running down the road for 30 days.” mt

july/august 2010

23

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Profitability

I

f you’re reading this, you’ve just emerged from the worst economic downturn in 70 years. Unfortunately, the light at the end of the tunnel may not be quite as clear as it used to be. We have now moved into what many economic experts have labelled a “reset” economy, where old assumptions may no longer hold true. The expectation is for a slow and bumpy recovery. Expect to experience permanent and fundamental changes to how business will operate.

To help fleet executives understand the changing rules of the game and guide their companies with proven strategies for the economic recovery, we partnered with Dan Goodwill and Associates recently to produce a series of workshops, sponsored by PeopleNet Canada.

In our annual Profitability supplement, we bring you the highlights from those workshops. Over the next few pages, you will read how to reenergize your sales team, what to expect in terms of mergers and acquisitions and how to use real estate to your advantage. You will gain access to the latest trends on freight volumes, capacity and rates and share the insights of some of our industry’s most prominent carriers and shippers.

We hope you will find our supplement meaningful and we encourage you to share your experiences and insights in the months ahead.

Lou Smyrlis Editorial Director

THE AUTHORS Editorial director Lou Smyrlis has two decades of experience covering transportation and logistics issues. Winner of several writing awards, he has pioneered a number of research studies and is a frequent speaker at industry events.

Features editor Julia Kuzeljevich has been writing about transportation issues for more than a decade. Her meticulously researched articles have garnered transportation writing awards and several Canadian Business Press Award nominations.

supporting partner

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The key To From re-engaging your salesforce and securing better rates to executing mergers and real estate deals, read up on the strategies that can help you grow in a fragile recovery

success

july/august 2010

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Profitability

Reigniting your company’s sales engine Survival and prosperity in trucking depend on an in-depth understanding of the industry’s economics By julia kuzeljevich

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ome 4,000 to 5,000 trucking companies did not make it through the “hard times” brought on by the economic downturn. The ones that did will find it a challenge this year to grow revenues back to pre-recession norms.

For many transportation companies, the “freight recession” has actually been in effect since 2006, and led to some hard lessons learned, pointed out transportation consultant Dan Goodwill of Dan Goodwill and Associates.

Goodwill, in coordination with Motortruck Fleet Executive, led a day-long seminar designed to help motor carriers rebuild their post-recession operations.

“You only find out who is swimming naked when the tide goes out,” said Goodwill.

“It’s not just a revenue erosion issue.”

The defencelessness of carriers against the willingness of shippers to switch carriers to save a few dollars was a case in point. With so much rate cutting going on, it really came down to how much the shipper valued what a carrier had to offer, Goodwill said.

“Survival and prosperity in this business are directly related to having a detailed understanding of the economics of the business. Aggressive rate-cutting to secure business volumes backfired for some companies,” said Goodwill.

For many companies, their value proposition was not strong enough to maintain shipper loyalty.

“Shippers had a mandate to reduce costs and could not pass up the low rates. Many RFPs went out. As a result, carriers have to take a good look at what they may have done wrong or right during the recession. Most 28

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shippers seem to divide carriers into three buckets: the must-have key players, other carriers where they don’t have a strong feeling one way or another, and a third group of carriers that they would be willing to change at the drop of the hat. You want to be in the number one bucket – perceived as a musthave carrier,” he said.

The typical approach for many companies over the past year has been to focus on cost reduction to stay in business, noted Goodwill.

But the 2010 economic recovery is expected to be bumpy and slow, and the Canadian dollar expected to reach par with the US and go higher. Fuel prices are expected to rise, and a degree of market rationalization will take place in each sector of the transportation industry.

“Some lenders are not likely to extend credit forever. From a sales point of view, you need to determine your company’s real strengths,” said Goodwill.

The starting point should be a clear value proposition. “What does your company or what can your company do better than someone else? Why not put your time, energy and resources into the thing you really do well and make money at. You also have to have a good idea of your margins, profit, et cetera,” said Goodwill.

He suggested aligning value propositions with profits. Be able to match back hauls with head hauls to create sustainable business segments with growth potential.

Determine where the pure freight revenue comes from, such as the costs of fuel, and costs related to each segment of the business. Put the tools in place to track costs and revenue. If you skip this step, you put your

entire business at risk, he said.

“Streamline your work flow to make sure operations and sales processes are effective and efficient. Make sure customers know what you do for them, and be ready to secure business from the weaker players.

Add more value where there is a profit potential, i.e. in terms of more lanes, more services, and better benefits. Make it difficult for shippers to switch,” he said.

You’ll want to migrate away from nonperforming businesses or customers.

Methodically grow your business by selecting opportunities that best fit the business.

But your key decisions must be fact based: what businesses should I be in and at what rate levels?

