Under the Microscope: Third-Party Freight Payment and Audit Companies (Part II)

Last week we looked at how Third-Party Payment companies work in general. Over the coming weeks, we dive a bit deeper into how these companies operate, how they get paid, and finally – how best to position yourself for efficient (and timely) payment.

The first thing to remember is that these companies are (typically) not there to help the carrier. Their value proposition is that they will reduce transportation costs and increase transparency in the supply chain – for their shipper customer.  In most cases (especially based on feedback from readers last week), the best you can hope for is to make a painful experience – slightly less painful.

Many readers emailed me this week to share their frustrations (as well as satisfaction and success stories) with various Third-Party Payment/Audit companies. In general, for many companies, they are seeing an alarming increase in the number of delayed (or rejected) invoices. Although the specific reasons given for these situations are diverse, they typically fall into the following categories: 1. Incorrect Miles, 2. Incorrect Rate, 3. Plan # in specific location required on invoice (am assuming for OCR purposes), 4. New Account Manager / Employee Turnover, 5. Duplicate freight bills, and 6. Customer Approval required – a big catchall mentioned by eight different companies.

Now at first glance, from the outside looking in, the average person would conclude that these companies are simply fulfilling their commitment to their customer – the shipper. However, what if those lines were not that clear? What if there was a grey area that provided an additional incentive for companies to delay payment to the carrier? What if the benefit of that incentive accrued to the Third-Party Payment company and not the customer (the shipper) or the carrier?

While doing some research, I decided to read the past two annual reports for one of these companies – CASS Information Systems. This company is one of the largest Third-Party Freight Payment/Audit companies in North America, managing $44 Billion of payables for many blue-chip companies. Originally a subsidiary of Cass Commercial Bank, the St. Louis-based financial institution is now a wholly-owned subsidiary of the Cass Information Systems. The company is a sophisticated, and well-known partner in the global supply chain (as well as other industries).

In their 2016 Annual Report, the words “Interest Income” kept popping up. The more I read the report, the more they sounded like an Insurance Company. Instead of using the word “Float” (the insurance industry vehicle that helped build Berkshire Hathaway – and Warren Buffett’s wealth), the report mentioned the word “Balances”. The combination of words “Interest Income” and “Balances” in various locations throughout the report piqued my interest. My interest was piqued further when I read the following two statements on Page 25 of Cass’ 2016 Annual Report:

“In general, however, Cass is compensated for its processing services through service fees and investment of account balances generated during the payment process

Interest income from the balances generated during the payment processing cycle is affected by the amount of time Cass holds the funds prior to payment and the dollar volume processed”

The above reinforces two things. First, Cass receives two types of revenue – contractual Fees from their customers, and interest income from the balances generated during the payable cycle. Two, considering the time value of money, there is an inherent incentive for Cass to hold onto the payment for as long as possible to enhance investment income (again, similar to how an insurance company generates a significant portion of their revenue and profits).

Now, the above, may be the ‘norm’ for all Third-Party Freight Payment/Audit companies, but most of the companies that I’ve been made aware of are not publicly-traded, and as a result, there is very little information available about their strategies, operations, practices, workflow etc.

The above example is for information purposes only, to educate our customers on a growing segment of the industry. Knowing, in detail, how your customers and partners operate should significantly influence the internal business practices of every trucking operation.

Next week, we will examine another component to these relationships – the use of factoring (by these same companies) for faster invoice payments (but that ‘bonus’ comes at a cost).

Third-Party Freight Payment Companies: Part I

This week’s post is a first in a series, examining the increased usage of third-party freight payment companies by shippers. The original purpose of these companies were credible, but many trucking companies now feel they are being forced into pseudo-factoring arrangements, despite their strong relationships with the shippers they serve. Some companies (not all) are making the bet that trucking companies do not know their internal cost of capital, and playing freight rate arbitrage between the shipper and the carrier – are they overstepping their role?

Part I  – Third Party Freight Payment Companies Explained

Freight payment and audit is a fairly simple concept that can become increasingly more complex depending on how it is implemented.  Third-party freight auditing and payment is a group of processes that is basically an accounts payable service for transportation invoices.  A freight payment company acts as an intermediary between the shipper and the carrier to receive, process, audit and pay freight bills.  Every freight payment company’s processes and practices will be a little bit different, and this is where things can start to get concerning for the carriers.

