Response to Rigged IV: “Asleep at the wheel”

To:          USA Today

[email protected]

From:    Jack Porter: GPorter Group

[email protected]

RE:          12/28: Rigged Part IV: “Asleep at the wheel: Road-weary truckers risk lives on the job”

 

Once again, I will register a clarification on your misleading headline! I’m quite sure this rebuttal will fall into the same USA Today ‘Trash Barrel’ as my last rebuttal about Port Drivers did! But, I will also post my clarification on social media.

Are you kidding?, “Road-weary truckers risk lives”, posted on the front page of your newspaper once again. The body of the article does detail the Port of LA, which it obviously deserves, however, the headlines, and all the main stream media like CBS, picked up the headline only!

There are over 1 million Trucking companies in the United States, and I work with some of the best. I assure you that 90% of the Trucking companies today are doing everything in their power to make sure the roads they share with the motoring public are safe. While some rogue Container companies are obviously catching all your attention about safety, I urge you to cover the news that is affecting the safety of the roads. Start with the new Electronic Log Mandate that was put into effect on December 18, 2017.

As referred to in your article this mandate was put into legislation to increase safety and reduce driver fatigue. As you identify it as a hammer on these PORT fleets that are running illegal, you don’t cover the real story! While this Mandate was instituted in February 2016, many of the Fleets that the motoring public see on the roads every day instituted the program voluntarily 4-5 years ago. Along with the ELD’s, the Trucking Industry is investing millions in safety technology on new semi trucks. While the Rogue Port companies and Non-ELD Fleets may choose to run illegal, they are also the ones that don’t have the investment in the new Truck Technology. USA Today should give equal time to the Safety of Trucking!

Do your research on the Trucking Industry Safety Record before throwing the whole Industry “under the Port Driver Truck!” Truckers do not “Risk Lives”.

Response to USA Today’s ‘Rigged’ (Submitted as a Guest Editorial to USA Today)

In response to your USA Today Network Investigation – “Rigged” June 16, 2017

I have spent 35 years in the Heavy-Duty Trucking Industry, and found your report interesting, yet possibly misleading. I have had the unique pleasure to work closely with 50-60 Truckload Carriers in their Strategic Planning and Best Practices efforts to provide a better life for their drivers and the health of their businesses. My comments are based on facts that were not divulged in your investigation, and some alternative opinions from the Well-Run majority of the Trucking Business!

Your investigation has obviously exposed the underbelly of a segment of the Trucking Industry. You noted a scope of Drivers that were in Southern California, and interviewing 300 drivers. While their plight as described seems unfair, the connection to the Trucking Business couldn’t be further from the truth. The Trucking Business in America has 3.5 Million Truck Drivers, is a Nationwide Business, moving 10.5 Billion Tons of freight annually or 70% of all freight tonnage in the US.

Your portrayal of the Truck Driver as “indentured servant” was an exaggeration, and an insult to the Professional Truck Driving Community. Many of our best Trucking Companies offer some form of Lease Purchase Program for Drivers who would like to own their own business. Your investigation portrayed the Lease/Purchase Program as a no-win situation for the Driver – not with the Carriers I know. The Good Carriers structure their program so that any person who wants to build their own business, and loves the Truck Driving Profession can get started. Where in America is the Dream of starting with nothing, working hard, and building your business more evident. The proof is in the results, most of the successful Truckload Carriers today started their family business with one truck and a Dream!

The reporting on extended hours of working is also not aligned with the Trucking Business. Most of the Carriers that I work with pay strict attention to the Federal Hours mandated, and insure their compliance by investing in monitoring devices that the authorities can check at any time. However, the Companies that you exposed make the competitive landscape of Trucking very challenging. When the legitimate Carriers must compete against the Companies that you exposed, the legitimate Carriers lose some of their business to the lowest priced provider, and the legitimate Driver loses miles. When the Driver loses miles they all suffer.

Last, but not least, the identification of “America’s most beloved retailers, from Costco to Target to Home Depot”, and their role they play in this Port Trucker atrocity is very interesting. There are more than 575,000 For-Hire Trucking companies in the US, and running approximately 3.5 Million Class 8 tractors. Thus, the ability for a Volume Shipper to attain a low price in transportation for their goods is very accessible. Their hands-off approach to your inquiries spoke volumes as to their culpability to the problem of many Truckers that may be running illegal in the US. The ability for a Fortune 500 company to hire a separate Logistics company to attain a “Low Price at any Cost” needs to be addressed. Their view that they are removed from the transaction and the byproducts of that transaction, needs to change. Quality Carriers care about their Drivers and their interaction with the Passenger Driving Community, and they cannot compete on low price against the Trucking Companies you highlighted in your Investigation.