“You’ve got to start with hiring good people, train them properly and continuously, and pay for performance. Establish an ‘all hands on deck’ sales culture. You want to be able to weed out those who can perform from those who can’t. In a collaborative environment, you have to work as a team, with drivers being aware of the sales you’re going after,” said Goodwill.

Manage the results, such as revenue, profit and customer growth, but not the activities. Track all the effective sales indicators, such as prospecting appointments, proposals, verbal or written commitments and revenue growth.

There are four “keys” to keep in mind: • The best way to get business is from existing customers.

• Focus on supply chain solutions rather than shipping lanes.

• Help your customers save money.

• Be there if the low-priced carrier falters.

Profitability

look outward, now Carriers with clear strategic focus and intent stand to benefit most during economic recovery By lou smyrlis

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he challenging operating environment motor carriers have suffered through the last few years combined with the uncertainties of the current recovery make for the perfect opportunity to look outward and assess strategic positioning and determine the best path forward.

Elian Terner, director of investment banking for Scotia Capital, was at our recent Carrier Workshop, conducted in partnership with Dan Goodwill and Associates, to provide his take on the industry’s future direction and what trucking executives must consider to best position their companies for the years ahead. He outlined carriers’ choice of strategic options: GROW ORGANICALLY The focus needs to be on diversifying business lines and competing for new business, he said. Many companies are expected to diversify away from the traditional long-haul irregular route truckload business. For-hire activity in recent years has seen a decrease in general freight and an increase in specialized services. General freight used to make up 60% of for-hire carrier revenues back in 2003. By 2007, that was down to 53%. In contrast, the revenue generated by liquid bulk operations grew to 12% from 7% while the share of revenues driven by specialized freight grew from 18% to 20%.

Terner believes carriers will find it challenging to drive significant EBITDA growth as long the capacity overhang remains an issue.

“Capacity utilization will need to improve dramatically for a healthier pricing environ-

ment. The pricing required to drive real outperformance will likely take at least a few quarters as older equipment is shut down and underperforming carriers exit,” Terner said.

Carriers have reduced capacity by eliminating old trucks, parking others and underreplacing their fleets. North American Class 8 orders are down 72% from their peak in 2006 and fairly below the replacement rate. Yet the rate of bankruptcies has not been as high as expected and that is stalling both the capacity overhang and any upward movement on rates.

ACTIVELY ACQUIRE If the lending institutions remain reticent to shut down the underperformers, that means the industry will have to solve the capacity overhang situation on its own. Terner believes a number of attractive opportunities exist to acquire troubled carriers.

“Consolidation will be a key theme for the trucking industry over the next several years…A highly competitive M&A market will be led by large firms focused on growth by acquisition and financial buyers with strong cash positions,” Terner said. “Many will view small trucking operations with solid books of business as increasingly attractive.

Pension funds are expected to show interest in stable, cash-producing firms.”

He expects a number of factors to drive growth through consolidation: • Improved diversification across customers, geographies and end markets; • Improved asset utilization; and • Cross-selling opportunities across business lines and regions.

He does not, however, expect the many

small, independently owned and familyoperated trucking companies, which dominate Canadian trucking, to be engaged in significant consolidation activity. Most do not have the necessary access to the capital and expertise required to engage in a consolidation strategy.

MONETIZE Increased acquisition activity by large consolidators in the industry will act as a catalyst for valuations, Terner believes. The value of the typical trucking company appreciated significantly during the growth years prior to the recession. At its height back in 2006, trucking companies were being valued at multiples of 10.7x EBITDA. During the trough of the recession they plummeted to 4.2x EBITDA and now sit at about 8.3x EBITDA. Terner cautions that a return to peak valuations could take five to 10 years and require substantial sustained EBITDA growth.

“Trucking firms that held on throughout the decade have missed the opportunity to capitalize on the strong capital markets and investor demand that led to higher enterprise value. A return to peak valuations will be a long process, thus the wait-and-see attitude may not be desirable,” Terner said.

He added there are numerous private equity funds, strategic buyers and high net worth entrepreneurs interested in implementing growth through acquisition.

“That provides an opportunity to realize value now. Firms that act now can realize higher valuations driven by increased availability of acquisition capital and limited trucking firms available for sale,” he advised. mt july/august 2010

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the road to recovery

Three of the industry’s leading executives – Dan Einwechter from Challenger Motor Freight; Peter DiTecco from Armbro Transport; and Doug Munro from Maritime-Ontario Freight Lines – get frank with editorial director Lou Smyrlis about the challenge of clawing their way back to the new normal.

Dan Einwechter MT: During the recession every carrier was forced into cost-cutting. In hindsight, are there cuts that should not be made because they cut into service performance? Is there anything that should be sacred as far as you are concerned?