The Process

  1. Invoice Receipt and Data Capture – In almost all cases the carriers send their invoices directly to the payment company.  This can be through either paper bills or through EDI.  Upon receipt, the payment company must be able to capture data and information from the invoice, bill of lading and any supplemental documents to create a database of information for both processing and reporting.  This helps shippers more readily evaluate their shipping activity.  Flexibility in data capture and consistency are critical factors.
  2. Freight Bill Auditing – This process ensures that freight invoices are paid exactly as prescribed by the carrier contracts (the freight payment company will have copies of all the carrier contracts that a shipper has entered into).  There are no standardized audit controls in the industry, so this step may vary from company to company.  Ideally the audit controls are developed between the shipper, and the payment company to best balance the shippers needs, and the trucking company’s capacity.  Typically, the controls include duplicates, service failures and rates, with accessorial, fuel surcharge and fine-print references in the contract becoming more common. Ensuring adherence to the contract is one of the cost justifications that the payment companies use to sell their services.  One other feature that many payment companies provide is freight bill validation.  This is the ability to audit and validate each invoice according to an internal shipping policy, and a company routing guide.  The goal of most freight audit processes is to automate most of the steps and only require manual intervention in a small number of cases.  In theory, this is good for the shipper, by ensuring that invoices are accurate, and it is also good for carriers by reducing the time required for invoices to be processed.  However, this is an area that can be a major pain point for the carrier, especially if the auditing software does not accurately capture what is on the carrier invoice.  The payment company will data map each carrier’s invoice to automate the data entry but not every invoice will nicely fit into some of these data models.  Alternatively, carriers that do a lot of specialty work for a shipper, that requires special documentation or notations may find that this process slows down their payments, if a large number of their invoices get pushed to manual acceptance and processing.
  3. Systematic Cost Accounting – Freight payment companies apply a valid general ledger code (or codes) to each invoice based on rules provided by the shipper.  These rules are usually based on the information captured from the invoices or bills of lading.  In most cases the shipper is provided with tools that allows them to handle any exceptions or one-off transactions.
  4. Carrier Funding – After the invoices are received, audited and then processed, the payment company will typically create a consolidated funding request to pay the carriers.  Payment requests and disbursements are typically made weekly.  A payment partner will also generally attempt to implement negotiated terms so as to maximize cash flow for the shipper.  Payments to the carriers are typically made via ACH or manual paper cheques.
  5. Reporting and Business Intelligence – Most payment companies provide reports through their portal to the shippers and more are also starting to provide them to the carriers.  Carriers need to understand that these reports will be aimed at cost reduction.  Many of the reports will be somewhat standardized with the specific cost targets tailored to each individual shipper and their needs.  Some areas that can be focused on include erroneous accessorials, and unauthorized brokering of loads

The freight payment and audit market will be greatly threatened by the use of Blockchain technology.  First of all, this business model does make some assumption on the trustworthiness of the data in the carrier invoices.  Simply put, if the shipper believes that the invoices are accurate, that reduces the need for such as service (keeping in mind that improved data collection may also be a key driver if the shipper’s ERP systems are not capable of the desired level of collection).  By going to blockchain and smart contracts, the transactions are essentially self-auditing as the contract will not release payment until all conditions have been met and all parts to the transaction can see the current status.

An intermediate step has already been adopted by some shippers where they use a service that allows for the temporary GPS tracking of a carrier’s truck and trailer as it is on an active load.  The load tenders are sent by either EDI or through their web portal.  The rates and miles have already been established as well as any additional stop charges.  Once the carrier assigns a driver to that load, the tracking service will temporarily follow that truck and starts reporting to the shipper when the truck enters a geo-fenced zone around the shipping location.  This gives full visibility to both parties with regards to on-time performance and wait time.  The service continues to track the truck until it leaves a geofence around the last delivery.  After that point the truck is no longer tracked.  Within 30 minutes of leaving the last delivery geofence the load details are available on the portal and the carrier has 99 hours to enter the wait time and any additional charges.  Once the two parties agree that the charges are correct the invoice is processed and paid within 7 days by ACH.  Their system has not yet been able to automate the extra charges but this comes close to a smart contract.  One of its advantages is that it eliminated the need for a third party payment company as the contract is close (ase mentioned above) to self-auditing.  Non-contracted lanes are negotiated as mini-contracts with only the per mile rate up for discussion.  All other accessorials fall under the master contract.  The rest of these one-offs are handled the same as awarded lanes.  The carrier wins by getting shorter payment terms and the shipper has the potential of lower rates because of the improved cash flow.  All data is entered and audited by both parties and the data is available for both of them.  There are still improvements that this scheme needs in terms of automation but it provides more of a true partnership between both sides as it assumes a level of trust between carrier and shipper.

Next week, we will examine the payment negotiation process with these companies.

