Opinion: After the Recession Ends . . .

By Lana R. Batts

Managing Partner

Transport Capital Partners

This Opinion piece appears in the April 20 print edition of Transport Topics. Click here to subscribe today.

We may not know when the current recession will be over, but we do know that we’re getting closer with every passing day. This is not the first recession the trucking industry has seen, nor will it be the last. And while this recession has many elements in combination that we have not seen before, we have seen all of its individual components at some time.

This recession does seem different from all the others, though. Consequently, most of us believe it will change the American economy fundamentally and, subsequently, the trucking industry. Many observers have compared it with the fundamental changes that took place in our industry after deregulation in 1980 and after the technology revolution of 2000.

What fundamental changes will take place after this recession remain to be seen, but one thing is certain: The surviving carriers cannot return to the same way of doing business when tonnage returns.

So how can carriers begin to prepare for the future? It starts with tonnage.

We know shippers and supply chains are gearing up to be more environmentally friendly and reduce their carbon footprints. That means they are reviewing what they manufacture, where they assemble products and how they transport those products. For motor carriers, that means one thing: Taking tons and miles — the heart of trucking — out of the system.

Now more than ever, carriers need to find a competitive advantage or a niche and provide greater value-added service. They need to understand the cost and profitability of their existing and opportunity tonnage. Being price-competitive merely will result in a race to the bottom.

At the same time, fleets should be looking for new technology and services to determine if now is the time to invest in solutions that are more sustainable, flexible, scalable and, most important, that will improve their nondriver-to-driver ratio.

The successful trucking companies of tomorrow will apply innovative technology solutions to make the best use of their assets, determine costs, establish pricing, analyze yield, determine best-case routing and fuel purchasing, and diagnose engine performance.

Although integrating technology will help companies manage core business more efficiently, solutions for business process improvements also cannot be overlooked. Now is the time to review processes and those who manage the process.

In your review, two outcomes should never be accepted: “That’s the way we’ve always done it,” and “We’re unique.”

I have found that carriers claiming they are unique usually have modeled their processes or used technology to automate what they have done in the past, and not because their so-called uniqueness provides any future competitive advantage.

In the current environment, carriers not only have parked trucks but also have reduced head count in the office. When tonnage returns, it would be foolish to hire the same people again to do the same jobs. In his book, Good to Great, Jim Collins points to successful companies having the right people in the right seats on the bus. In addition to assessing their company along these lines, executives today should be asking another question, as well: “Do we need to own the seats at all?”

In other words, as carriers review their technology and processes, they also need to consider outsourcing routine functions and noncore processes. When considering outsourcing, carriers should start by asking two simple questions: “Do these functions improve our company’s competitive advantage, niche or value-added services?” and, “Does this help the company become more profitable?” If not, executives need to consider going to a third party with expertise and experience in that function.

Outsourcing is another way to control overhead, improve the nondriver-to-driver ratio, limit office space and manage the expanding number of file cabinets.

Ironically, for-hire carriers are the result of shippers’ outsourcing their transportation. Carriers are very comfortable outsourcing their linehaul to independent contractors, intermodal companies or brokerage firms, yet too many remain uncomfortable about looking to a third party to outsource many of their noncore business processes.

To help you determine if it’s time for your company to ditch the status quo and consider outsourcing areas of your business to another service provider, ask yourself these questions:

• What is our core competency? What is our area of expertise, and can we continue to fund areas outside of this?

• Does our technical and business process expertise exceed that of others that specialize in this area?

• Have we looked for innovative ways to continue improving, or are our resources limited to managing key daily logistics metrics?

• Are our internal processes efficient, or could we use help streamlining them?

The results of this recession will increase the complexity of the trucking industry. Having the right core competency and competitive advantage, the right technology, the right processes and the right number of seats with the right people in them may be a fleet’s best path through this recession and beyond.

Transport Capital Partners, Nashville, Tenn., provides financial solutions, advice and transaction management for the trucking industry, including mergers and acquisitions and capital sourcing.