DiTecco: We are in a service industry. You cannot afford to cut the front line interface with your customer and your customer service reps in the terminal, and you cannot touch your maintenance. You better be running the same maintenance program that you had before. I think it is hard enough going to sleep knowing that you have done the best you can in our business, but I certainly would not be able to sleep if I knew I was not maintaining the equipment.

Munro: It goes a little bit against some common thinking, but one of the areas that I would not cut costs on would be the wages of staff and owner/operators; the front-line people doing that work. As we know, most of the driver wages and owner/operator wages are already pretty well rock bottom; they have never been very high. To go into those areas and cut, I think, is just a recipe for disaster in the long-run, and it ruins the 30

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Peter DiTecco

Doug Munro

environment and morale in the company.

Einwechter: Each year in this business, and any successful business, you have to raise the bar, whether it is on maintenance or customer service issues. We want our outcomes to be the same or better, but I can tell you that no rock went unturned in analyzing input costs to make sure that we were maximizing things. We are now looking to add another business analyst to our operation just to help the different departments drill down.

We are looking at profitability analyzers, and there are a couple of different options there. We have to constantly look for new, better, cheaper ways to provide the same or better outcome.

MT: Let’s touch on capacity, which has been a root evil during the recession for basically all carriers, but particularly so in LTL. Possibly, we are looking at maybe 20-30% overcapacity. Where would you say we stand right now, first of all in the LTL segment, and then also in the truckload segment as far as being over capacity?

DiTecco: I certainly believe that there is

still excess capacity in the market. I think our brothers in the truckload business have done a better job, and maybe it is a little bit easier for them to cut finite capacity. In the LTL game when you are servicing a geographic market, you still have to cover that geographic area, and even though you are picking up fewer shipments and making fewer deliveries, you still have to have the equipment out there. There is still excess capacity in the industry, and it is going to stay that way until the market improves or some players exit. When the banks start dealing with their problem accounts, some of us will be happy.

Munro: Whether it is truckload, LTL, restaurants, cars, whatever, there is an overcapacity in the whole economy in my opinion. I think we are just a symptom of that, and I would say that we are at least 20-30% over capacity.

Einwechter: We still have excess truckload capacity in Canada right now. But I have talked to a lot of US friends in the industry, and suppliers, and they are saying to get ready because it is coming. They have

Profitability this great, solid wave of activity. One of my friends said, ‘I wish I was back in the trucking business.’ He said the golden era is about the happen. I said, ‘Please lay that golden egg right now because I could use it.’ I think we are lagging, but it really indicates that we are going to have it here. We have the whole CSA 2010 issue, whether it is 2010 or 2011 when we feel the effect of it. If the US carriers are busier, they will have less capacity and less inclination to come across the border because of that. Then layer the CSA 2010 on top. There is going to be a greater tightness in this Canadian marketplace then people suspect. One of the analysts that spoke at a profitability seminar in Athens, Ga. said that he is now getting asked by some major corporations to go in and talk to senior executives – the logistics peoples’ bosses – to provide an overview of transportation to prepare them for what is coming. We have too much capacity now, and yet by September we will be short of capacity. That is what I am telling my drivers. Right now it is just nice and easy work, but by September we will be asking you guys to do one more run. It is going to be busy as hell.

MT: This is interesting what you are saying because for the last two years, we have been hearing that the only way for the excess capacity to be resolved is to have a lot of these carriers that are just hanging on to finally just close their doors. Are you still saying that?

Einwechter: I am still saying that. We are seeing prospectuses that come across our desks every day for carriers that are just languishing. They look strikingly similar to me: gray hair. They have been at it for 35 to 40 years and want to go and spend time with the grandkids, or have got this cottage they have not seen for a while. They are just going, ‘The jig is up,’ because they are fed up with waiting for that future promise. Some of them may have been involved in a freight recession for four years and are thinking, ‘I have lost four years of my life.’ There is a lot

of frustration. They are going to go by the wayside either voluntarily, or the banks are going to do it.

MT: Doug and Peter, when you are looking out in your marketplaces, do you see a situation where we are going to see another capacity shortage like we saw back in 2004, for example?

Munro: I wish I could share that view of Dan’s – I am not quite as optimistic. In my opinion, there is big overcapacity in the market, and that is resulting in lower rates. The economy is probably not going to do it because consumer confidence is not really improving like we would have hoped, especially in the US with the debt loads that the people are carrying and the government deficits. In the absence of an increase in the economy, then we are back to the overhang in the market and what that is going to mean. Unfortunately, I think that is going to mean some rationalization. The carriers that are in the weaker financial position have to step out, and that will ultimately help the industry back to an equilibrium, but I am expecting it to go on for several years.

MT: Peter, you get the tie-breaking vote. How is it going to go?