There are more than 7 Million people employed in the Trucking Industry, not including the self-employed Independent Contractors out there. This industry is predominantly Family Type of Organization, moving approximately $725 Billion in Revenues annually. These Hard-Working folks take “NASA type risks, for Super Market returns”, they passionately care about this business, and needed a contrarian voice to your “Rigged” Investigative report.

Incentivizing Your Way to Success Part II – Targets for Accounting/Billing Associates

Last week, we discussed best practices for implementing Performance based pay structures within your trucking operation with the ultimate goal of imrpoving Gross Margin AND Net Margin. In order to implement appropriate incentives, you have to first decide which targets to use (based on role/responsibility/department). As a reminder, the targets you implement for your associates need to be: 1) Understandable and easy to calculate, 2) Improve the financial health or lower the risk profile of the company 3) Within the realm of control of the associates, and 4) Give high-performing associates the chance to earn more than they were previously able to.

Over the course of the next five weeks, we will be providing examples of targets/measures you can examine for each of the following departments: 1) Accounting and Billing, 2) Operations/Fleet Management, 3) Shop/Maintenance, 4) Recruiting and 5) Safety. For this week’s article, we will focus on accounting and billing. The reason I want to focus on this group is that many companies do not have ANY type of incentive/variable compensation for those in the Accounting and Billing. In my opinion, this fact reinforces the general idea that accounting and billing is just a series of tasks on a checklist that stays within a narrow range of performance. This is absolutely not the case! Based on our data, the high performing fleets have exceptional Accounting and billing teams. They have low Days Sales Outstanding (DSO) results (typically in the 28 to 32 day range on average), and have very little lag between deliveries and accurate invoices AND a high rate of accessorial capture. A great accounting team has the ability to dramatically improve your cash flow.

With this in mind, here are some measures you can consider using for implementing a Performance based pay structure for your accounting and billing teams:

  1. Days Sales Outstanding (DSO) – Many companies simply aren’t tracking their DSO numbers religiously. For any company, regardless of industry, if you’re not being prepaid for your service, you need to start doing so right away. The formula for this measure is: (Current Accounts Receivable including Linehaul, Accessorial and FSC / Period Total Revenue) * # of Days in Period. Prior to implementing a proposed target, you may need to finally write-off those ‘doubtful accounts’ that have become ‘not a chance” accounts. Further, as additional targets within this topic would be the % of receivables that are paid within 15, 30, 90 days, and then establish target ratios to maintain. By improving on these values, your invoicing lag will undoubtedly improve, as will your utilization of EDI.
  2. % of Accessorial Revenue Capture – From company to company, there are some pretty dramatic differences in levels of accessorial revenue. Obviously these results can be a direct result of the type of freight you’re hauling, and the way you charge your customers. However, it is safe to say, that all companies can improve the percentage of accessorial opportunities that convert to revenue. A simple KPI, would be to track the percentage of Accessorial Revenue on weekly or monthly basis versus your linehaul revenue and/or Total Revenue. By improving on this KPI, you will definitely see higher gross margin and more importantly improved communication between accounting and operations.
  3. # of Bank Reconciliations Completed During Month – I’m a big believer in daily (yes daily) bank reconciliations. Daily bank recs reinforce discipline within accounting and can drastically improve internal processes that have a collateral positive affect on other departments. Further, chances of inefficient cash management and potential fraud are greatly reduced. All accounting systems have many tools available to allow you efficiently handle daily bank recs and report to interested parties (which would be me if I was the President).

These are just a couple, hopefully it got you thinking about additional measures specific to accounting which you can use to motivate top accounting performers!

Paying for High Performance: Incentivizing Your Way to Success

In a perfect world, all expenses in your businesses would be variable. The economy takes a turn for the worse? No problem, your rent just went down 10%. However, what about the flip side of that proposition – The economy and or your customer activity results in improved revenue and income, are you willing to share in the upside?

For many years, I’ve been preaching the benefits of adjusting your compensation practices to be geared toward variable compensation, or what I prefer to call Performance Pay. If done correctly (and fairly), a Performance Pay model has the ability to transform corporate culture, improve profitability and make a positive financial impact on those non-driving associates who want to achieve more – and be compensated for going the extra mile.

In this week’s post, we will discuss general guidelines to follow when creating a framework for performance-based pay programs. Before we start, let’s be very clear, performance pay can (and should) be used for all non-driving associates, not just sales, marketing or Fleet Managers. The whole concept leads to a ‘averaging up’ phenomenon within organizations – the people that can’t produce or are not efficient will be the first ones to ‘opt out’ of the process by moving on, leaving existing and new high performers to execute on your mission, and take their spots – All Boats Rise!