Smart Capacity and Smart Contracts: More Value for the Asset Heavy

One potential use of smart contracts is to create networks of smart capacity with multiple cooperating carriers. In effect, these networks will create their own virtual 3PL, using a group of trusted carriers to service customers as a single entity.

One key aspect of smart contracts is that they assume there is a certain level of trust between parties.  In terms of smart capacity, this is crucial.  For starters, each carrier within this network must be carefully vetted for insurance, safety, maintenance, driver standards, equipment standards, etc.  This should be similar to how you handle things when you broker your excess freight currently.  In this case, the vetting is done before gaining admittance into the group.  An additional feature is that all parties to the capacity network trust the others to properly vet new entrants.  Once a new carrier is approved by one member, all the other carriers must accept and trust that vetting.  For example Carrier X is vetted by Member A.  Member A does the due diligence and deems Carrier X to meet the criteria for admission.  The other members of the group no longer need to vet Carrier X as the trust relationship has already been established.  The burden of carrier compliance is now shared throughout the group, reducing each member’s costs. As the use of blockchain is adopted by government, insurance and truck and trailer OEMs, the direct and indirect costs related to compliance and monitoring will decrease significantly.

Once a carrier has established that they meet the necessary criteria, they must maintain that level of compliance.  By using Blockchain technology and smart contracts, all parties to the network will see any areas of non-compliance and the smart contracts will become a form a self-policing.  If the carrier no longer meets one of the smart contract’s criteria, they will no longer be active within the smart capacity network.  For example, if a carrier needs to maintain a CSA HOS score below a certain level, and they have an incident that puts them above that threshold –  the smart contract will prevent that carrier from participating.  No other intervention is required by any other party to the network.

Now, here is what separates smart capacity networks from traditional ‘Power Only’ relationships. Consider this scenario, Shipper 1 is a party to this network, through a separate smart contract with a lead carrier (the one with the relationship) – Carrier A.   Carrier A is the lead carrier for this account, but has entered into this network to help handle the capacity requirements.  Shipper 1 needs a load picked up in New Mexico and delivered into Chicago.  Carrier A currently has no trucks in the New Mexico area.  However smart capacity group member Carrier B does have a truck that will be empty in Las Cruces later today.  Using smart capacity, the network understands that lead carrier A is unable to perform the move and will automatically assign the load to carrier B who is able to execute the contract.  A few things have happened here.  One – the shipper has their freight moved on their desired date and with a carrier that they know meets their criteria for doing business with.  Carrier A will not be potentially running a truck with a lot of deadhead miles to meet the service levels that shipper 1 has set forth.  Carrier B has secured a load for their truck without having to use broker freight for their backhaul.  And here is the best part – this happens automatically without any intervention from any of the parties the smart contract controls it all. Finally, each participant can enter into separate smart contracts with shippers, and utilize the smart capacity network, as long as the pricing, network and equipment can fulfill the criteria established by the smart contact.

At its most basic level, smart contracts and smart capacity will use a predefined set of rules that determine who may participate, and govern the actions taken to fulfill the contracted service.   These criteria are coded into the smart contract and the software then automatically makes decisions based on that coded logic.

A few things to keep top of mind regarding smart capacity. One is that all parties to the network have visibility to all other members.  So, in the earlier example, Carrier A knows where all of Carrier B’s equipment is and Carrier B knows where all of Carrier A’s equipment is.  Two, all parties have visibility to the loads that the other members are doing – within the confines of the smart contract. Three, all participants must agree to allow the network to optimize the entire system, not just each company optimizing on their own, and in isolation.  This does involve individual actors giving up a degree of control, however, if the underlying coding and logic is correct, then each party should maximize its profits.

In an ideal situation, each participant agrees to a set contract pricing that each customer has with the network.  However, a smart contract is able to have the logic required to allow each carrier to have different prices within the smart capacity network. This would also provide a measure of defense against accusations of anti-competitive behavior.  Further, each carrier would have the ability to decline the load. If a shipper throws a curveball to the network, which makes the load less palatable, the contract between the lead carrier and the shipper would automatically adjust to make the load (potentially) more attractive to the network, which could include pricing, accessorials, appointment times etc.

In summary, a smart capacity network is one that uses Blockchain to distribute information to all parties of the network, as well as Smart Contracts to automate the policing and compliance features of the transaction.  The smart contracts can monitor progress, dictate courses of action and ensure compliance.  Once all parts of the smart contract have been fulfilled the contract could automatically trigger payment for the service rendered.  This has the potential to greatly reduce overhead, by automating many common dispatch items as well as remove the need for third-party freight auditing as the contracts will provide this data in real time.  Capacity and equipment will be better utilized, and shippers get to know that any carrier that touches their freight will maintain a minimum standard of care and compliance, without having to vet each and every carrier.  All of these features will result in reduced costs, and greater profits for all participants – a truly symbiotic relationship!