DiTecco: I am more inclined to agree with Mr. Munro. Again, being a regional carrier servicing Ontario and Quebec, I think those were the provinces hit most in the manufacturing sector, and we are a business-to-business carrier. I think there is probably much more recovery going on west of Ontario. I think Ontario-Quebec is still going to be slow, and I think it is going to be a while.

Ultimately, there will be a shortage of capacity and drivers, but I do not see it for a couple of years.

MT: So some disagreement on the panel in terms of how fast this recovery will come and how strong it will be. Let’s see if there is agreement on this next question. Are there specific green shoots that we can see right now in terms

of freight volumes?

Munro: There are, depending on the type of business. We do some bulk work up in the North hauling cement and commodities like that, and there has been an increase on those.

I think the auto industry, although we do not do much for it, is improving. There are some areas, but I think growth is minimal. From what I have been hearing from other people, there has been an improvement in overall volumes, but it’s negligible.

MT: Dan, obviously you are more bullish on the future. Any green shoots that you are seeing?

Einwechter: I am not going to be dancing the streets any time soon because I have a lot of losses that I have to make up for. In the first four months of this year, we have made no money because it has been a difficult marketplace. Do I think for the balance of the year it is going to be good? Yeah, I do, and I think next year will be a pretty decent year financially for us because of how we manage. I am not saying that we have to have a dynamic, buoyant rebound in the economy, but the slightest change because of the dynamics going in – aging workforce, lack of capital, concern on ownership level about making the right investments, even if they have access to capital – all of that is going to come into play. For those that are operators in the industry, it will be at least slightly better than what it is now. If we look at the US experience, as go they in many ways so go we. So if they cannot service our market cross-border with their trucks, and if they have CSA 2010, and if we have our other challenges that we have talked about, I think there is a market to be made for those of us that are left standing.

MT: Peter, Armbro is a regular winner of our Shipper’s Choice award. When you look at what is coming, how would you say the smart players are positioning themselves right now for the growth that is going to come?

DiTecco: I do not think that I am going to july/august 2010

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Profitability be out looking to buy a bunch of trucks waiting for the economy to turn around. You need to keep to your knitting and do what you have done well. Keep close to your customers. In the LTL business, we have capacity on the trucks that are going out half full, coming back half empty. There is a lot, in my mind, of improvement in the market that has to happen before I, or, I am sure, the majority of my competitors, have to go out and buy equipment or hire more people. We have to get a full day’s work and a vehicle full of freight before we have to even think about capacity as far as new assets.

MT: In order to attract more people and be more fair, obviously motor carriers need to do a better job in raising rates in the years to come. Our research shows that most motor carriers are expecting rates in 2010 to basically be close to flat. When you look at 2011, what do you see in terms of rates and where they are going?

DiTecco: I would think that if the recovery continues at the pace that it is going, you are probably going to see 1-3%. If you got 3% you would be ecstatic. Hopefully we will be able to get paid for assessorials, or all the assessorials that we provide. If we were to focus on getting paid for assessorials as opposed to a 1% rate increase, we would probably do better.

Einwechter: You may think I am wrong, but I think rates have got to go up 5%. I have talked to so many carriers about their financial condition, how precarious it is, and the things that they have done to reduce their cost inputs, some on their back solely, and some on the backs of their employees. Although the employees are maybe paid fairly, there definitely was not any room to take money away. When I put all of that in the equation and look at what is

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going on, rates are going up. It has been a cakewalk for so many people for so long. I do not care how you analyze it, percentage of cost of goods sold, on a global basis (GDP), per mile, per tonne, per hundred weight, they have to go up. If we are going to have a vibrant, healthy, successful, dynamic trucking industry to help maintain the trading status that we have as a country, they have to go up. It does not mean that customers have to bend over backwards when a carrier walks in, but there has to be meaningful dialogue about what the input costs are, and then having the shipper understand what those input costs are.

MT: Let me ask you about a subject that has an impact on rates. We have been hearing now for two years that there are all these zombie trucking companies out there barely hanging on. As soon as the economy picks up and their equipment is worth more, the banks are going to decide it is time to move on them and take them out. It has not happened. Why? Is it time for a new theory?

Munro: I believe that it is probably because the equipment values that they are looking at are depressed, so they are more inclined to want to nurse them along and to try to amortize the equipment down more. There has been a lot of equipment purchased in the last number of years, so they are probably trying to work that through by more time. I believe, as Dan says, the rates are going to go up in the long run. In the short run, I do not think rates will be going up in any significant way because there is just too much overcapacity. I also believe, as we have started looking at our business, it is kind of like a plant in a way. You sometimes have to prune back a plant. You are better off to just look at the business you have and try to better manage it. Where you have really low rates, try to prune those out and then it opens some kind of path within the company with higher rates within, without having to add more capacity into the fleet.