Step 1 – Clearly Define What Success Looks Like for the Company

The best place to start is to determine what realistic success looks like for your organization, taking into account your current operating realities (mode, customers, economy). Regardless of the operating mode, we believe that a Gross Margin (Revenue minus Variable Expenses) of 25% is achievable for most Trucking companies (with focused effort). If you decide that this target is achievable, it provides a great framework to segment the different components of the Gross Margin calculation, and then assign responsibility for improving, to specific people (groups) AND tie a significant portion of their personal income(s) to the goal. For example, productivity is a crucial component of the revenue part of the gross margin equation. If drivers are sitting for an unreasonable amount of time at customer’s facilities, when they could their time could be spent driving, you can (and should) empower people to ensure that you are more than recapturing the expense of the lost driving time with consistent accessorial charges. Further, that person or group of people should have their income tied directly to the success of their efforts.

Step 2 – Clearly Define (and Communicate) the Difference between Performance and Bonus Pay

The best way to differentiate between Performance and Bonus pay is Habits versus Results. Performance Pay is meant to reward the proper daily and weekly habits and practices, which will eventually create long term success. Each have their place in an organization, and should be celebrated. Performance Pay is tied to productivity, and can fluctuate up or down based results. As an example, in Accounts Receivable, you can measure the lag between delivery and invoicing on a weekly basis – this is an example which you can use for Performance Pay. Conversely, achieving superior Accident and Insurance results over a period of twelve months would be an example of ‘Bonusable’ situation.

Step 3 – Stress Test the Program

This one goes both ways. Although many high performing associates have the traits of successful entrepreneurs, you can’t expect them to assume as much risk as the shareholders under a Performance Pay compensation framework. You need to show what can happen to their income when things are firing on all cylinders, but also when things fall of the tracks. Even though you want to have each associate put more ‘skin in the game’, you also want to ensure the stress of a downturn won’t drive away a valuable team member. Further, you want to make sure you stay on the right side of Federal, State and Provincial wage requirements. A realistic goal would be to get to the point where 50% of the non-driving wages are tied directly to performance.

Step 4 – Keep it Simple

Clearly identify the measures you are going to use to communicate success (or poor performance) for an associate or team. If the measures or formula becomes too complex, you will not appeal to all potential high performers. Further, do not tie compensation for an associate to something they have no control over. As an example, your Fleet Managers can help ensure compliance with your Fuel network, but you can’t expect them to control how quickly you’re getting paid by your customers.

Summary

Over the next couple weeks, we will be expanding on each of the above steps. In the meantime, I want to reinforce that a properly implemented Performace Pay program has the ability to transform your business AND the industry!

Increase Your Gross Margin by 58% with Only an 8% Increase in Revenue

In last week’s article, we presented a way to segment your financial statistics to provide a clearer picture of your gross margin, the key functions of your success (or under performance), and ultimately your profitability (or lack thereof).

Further, we provided a ratio which will provide a quantitative target to improve your performance. As quick review, we (TCA’s Best Practice Groups) calculate Gross Margin using the following formula:

(Linehaul Revenue no FSC + Accessorials)

MINUS

(Driver Wages & Benefits + Purchased Transportation + Net Fuel Expense + Maintenance + Equipment Financing Expense + Insurance Expense + Variable Driving Expenses)

= GROSS MARGIN

*Each of the above items can contain many things, depending on your operation. If your interested in figuring out which expense and revenue items to include, please email Chris Henry ([email protected]) to get more information on our QuickStart data survey.

Using the above formula, and two separate components of your fixed expenses (Admin or ‘Non-Driver’ Expense, and Fixed Overhead), we have developed the ratio, which we call the Golden Ratio:

The Golden Ratio

25% Gross Margin :

25% Admin as a Percentage of Gross Margin :

25% Fixed Overhead as a Percentage of Gross Margin

If you do the math, reaching these targets equates to a very healthy Operating Ratio (compared to historical industry results), and also provides a great rule of thumb for evaluating existing customers and new opportunities. For this week, and subsequent weeks, we will be focusing on ways to improve on each of the components described above.

For this week, we will be enlightening some readers on a way to increase Gross Margin by 58% with only an 8% growth in Revenue.