Next week we will examine how smart capacity networks could optimize for Hours of Service capacity, something which will become more important in the upcoming months.

Blockchain and Smart Contracts – A Bigger Industry Disruptor Than ELDs

We have previously discussed what Blockchain technology is. In short, it is a way to enable value and asset transfer across a wide range of industries and use cases – with total transparency. Blockchain will be a major disruptor for financial institutions, remittance companies (third-party freight companies) and many other transactional ‘middlemen’ (people, services, companies). Briefly, Blockchain systems use a chain of secure records to expose the details of transactions to all approved participants and distribute records across a network of participating computers (decentralized). This eliminates the need for a central authority to maintain records and makes processes more efficient, and ultimately cuts costs.

Sandeep Kar, Chief Strategy Officer for Fleet Complete at the recent Connected Fleets USA event in Atlanta listed the following as among the many benefits of Blockchain:

  • Accelerated payment, better security and reduction of fraud
  • Simplified claim settlements
  • Improved traceability and trackability
  • Elimination of the middleman, which cuts costs, reduces paperwork and shortens the supply chain
  • Reduction in the cost of regulations and compliance
  • Increased transparency of price, ownership and the entire process

Kar further summarized the challenges to implementing Blockchain in the logistics industry:

  • Lack of initial knowledge, skills, expertise and trust in the technology
  • Limited easy availability of cryptocurrencies, which may or may not be coupled with a Blockchain system
  • A bias towards the established infrastructure
  • Lack of a central authority to mitigate risk
  • Potential cryptocurrency volatility because no central authority governs cryptocurrencies

Smart contracts work with Blockchain to facilitate the automation of many processes within multiple industries. Smart contracts are based on a Blockchain technology called Etherium. The programmer behind Etherium (Vitalik Buterin) has described a smart contract as “a computer program that directly controls some digital asset”.

Smart contracts go further than traditional legal contracts that define the rules around an agreement between multiple people or parties, by actually enforcing those rules and controlling the transfer of currency or assets under specific conditions. An asset or currency is transferred into a program and the programs runs code that at some point determines whether this asset should go to one person or back to the other person. Jeff Garzik of the Blockchain startup ‘Bloq’ says that “smart contracts guarantee a very specific set of outcomes. There is never any confusion, and there’s never any need for litigation. It’s simply a very limited, computer guaranteed set of outcomes.” Buterin foresees the development of standardized templates that users will be able to use, similar to the standardized contracts we currently use. This will simplify the process and eliminate the need to custom code each and every contract.

Now, enough of the theories and technical jargon, how will trucking companies utilize (and profit) from Blockchain based technologies?

A trend right now is for larger trucking companies to enhance capacity by partnering with other companies to more effectively utilize capacity and optimize for time, location and ultimately gross margin. Right now, subject to the sophistication of the company, that is a difficult set of tasks. You are dealing with multiple databases and datasets, not to mention the human and environmental elements.

The use of Blockchain and Smart Contracts could provide the necessary framework for trucking companies to take more control over the supply chain of a shipper, while optimizing their capacity and the capacity of carrier partners – who are party to a separate smart contact with the lead carrier. The image below, gives you a rough idea on how this would work. The caveat is that each company in the preferred network would have to add data to the Blockchain within the terms of the smart contract between them and the lead carrier.

Once a contract has been successfully fulfilled (or not), the Blockchain technology will create a transparent and open performance history record. This is a trustless record, as the parties know that the records cannot be edited. Essentially the data is flawless and not open for dispute.

Think of the above as an automated Shipper and Carrier Scorecard – one that will drive better decision making for all parties.

Would be great to hear from more of you regarding possible use cases for Smart Contracts in Trucking.

Succession Planning – Is Your Bench Ready to Step Up?

This week’s post is about succession planning, a critical issue affecting companies in all industries. For our upcoming TPP Profitability Seminar in December, we are pleased to have Spencer Tenney of the Tenney Group will be presenting ‘7 Best Practices for Succession Planning”.

Scenario #1 – It’s a sunny afternoon, and you are sitting in your office working on a presentation for one of your major customers that you are meeting next week regarding some new lanes.  The phone rings, you answer it and it’s a state trooper.  Your national accounts salesperson has just been in a horrific accident on the Interstate, and is being airlifted to the hospital.  The trooper asks for family contacts as it’s not looking good.  As you go through your contact list you get a nasty feeling in your stomach.  You were going to be meeting with Jody later today to go over strategy and review some data that she got from the customer this morning.  She has been hands-on with this customer, and has a lot of information that no one else has.