Einwechter: Zombie truckers – there are a lot of people waiting for them to go by the wayside. That means that you are really saying, ‘I am willing to let somebody else control my destiny. If they fail, I will be successful.’ You cannot operate like that. You have to operate to be successful on your own, and it will be an added business when those companies fail.

MT: When you look at your company, what do you see as the major impediments to your future growth?

DiTecco: In the short term, I am not sure how much real opportunity there is for growth unless you can find another market niche that you can be good at. Again, you will be going into an area that probably has overcapacity as well. Growth by acquisition seems to be the more rational approach if growth of significance is in your sphere of interest.

Munro: The economy, which has created overcapacity, is the main concern and impediment to future growth, and coupling that with the reluctance of banks and financial institutions to loan to trucking companies. Even if we do get an upturn, there will probably be a long period before banks will be as free as they were in past years to loan money. The good carriers will get the money, but they will get it at probably a higher cost, and the ones who are shaky will not be able to get it. In the long run, that will be a good thing, but in the short run it will hold back growth.

Einwechter: My biggest challenge is to continue to make sure that I have the right people at the company to deliver on our promise; a promise that our customers need to value and are willing to pay for. mt

DASHBOARD

Profitability

Cost of ground transportation rises in April, according to CGFI

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esults published recently by the Canadian General Freight Index (CGFI) indicate that the cost of ground transportation for Canadian Shippers increased in April.

“The results show a definite increase in truckload rates – which is consistent with what we are seeing in the industry,” says Dr. Alan Saipe, president of Supply Chain Surveys. “Less than truckload appears to be

T

staying flat.”

Overall freight costs increased by 3.9% in April when compared to March. Base rates, which exclude the impact of fuel surcharges assessed by carriers, also increased by 3.9% with average fuel surcharges also decreasing by 1.4% from the prior month.

“While we are seeing a clear increase in demand for truckload capacity, it is still too early to know for sure if the price increases

seen in April is the start of an upward trend,” says Doug Payne, president of Nulogx.

The CGFI is sponsored by Nulogx, a transportation management solutions provider, and is used by shippers and carriers to benchmark performance, develop business plans, and secure competitive agreements. It was developed with the assistance of Dr. Saipe. For more information, visit www.cgfi.ca

TransCore’s Canadian Freight Index records highest volume of loads since mid-2008

ransCore’s Canadian Freight Index climbed for the sixth straight month in June, showing significant improvement year-over-year with a 59% increase in spot market freight availability when compared to the same period last year.

The June 2010 index rose by 11 points over the previous month, also marking the sixth straight month of double-digit growth. June is historically a peak month and has the highest load volume yearto-date, according to TransCore.

Spot market freight availability for the second quarter was 39% higher than the first quarter volumes and 70% higher than the second quarter of 2009.

Intermediaries and carriers across Canada list more than 12 million loads and trucks per year on Loadlink, Canada’s largest logistics freight matching database and network. As a result of this high volume, TransCore says its Canadian Freight Index is representative of the ups and downs in spot market freight movement as well as providing a historical account of the domestic and cross border spot market freight movement.

The first four columns in Table 1 include monthly index values for years 2006 through 2009. The last column indicates the percentage change from January through June 2009 to 2010. For the purpose of establishing a baseline for the index, January 2002 (index value of 100) has been used.

transcore canadian spot Market Freight index 2006-2010 2006

2007

2008

2009

2010

percent change y-O-y

Jan

204

173

214

140

171

22%

Feb

179

174

217

117

182

56%

Mar

211

228

264

131

249

90%

apr

200

212

296

142

261

84%

May

275

280

316

164

283

73%

Jun

271

288

307

185

294

59%

Jul

197

219

264

156

aug

210

235

219

160

sep

190

206

203

180

Oct

188

238

186

168

nov

182

227

143

157

dec

159

214

139

168

Table 1: TransCore Canad ian Spot Market Freight I nd ex (January 2002 = 100)

july/august 2010

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the other side of the fence

Some of the nation’s top shipper executives – Mark Gallant of Home Depot Canada, Mike Owens of Nestle Canada and Ginnie Venslovaitis formerly of Unilever Canada – speak their minds about freight volumes, rates and capacity. It may, or may not, be what you wanted to hear.

Mark Gallant

Mike Owens

Ginnie Venslovaitis

When it comes to safety and compliance,

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*When compared against Canada benchmarks.

MT: Every year, with the help of CITA and CITT, we survey both motor carriers and shippers to get an idea of where they see freight volumes going, and where they see rates and capacity going. One of the interesting things to come out of our latest batch of surveys was the difference between where motor carriers saw things going, and where shippers saw things going. Interestingly enough, motor carrier executives were actually more pessimistic than their own customers when it came to projecting freight volume growth. Looking ahead to 2011, how do things look for your specific companies in terms of the direction of freight volumes?

