Opinion: LTLs: Get Back in the Box

By Robert Sullivan

Founder

Effective Management Systems Inc.

This Opinion piece appears in the Aug. 31 print edition of Transport Topics. Click here to subscribe today.

Most carriers were ill-prepared to manage in the current recession, and much has been written lately about “post-recession operation,” a term that strikes me as limiting and defensive — particularly in the case of less-than-truckload carriers.

What’s happened is pretty basic: Over the past decade or so, trucking company leaders were taught to “think outside the box.” Many followed that advice, but in the process — to mix a couple of metaphors in a good cause — they forgot who brought them to the dance and who was the cash cow.

Competition strengthened, costs continued to rise and price pressure intensified, making growth and profitability improvement increasingly risky and difficult for the LTL division.

As instructed, carriers thought “outside the box” and began forming additional divisions such as expedited, dedicated, logistics and truckload. Division-building made firms feel more “risk averse” and hopeful that the changes would feed the LTL division, their faithful old cash cow.

Diversifying and setting up new divisions and subsidiaries is a perfectly good strategy, of course, but all that division-building typically was funded by the LTL segment — and once the new entities were in place, corporate focus often was diverted to them at the LTL’s expense.

It takes years, even decades, to build up a division to the level at which it surpasses the core business that funded its creation. When the slowdown finally occurred, all corporate divisions suffered, but the LTL — the cash cow — was so weakened by then that a serious decline set in.

I suggest that we climb back into the box and make the core company strong again from a capability standpoint. We must get back to fundamentals and learn how to make money in the LTL division operating in this new environment, beginning with the following:

Reposition/refocus your company in the LTL marketplace.

• Identify the players and their respective positions.

• Identify the attractive segments.

• Understand the nature of the game.

Don’t look at your competition as merely a piece of the market. Begin to understand the concept of contribution to fixed cost and overhead and the importance of managing variable cost.

Move away from operating ratio and “full costing” based on actual costs. Understanding your customer base will be critical, and if you are using actual cost — which includes your inefficiencies — the revenue’s true quality is hidden.

You might make some bad decisions. A carrier needs to know there are segments in which you cannot compete. Learn how to manage your customer base surgically.

Rebuild and strengthen capabilities and leverage.

• Strive to make them unique.

• Do make them difficult to replicate.

• Implement them in a wide range of markets.

The word “unique” often is misused by those who don’t understand that it literally means one of a kind. But you can strive for singularity by identifying and building capabilities your competition can’t replicate easily and implement them throughout your system. The more widespread your capabilities, the more difficult they’ll be to copy.

Neutralize your competition.

• Reduce their threat.

• Make them challenge your capabilities.

• Maintain barriers to strategy imitation.

Getting back to fundamentals and building capabilities reduces your competition’s ability to harm you. Make them react to you. Be relentless and courageous in implementing fundamentals and manage them daily. Block attempts to imitate your strategy.

Become the most efficient carrier for pickup-and-delivery, dock and linehaul operations. That strategy takes time to build but would be very difficult to replicate. Moving your company to this level will strengthen your financial capabilities to a level you can’t even imagine.

Develop an ongoing customer base analysis capability. The environment in which you’ll be operating is one where carriers must constantly evaluate and turn over a segment of their customer base.

Most carriers put tremendous energy into costing potential business. Are the data and information received for the initial analysis accurate? Just as much — if not more — emphasis should be put on the back end, once you have actually handled the business and understand its effect, positive or negative, on your company’s profitability.

I remember reading a statement by a leader who described the decline of a company he’d taken over. It’s a pretty good analogy for our situation: He compared the company to a grossly overloaded ship that sinks during a storm and whose captain stubbornly blames a not-all-that-impressive wave for the disaster, ignoring the fact that other ships came through the storm unharmed and are still afloat because their captains heeded the weather forecast and prepared for trouble.

Begin now to prepare your organization for long-term stability. Until one of your ancillary divisions can carry the organization through troubled times, don’t forget who brought you to the dance — your LTL operation. Get back to the fundamentals, understand your business and its operating environment, build your LTL’s capabilities and then take the offensive in your areas of strength.

Effective Management Systems Inc., based in Grayson, Ga., offers profit-improvement systems for both the truckload and less-than-truckload industries.