Scenario #2 – You are about to board a plane to come home from meeting another of your important customers when your VP of Operations calls you.  Joe, your Operations Director for the West Coast got into another argument with the VP and has just quit with no notice.  One of your seasonal customers has just started to ramp up production, and Joe was handling the rental and staging of the specialized trailers needed to service them.  Joe was an “off the cuff” sort of guy, and none of his ‘plan’ was written down.

Both of these scenarios are exaggerated, but they do represent real and persistent risks that all businesses face – what to do if a key employee leaves, or is incapacitated?  Who would you move into their place? What training would they need?  What information gaps will result?

Succession Planning is a strategy that you have in place for when employees leave or retire.  This plan looks at both expected and unexpected departures, and the aim is to ensure that no significant expertise or leadership is lost upon their departure.  A key aspect of the plan is to identify high-potential employees, who appear to be a good fit for grooming into a leadership role.  A second key aspect is a training and mentoring plan to evaluate and nuture their skills so that an easy transition can occur when needed.

For your less senior employees, a succession plan offers them an excellent professional development plan, that will enable them to learn and grow with your organization as they train for future roles.  By bringing these new faces into the management realm, you will bring in a new set of experiences and perspectives into the decision making process.  This diversification helps your company set itself up for further growth.

There are a number of frameworks available to assist in creating a succession plan, but Teala Wilson of Saba Software has proposed one of the more flexible ones:

  1. Establish measureable goals to guide the succession planning program. Make sure that these measurements are aligned with the organization’s strategic goals.
  2. Re-calibrate succession planning program goals on an annual basis. This allows for changes in personnel as well as the changing market environment.
  3. Prepare current job descriptions so that the work to be performed is clear.
  4. Prepare competency models by level on the organization chart. Requirements need to be objective, clear and measurable.  This is the time to look at what future competencies are required to achieve future strategic goals.
  5. Carefully define the roles to be played by each key stakeholder group in the succession planning process. Keep senior managers and stakeholders engaged in the process by establishing clear and measurable accountabilities.
  6. Establish talent pools by level based on the strategic strengths of the organization.
  7. Take an inventory of your talent. Ensure that individual strengths and areas for improvement are recognized.  Do an organization wide SWOT (strengths, weaknesses, opportunities and threats) analysis to look for gaps in bench strength that will need filling either within or outside of the organization.  Do these reviews on a periodic basis to ensure that no new gaps have developed.
  8. Evaluate the entire succession planning program on a regular (usually annual) basis. Compare the measurements against the stated goals to guide where you need to focus on.

Once you have this framework in place, you will then start to determine if you have capable (and willing) internal candidates that can be groomed for future advancement, or if there are areas that you need to go outside of the company.  Where possible, going with an internal candidate is the ideal choice – they already are familiar with your business and it generally is less costly to train and develop from within, than it is to go through the process of doing an outside hire and then getting that person up to a competent level of performance.  There is a risk that someone you groom may leave before you can move them into a higher position, but through proper management of expectations you should be able to create an increased sense of loyalty that will help with retention.

When looking at candidates for inclusion in this program don’t just take the easy path and target only your current high performers.  Take a look at each individual and determine what their future potential is.   As an example, just because Jim is your best sales rep does not mean that he would be your best candidate for a sales manager role.  Becky may have more average sales performance, but may have a better personality fit to coach and lead your sales staff.  Look for people who are clearly in the wrong role (based on education, personality, etc) and consider them for a hybrid role that could pave the way for an increased leadership role.  Take the time to identify the potential within your organization, and then develop a plan to tap into it and better leverage your existing talent.

Finally make sure that there is buy-in for this program at the senior level.  Nothing will derail this program faster than upper managers not participating fully in it.  Some may see this as an exercise in pushing themselves out of a job.  Ensure that there is a clear link between this program and the company’s strategic plan, with flexibility built-in to balance the long term and short term goals.  By working this process into your current hiring process you will ensure that you are getting the candidates that you need in the future, not just a “good enough” for today’s need.  The recruiting process is expensive and this process will give you the tools to be more effective with bringing on new people. Take time away from your whirlwind – short term pain = long term gain.