Gallant: I do think there was a bit of recovery at the end of last year. The end of this year will be relatively flat to last year. I cannot see us growing as a retail industry. What I am hoping for is some stability. Into 2011, we are optimistic; we feel that there could be some crawling out of the W-shaped recovery. We think that the stability of the back half of this year may lead to some incremental growth next year. Do I know what percentage that will be? Not a clue. I would not say that it is

going to be a large percentage.

Owens: I expect that recovery is going to continue. Last year was a tough year. We did everything within our power to maintain our volumes; we saw very lumpy volumes. What I mean by that is that certain categories took off while other categories just took an absolute beating as consumers switched. They got out of going to restaurants, we saw a lot more of the take-home type products. We have seen a good start to 2010 up to the end of May. We are actually hitting our plan and then some; again it is still lumpy. We have one category that is just taking an absolute beating, so it suggests to us that there is still not a high level of confidence in the consumer at this point; however, we are seeing an improvement, and I think that we are going to see that through to the end of the year. Next year, I expect we are going to see the same. I think we will be relatively stable from a volume perspective, and again I think it will be a bit lumpy, but I am hoping that it will be a little less lumpy because it makes it a little easier from our planning perspective.

Profitability I do not see volumes crashing unless something absolutely dramatic happens.

MT: I want to touch on the subject of rates next.

When we surveyed both carriers and shippers, the feeling from six in 10 shippers was that rates are going to remain flat this year. One of the interesting things that I found on the research was that, again, carriers tended to be more pessimistic about the direction of rates than their own customers were. There was actually a certain contingent of motor carrier executives who felt that rates were going to continue to go down in 2010, whereas a very small contingent of shippers thought likewise. From your perspective, do our survey findings match what you are

A FLEET MANAGEMENT, MOBILE COMMUNICATIONS AND ONBOARD COMPUTING COMPANY

july/august 2010

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Profitability seeing in the marketplace for 2010?

Gallant: I would agree with the flat 2010.

I am not seeing anything that tells me different than that. For 2011, I still think that there is a lot of capacity in the market, and it is a market that is driven very much by the capacity within the lanes as well as the assets themselves. With the outlooks we have just talked about, I cannot see there being anything that is dramatically different in 2011.

Maybe a point or two either way.

Owens: I would say the domestic rates are going to be holding pretty steady. I would not think of a drop. Where I see there is potential impact is coming out of the US into Canada.

I can see that there is probably going to be some rate increases there potentially on certain lanes, and it really comes down to the equipment balance.

MT: Ginnie, we have been through recessions and recoveries before. As we head into this recovery, do you see any areas in particular where you expect to see the most upward pressure on rates?

Venslovaitis: I would say the cross-border piece. The domestic seems to be holding its own east to west. West to east, it is all about backhaul where the volume is moving. But I think the cross-border seems to be extremely volatile depending on where you are coming from and the dollar fluctuation. That is the biggest concern.

MT: When a carrier is coming to you folks and asking for a rate increase, as I am sure many of them will be, what would you advise that motor carrier take into consideration and communicate to you?

Owens: I would say come in and bear your soul a bit. That might not be easy, but come in and do your justification, and do not be greedy. Do not start putting fictitious numbers down in front of somebody. Be open and candid, and say, This is what we need to service your business. You have got a big component being fuel that is being looked 36

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after. We do not have that luxury, so keep that in mind. When we want to get a Kit Kat chocolate bar at $0.50 on the shelf, it is not going to be $0.52 because fuel went up at the oil head. We are eating a lot of that, so just understand that, and understand that when you are putting through an increase that you have to be very transparent. The other thing is, on your fuel surcharge if the (price of diesel drops below the base rate), there needs to be a fuel surcharge rebate on the invoice.

That might help you sell it in.

Venslovaitis: Tell me what the real problem is. Tell me what the systemic issues are.

Maybe it is a certain lane that is just totally out of whack, and I can look and say, Yeah, I can give you $100 more per load on that because that is your problem area. I do not want to take a 5% increase on everything if it is one lane that is the problem. I also expect the carrier to tell me what is driving the cost and why they need the rate increase. Also, what are you doing to keep your costs down?

What are you doing for fuel economy? What are you doing to make yourself more efficient, because we are having to do that as manufacturers. That is the key. And so is understanding each other’s business; you understand what I am doing, how I am shipping, what my constraints are, and I can understand a bit more about what you are doing and what your thing is, and what your challenges are from a costing perspective.

MT: Mark, can I flip the question for you?

What are the worst things that a motor carrier coming to you asking for a rate increase can do?