To start off, let’s look at the following revenue and variable statistics for a sample load:

BEFORE
1. Rate/Mile                  $1.66
2. Miles                           1,000
3. Loaded Revenue      $1,660
4. Avg. Op Cost/Mile   $1.43
5. Load Cost                   $1,430
6. Gross Profit $            $230
7. Gross Profit %           13.86%
8. Paid Deadhead          $0
9. Total Gross Profit     $230 (13.86%)

Now, the above is a pretty simplistic example of a ‘sample load’, however the purpose of this exercise is to reinforce the power of small changes. These small changes should be within the control of your Fleet Managers, and these valuable people should be incentivized to make (and test) these changes routinely with the loads they are responsible for, and within the confines of the contractual shipper terms.

In keeping with the purpose of this exercise, look how simple it is to grow your Gross Margin by 58%, with only an 8% increase in Revenue:

BEFORE                                                                 CHANGE                                      AFTER
1. Rate/Mile                   $1.66                                +8%                                                $1.79
2. Miles                            1,000                                                                                        1000
3. Loaded Revenue       $1,660                                                                                       $1,790
4. Avg. Op Cost/Mile    $1.43                                                                                         $1.43
5. Load Cost                    $1,430                                                                                      $1,430
6. Gross Profit $             $230                                                                                         $363 (+58%)
7. Gross Profit %             13.86%                                                                                     20.28%
8. Paid Deadhead           $0                                                                                              $50
9. Total Gross Profit      $230 (13.86%)                                                                       $413 (23.07%)

In review, the only differences between the first and second scenarios was: 1) A 8% increase in rate per mile, and 2) $50 of paid deadhead. All other items remained unchanged, your variable operating expense did not change (it’s the same load), but your total Gross Profit improved from 13.86% to 23.07%. On the revenue side, these are just two examples on maximizing revenue per load. There are undoubtedly additional accessorial charges that are typically not tracked or properly applied to many of your loads, which is effectively an opportunity cost you want to eliminate (or greatly reduce).

The above reinforces the value of a quality and detail-oriented Fleet Manager to maximize your revenue per load. From a strategic point of view, taking care of the pennies will result in more dollars flowing to your bottom line.

Next week, we will focus on implementing the proper processes to maximize revenue capture per load. The following week, we will discussing ways to incentivize your Fleet Managers to improve Gross Margin.

The Golden Ratio: Succeeding with Gross Margin

In my previous life as a Truck Dealer, I habitually tracked our Gross Margin on both the Sales as well as the Parts/Service side (it was our lifeblood). Further, through my participation in benchmarking within the Dealer market, it reinforced the value of:

  • Identifying and measuring your fixed and variable expenses relative to each other
  • Always striving to increase Gross Margin (Revenue minus Variable Expenses)

When I entered the trucking industry via my role as Lead Facilitator with TCA’s Best Practice Groups, one of the biggest surprises early on was the number of trucking companies tracking their gross margin (it was almost zero). For many years, I heard many reasons why gross margin had no place in the trucking industry. It’s too complicated! Too difficult to isolate variable expenses! Seasonality!

However, using the aggregated financial data from Best Practice Group members, I was able to isolate the continuously high performing fleets from the rest of pack. When I dove deeper, low and behold, my good friend Gross Margin emerged as one of the key determinants of long term success in a trucking operation. The next step was introducing the concept to those Best Practice Group participants who were unfamiliar with the concept. Over the course of years, we’ve been able to provide a simplified formula for calculating Gross Margin, and as a result a key ratio emerged, which I will talk about down the page.

The first step in any benchmarking program is developing consensus and standardizing the data and metrics. Using this process, we were able to utilize existing data points to arrive at a formula for determining Gross Margin:

(Linehaul Revenue no FSC + Accessorials)

MINUS

(Driver Wages & Benefits + Purchased Transportation + Net Fuel Expense + Maintenance + Equipment Financing Expense + Insurance Expense + Variable Driving Expenses)

= GROSS MARGIN

*Each of the above items can contain many things, depending on your operation. If your interested in figuring out which expense and revenue items to include, please email Chris Henry ([email protected]) to get more information on our QuickStart data survey.

After we were able to calculate Gross Margin for all group members, it was determined (no surprise) that Gross Margin had the highest correlation to profitability than any other metric we were calculating. Further, once we were able to separate Variable versus Fixed expenses for all group members, two further relationships emerged. Those with higher continuous profitability also maintained consistent Admin and Fixed Overhead values relative to their gross margin results. Because of this new information, we have developed something I like to call the Golden Ratio (25/25/25):

The Golden Ratio

25% Gross Margin :

25% Admin as a Percentage of Gross Margin :

25% Fixed Overhead as a Percentage of Gross Margin

We’ll let this concept percolate for a week. Next week, we’ll start talking about ways to hit these targets!