The Driver Shortage – My Dissent, A Contrarian’s Take

This post is a guest post from Steve Hitchcock, Chief Operating Officer with Duncan and Son Lines (a member of the TC04 Best Practice Group)

I’ve been hearing that there is a driver shortage every year over the seven years I’ve been in the trucking industry. I’ve heard that the industry has been saying this for well over 20 years (save about 1-2 years after the housing bubble crash).  If there is such a shortage, why are the  shelves full of food at the grocery stores?  Target and Walmart have full shelves as well.  Home Depot and Lowes both have plenty of lumber, nuts/bolts/screws, conduit, paint, ceiling fans, tile, etc. How  can Amazon ship me my order from their warehouse? How did the goods get to their distribution center if there was a shortage of drivers? How is there always a driver to bring boxes to my house within two days if there is a driver shortage?  I think I know- There is no driver shortage.

In all of my formal education and life experience, I’ve learned that there really aren’t shortages, per se. There are just shortages at particular price levels.  And of course, there are surpluses at other price levels (thanks be to my ECON 101 professor, right?). In my niche trucking market, all of us say we could use 10-20 more drivers.  That’s a shortage, right?  But what would happen if we all got them?  I’d  venture to say that we’d have a surplus.  And if we had a surplus, we would make decisions to haul freight for lower rates than we haul them for today. So we’d work harder and do more for  less money. We should be careful what we wish for.

Every trucking conference (American Trucking Association, Arizona Trucking Association, CO, Truckload Carrier Association, etc.) spends an inordinate amount of time on the driver shortage; ways to advertise for, hire, and retain drivers.  For some reason we see this endeavor  as an opportunity  for group-think. But again, what would happen if we all got our 10-20 drivers? So now we’re going to  innovate together on the subject?  I’m  for  innovating alone on this one.  I want 10-20 drivers, but  I don’t want my competitor to get them. That’s how competition works.  But I also don’t want over-supply. I don’t have that now  and I’m  happy with that.

If there is indeed a “shortage,” isn’t that a good thing? Doesn’t constriction of supply/capacity cause trucking rates to increase? Isn’t that good for a trucker? But we march on to the tune of “The Driver Shortage is the Biggest Threat to the Trucking Industry.” It feels like I’m the one guy in the back of the room quietly dissenting. My dissent doesn’t end with the subject of driver supply, though.

There are all kinds of things that cause a restriction of capacity, which in turn causes trucking rates to rise. There are EPA mandates, hours of service regulations, ELDs, driver age restrictions, weight restrictions, length restrictions, etc. And how do the  people in my industry react?  We react with a “the  sky is falling” theme. Most of this is dogmatic- almost religious. Because we are “against” this government involvement, we’re disgusted and now our world is slowly ending, one government intervention at a time. Again, I’m  alone in the room .  I see every one of those regulations as a reduction in supply and an increase in rates.  While most in our industry have an approach that is dogmatic, I urgemy organization to be pragmatic. I urge us to position ourselves to take advantage of the supply reduction.

I may agree with my colleagues from a philosophical standpoint  when it  comes to  the  role of government. I probably vote like them when electing leaders. But at the end of the day, “don’t hate the player, hate the game.” I’m going to play the  game as well I can with the rules clearly laid out in front of me.  There is an absolute equilibrium between the supply of  drivers and the  demand of drivers.  It’s true. If  it  wasn’t true, you’d see a dramatic  increase  in driver  wages from trucking companies.  But you don’t. If the driver shortage actually caused a constriction of  capacity, shippers would be bidding up freight rates. They aren’t. Just because we keep saying that there is a driver shortage doesn’t make it true. For what our industry and customers are willing to pay, we have the  exact amount of  drivers we  are supposed to have. The invisible hand of Adam Smith works.  There is no driver shortage.

TCA to Host Profitability Seminar December 12 in Chicago

First-of-its-kind meeting provides actionable insights for trucking leaders


ALEXANDRIA, Va. — Building on the continued success of the TCA Profitability Program (TPP), the Truckload Carriers Association will be holding its Inaugural TPP Profitability Seminar in Chicago on December 12, 2017. This one-day workshop is open to all managers and senior executives from North American trucking companies.

Attendees will be provided with an actionable framework to optimize profitability during, what is expected to be, a robust trucking environment for the foreseeable future. This framework will be focused on three key areas:

  1. Utilizing incentive-based pay to increase productivity.
  2. Understanding the Variable and Fixed Expenses in trucking using the Gross Margin Golden Ratio.
  3. Managing a high performing driver base. Building upon this, the event will also provide an in-depth look at market trends via inGauge ™, TCA’s cloud based business intelligence platform.

*As a bonus, the Tenney Group’s Spencer Tenney will present the 7 Best Practices for Succession Planning.

“This type of event is long overdue for an industry that is thirsty for information to separate trucking companies from the pack,” said TPP’s Managing Director, Jack Porter. “This workshop will provide actionable information for companies to take back and immediately leverage within their own operations – while also providing a glimpse of the format we use for our hugely successful Best Practice Group (BPG) program.”