Gallant: There is one that comes to mind that I actually just had to laugh. It was an email to one of my team members, and it was ‘Here is your rate increase.’ We had a conversation and that will not happen again. My company, Home Depot, we are passionate about customer service and respect. That goes so far; it is everything we just talked about. Show us, be specific. That goes a long way. If you come in and it is a number on a page you are going to get a reaction that a number on a page would get. I do not care if it is a tight market or it is a market with capacity in it, you are still going to get the same reaction. It is a loose market today, it might be a tight market tomorrow. We know that, and you know that, and we have just got to treat each other with respect.

Venslovaitis: I just wanted to jump in to

build on that. If you are having regular meetings with your carriers, rate increases usually do not come as a surprise because you know what the underlying situation is with your carrier; you understand what the challenges are. If you have been telling me all along that you have some of these challenges, I am not going to be shocked when it is the end of the contract and you are coming to me and saying, ‘You know, we have been talking about this for the last six months and I really need 3%, or I need 1% or I need to fix this lane.’

MT: We have spoken so far about freight volumes and rates. The other important part in this equation is capacity. Motor carriers have parked a lot of stuff, and in some cases gotten rid of a lot of equipment. Certainly, they have not invested in new Class 8 tractors in the last year or two the way they have in the past. The recession has left quite a few motor carriers just barely hanging on and perhaps we will see by the end of this year several more companies exiting the market. As buyers of transportation services, do you have any concerns as the economy picks up and freight volumes start to grow of another capacity shortage in the future?

Gallant: I think that there is capacity right now. What I do not know is how much latent capacity there is before it will tighten. And I am not sure geographically where that will be first. I think that one common theme that you will find in Canada among shippers and retailers is that we are going to be, and we are right now, investing more in the West. What you will see is that we will be making more use of inter-West units. I do not think that we have ever truly solved the issue in the Maritimes, so we need to think about that as well.

Venslovaitis: My concern is more around the capacity that is out there; is it still roadworthy? I know there is a lot of equipment parked up against a fence. It gives me the shivers when I think that I have gone to a new carrier or there are some new lanes and somebody has bid on some business, that the truck going down the highway, has it been serviced and has it been taken care of, or is it one that just got pulled out of the back 40? That is the part that I feel I am not comfortable with right now. I really do not blame carriers for not investing – what do you do with this thing that has not been moved in a year? Do you want to sell it and buy a new one?

Probably not, that would be foolish, so I think we are not in a good spot right now. mt

Profitability

room to grow

Get to know all your real estate options

T

rucking businesses relocate for a variety of reasons, ranging from the need to get away from an aging building to rent and taxes getting overly expensive or an expiring lease term. Understanding the available options can be critical to business success

as a great deal of money will be tied up in the decision.

Should you lease or purchase? Sublease or renegotiate your current deal? Mark Cascagnette, vice-president, industrial, global supply chain solutions for Cushman and Wakefield, walked motor carrier

executives through the available options at our recent Carrier Workshop, conducted in partnership with Dan Goodwill and Associates.

Here’s a snapshot of what Cascagnette advises industry executives to keep in mind when considering their various options.

TENANT/LEASING OPTIONS Option 1 – Renewal 􀂃• Current facility works very well 􀂃• Your lease has one, two or three options 􀂃• Still need to negotiate new rate or agree to arbitration 􀂃• Simplest way 􀂃• Should complete an operating cost or TMI audit 􀂃• Ask for part of deposit back 􀂃• Usually three, six or nine months written notice required Option 2 – Buy out the Lease 􀂃• Normally considered when three-year term remaining and under 􀂃• Sublet options and/or market conditions poor 􀂃• Landlord may have another tenant candidate 􀂃• New landlord buys your old lease as incentive to relocate you into their building Option 3 – Lease Extension 􀂃• Lease is expiring and you need to extend your term 􀂃• Facility satisfies operational need 􀂃• No other viable options available on the market to relocate • No lease renewal option in lease 􀂃• Not sure of long-term business plan success 􀂃• Planning to relocate into another facility in under two years 􀂃• Decided to relocate but have not found suitable building yet

Option 4 – Blend and Extend Extension 􀂃• When your renewal is greater than two or three years away, market conditions are poor and you want lease concessions in exchange for additional length of term 􀂃• Landlord needs to be on board with keeping you as a tenant 􀂃• The building works well for the tenant • No need to move 􀂃• Anticipate long-term tenancy Option 5 – Assign the Lease 􀂃• Need to have this option in your lease agreement 􀂃• Typical in M&A projects 􀂃• You may have another user candidate 􀂃• New landlord buys your old lease as incentive to relocate you into the new building Option 6 – Sell and Lease back 􀂃• Process whereby owners of buildings sell a portion or all of the property and lease it back for five, 10 or 15 years. 􀂃• Lease rate will be at prevailing market rates 􀂃• Great way for companies to extract cash out of real estate and redeploy to other areas of the business