TCA President John Lyboldt proposed this new workshop format, based on feedback from members. “One of our main value propositions to members is to provide vehicles to improve profitability and efficiency,” he explained. “This event will provide an attendee the chance to take a pause from their daily whirlwind, share best practices, and develop relationships with like-minded industry leaders.”

Prior to the event, attendees will be expected to complete a special group survey to ensure the content of the event is relevant to their roles and operations.

Special thanks to the event sponsor, the Tenney Group.

Reserve your seat, today. For more information, contact inGauge ™ Program Manager Chris Henry.

Want to hear what your peers are saying about the program? Watch this testimonial video.

Making Change Easier

As discussed last week, there are quite a number of causes of resistance. This week,  let’s look at how we can make change easier.

Rosabeth Moss Kanter of the Harvard Business School gives this advice: “The best tool for leaders of change is to understand the predictable, universal sources of resistance in each situation and then strategize around them.” A HBR article (How to Deal With Resistance to Change by Paul Lawrence, HBR January 1969), points out that there are 2 aspects to any change – the technical, which is the making a measurable modification in the physical routines of work, and the social – the way those affected by it think it will alter their established relationships in the organization. In many cases the social aspect is likely to be your root cause of resistance and it is likely to be more difficult to overcome.

Technical Aspect of Change

The technical aspects are generally a training issue, but care must be taken to ensure that sufficient and effective training takes place. Take the learning style of the trainees into account – as an example, don’t use a solely lecture style of training with people who are visual or tactile learners. In most cases allowing the trainee to work hands on with the new process, become familiar with it and get competent with it is a much more effective form. This also allows for the trainer to probe the trainee to determine a potentially more efficient way of performing the process. This will increase employee engagement but be prepared to give valid reasons if they come up with anything that you don’t want them to be doing. Try to anticipate any of those short cuts beforehand as your employees will find them and you may not get a chance later to easily correct them.

Self Preoccupation – Not Seeing the Forest for the Trees

Before we get to the social aspects, Lawrence cautions managers to be aware of what he calls “self-preoccupation”. This is when a change agent gets so engrossed in the technology of the change that they are promoting that they become wholly oblivious to other things that may be bothering people about how the change is being implemented. An example he cites is a process change that robbed machine operators of some of the satisfaction they derived from their work. Previously when they completed an item they would place the output at the end of their work station where everyone could see and appreciate it. The process was changed so that the output was quickly gathered up and taken away. The engineers who implemented the change could not understand why the operators were upset and solely focused on their logical arguments about cost savings (which were relatively small). The final result of this change was a permanent state of hostility by the operators and a chronic restriction on output. The engineers had the right intentions, but they narrowly focused on the technical aspect (the cost savings) that they could not see the social aspect that they were unknowingly destroying.

A Framework for Anticipating Resistance

Lisa Quast (published in the Nov 26, 2012 issue of Forbes), has developed a generic framework towards anticipating resistance.
1. What specific changes are included in the process?
2. Who will the changes impact – both directly and indirectly?
3. How will these changes impact them?
4. How might these people react?

When going through this framework one MUST take the viewpoint of the other people who are impacted. Two Israeli psychologists came up with a simple measure of personal resistance to change (Journal of Applied Psychology, 2010). They found four factors that help to predict an individual’s resistance to an imposed change at work:

1. Routine seeking. How much comfort do they take in their little rituals that a change could destabilize?

2. Stress and Tension. Any threat to stability can make some people experience a high level of discomfort. A change could lead to worry which can lead to a drop in performance for some employees.

3. Short Term Thinking. People tend to focus on immediate inconveniences and not the long term benefits, even when they are aware of them. Generally this short term focus will be somewhat irrational and will require a degree of patience to help the person work past.

4. Cognitive Rigidity. This is sometimes referred to as dogmatism. It refers to the degree that a person dislikes changing their mind and point of view. They also point out a further factor – what is the person’s attitude to the change agent (usually senior management)? You want to try to avoid scenarios where you have individuals who are  resistant to change, but also fundamentally distrust the person leading the change effort. If the messenger is someone that they do trust, then you have a good likelihood that the individual will work with the process and eventually make the change successfully.

Communicate It!

One other thing to have in your implementation tool kit is a plan to communicate, communicate and communicate. Explain why the change is necessary. Tell them what is going to happen. Spell out how the organization is going to guide them through the process and what supports will be in place for them. Keep them up to date as to how the project is going and how well timelines are holding up. In particular communicate any setbacks or delays and what steps are being done to correct them. This is vital as it shows that the project is fluid and learns from its own mistakes – a huge help in gaining trust. Someone who is hesitant about change will feel significantly more at ease if they know that changes will be made if a better way is proven. At the end of the day, the commitment to the change demonstrated by leaders and having employees understand why the change is needed will reduce the level of resistance and minimize any productivity loss that is not due to people getting competent with the new process.