OWN/PURCHASE OPTIONS Option 1 – Purchase Existing Building 􀂃• Requires anywhere from 10% to 40% cash down depending on financial institution 􀂃• Obtain a commercial mortgage 􀂃• Less expensive than buying land and constructing new building 􀂃• Allows you to control your own destiny, no landlord 􀂃• Can write off depreciation (or not) 􀂃• Land transfer taxes and closing costs 􀂃• Must pay for all capital improvements, HVAC and roof repairs, etc. 􀂃• May not be best use of your capital 􀂃• Earn equity and appreciation over time 􀂃• In good times can be a competitive advantage 􀂃• In bad times can be an anchor since it limits options and prevents flexibility in relocating Option 2 - Design Build Purchase/Lease 􀂃• Select a piece of land and design a building – third-party developer

builder constructs the building and sells or leases the property long term – minimum 10 years 􀂃• You get what you want and where you want it 􀂃• Modern efficient space for your business 􀂃• New construction and development charges very expensive, resulting normally in a premium lease rate or purchase amount.

• May be the only choice for specific asset classes (cross docks, transport terminals) 􀂃 Option 3 – Buy Land and Build Building 􀂃• Usually takes one-and-a-half to two years from land acquisition to move-in date • New construction and development charges very expensive 􀂃• Need specific skills sets to accomplish or mistakes could be very expensive 􀂃• Very time-consuming process, takes you away from your core competency 􀂃• Will need to hire architect, designers, lawyers, engineer, consultants, general contractor july/august 2010

37

7 7

That’s the number of

transportation sector-

generated issuances over the past five months in the high yield market, a significant source of patient capital for transportation companies prior to the recession which dried up

InsidetheNumbers shipper perceptions of available capacity by mode – 2009 vs 2006 (Based on a scale of 1 to 10, where 10 represents very tight capacity; 1 very loose capacity; and 5 balanced capacity) Intermodal

4.16

Air

4.09

Marine

4.73

3.41

1

2

3

4

5

6

7

Motor carriers purchasing heavy-duty trucks in 2010 – by region 37%

34%

36%

35% 33% 32%

32%

32%

CENTRAL

EASTERN

31% 30%

2008 and 2009,

BMO Capital Markets.

5.50

3.38

0

2009

4.03

3.63

LTL Trucking

2006

5.81

4.60

TL Trucking

The seven issuances match

according to a report from

5.41

4.35

Courier

36%

issuances seen in all of

4.84

Rail

during the past two years.

the total transportation

5.20

WESTERN

Motor carriers purchasing heavy-duty trucks in 2010 – by size of carrier Large

49% 37%

Medium 15%

Small 0%

10%

aRe we sOwing the seeds FOR anOtheR capacity cRunch?

20%

30%

40%

50%

60%

A slumping economy combined with overzealous equipment purchasing on behalf of carriers can have a measurable impact on capacity concerns among shippers and consid erable d ownward pressure on rates. The bar chart above ind icates shipper perceptions about capacity for each mod e, comparing 2009 to 2006, when the economy was still thought to be strong. Zero on this chart ind icates a great d eal of ex cess capacity while a 10 ind icates very tight capacity. Balanced capacity is at 5. Back in 2006, Canad ian shippers believed capacity to be tight enough in most mod es that they were wiling to grant sizeable rate increases. Many motor carriers beefed up their fleet sizes from 2006 to 2008, ad d ing to the ex cess capacity now believed by shippers to plague every mod e. As a result, shippers clearly have had the upper hand in contract negotiations and will continue to d o so while capacity remains abund ant. Are the seed s being sown, however, for another capacity crunch – at least in the trucking sector? Canad ian motor carriers have significantly red uced their purchases of Class 8 trucks d uring the freight recession. Last year will go d own as the worst year for Class 8 truck sales since the early ’90s. And only 31% of motor carriers participating in our annual research were planning to purchase new equipment in 2010. Looking at capacity ad d itions among Canad ian carriers on a regional basis as well as by size of company, it’s not surprising that motor carriers in Western Canad a are more willing to ad d capacity than those in Central and Eastern Canad a. Large carriers also seem, in general, to have fared better in weathering the economic storm and are three times as likely to be ad d ing to their fleet size than small carriers, who have been financially d ecimated by the recession and also face much greater d ifficulty in securing financing for new equipment purchases. For more information about capacity, rates, surcharges, freight volumes and more, see our I nsid e the Numbers annual report, available for just $99 on trucknews.com or ctl.ca.

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motortruck

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Helping you maximize revenue and maintain performance, all at the lowest possible cost. Visit bandag.com and see why at the end of the day, the world’s most successful fleets roll forward on retreads.

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