Resistance to Change – Anticipate and Adjust

Over the past few weeks, we have looked at a number of potentially disruptive technologies.  This week we turn our focus on how to handle the inevitable resistance to implementing them.

You have all heard some drivers mention these words: “the day I need to use an ELD/EOBR/automatic transmission/etc., is the day I quit”.  Any new technology will bring on a response like this in some people.  Others will embrace the change from day one and others will look like they are ambivalent to the change.  Regardless of how they appear, each employee or owner operator will have some sort of reaction, and that reaction needs to be managed.  Keep this in mind as even a person that is normally the most supportive, may show resistance when the project is first introduced to them.

Most forms of resistance should be anticipated beforehand, so taking some time to develop a plan to address resistance points will go a long way to easing your implementation.

Typical Reasons for Resistance to Change

  • Not understanding the reason for the change (or if that reason is unclear). This will likely affect your longer term employees, as they have a lot of buy-in with the current way things are done.  This resistance will be amplified if this is a well established process that “has worked for the last XX years”.
  • Fear of the unknown. People need to feel that the risks of standing still are greater than making a change.  They understand how things work now, and have to believe that the new way is better.
  • Lack of Competence. Some people will not believe that they have the skills to be able to transition to the new way of doing things.  However this is something that may be hard to get people to admit to, so managers need to be aware of it and explain which training methods will be offered to help people adjust.
  • Connected to the Old Way. Some employees will have an emotional attachment to the ways things are currently being done, regardless of how logical the need for a change may be.  Keep in mind that you will be changing social patterns that may seem trivial to you, but could be extremely valuable to an employee.
  • Low Trust. There will be (hopefully) a small subsection of people that do not believe that they, nor the company can competently manage the change.  Even if this group is small they are likely to be vocal so make certain that you are prepared to handle their concerns.  If this can be done before the change you may be able to turn a detractor into a promoter!
  • Temporary Fad. Do your employees feel that management is just following the advice of the latest consultant?  Do you change, and then change again without allowing time for the system to normalize?  Any of these may cause employees to feel that you are just chasing the latest fad, and that if they just hold out, then they will not have to make the change.
  • Not being Consulted. Most people will lower their resistance to change if they feel that they are allowed to be part of the change.  This is a bit of a tricky situation however.  If you are going to be consulting your employees about the change, be prepared to make adjustments.  Just letting people have a venting session, without any of those opinions making a difference, could result in a higher level of resistance.
  • Poor Communication. This one is probably the most common.  With any change, the proper amount of communication is almost always more than you did.  Give them constant updates, progress reports, and upcoming events.  This will engage many of your employees and will go a long way towards helping them feel involved in the process. Going the extra mile on communication, will deliver large rewards.
  • Changes to Routines. You are really asking people to get out of their comfort zones, and that will cause a degree of insecurity.   Making people do something different will make them uncomfortable at first, so using the above point and ensuring that the lines of communication are open will help reduce this.
  • Exhaustion/Saturation. Compliance should not always be considered acceptance. People who are overwhelmed by constant change sometimes resign themselves to it, and just go along for the ride.  This results in a demotivated workforce (you only have their bodies, but not their hearts).  Give them time to adjust to the new normal before you adjust things again.
  • Change in the Status Quo. How people perceive the change can affect how they react to it.  Examples that can have a negative impact include people who feel that they will be worse off after the change and situations where one part of the organization feels that another part has “won”.  Make sure to consider how other departments may perceive your motivations.  What may seem to the accounting department as a simple, may cause your customer service department to be resentful if they do not see any benefit to them.
  • Benefits and Rewards. As seen above, resistance will be increased when the rewards and benefits for making the change are not seen to outweigh the trouble involved.
  • Plain Old Fear of Losing Their Jobs. They have seen other changes and the purges that followed them.  It may not have been with your organization, but there will always be someone that “knows someone” who claims to have lost their job due to changes/automation/new technology etc.  Even if the fear is irrational to you, it’s real to them, so be as supportive as you can through the process.  If there are job losses, make sure to handle them as humanely as possible or they will reinforce a perception of change = redundancies and create an even higher level of resistance to your next change initiative.

The above is not an inclusive list, and maybe not all of them will apply to your company.  However you need to do an honest and thorough analysis to anticipate any resistance before it happens so that you can develop an action plan that has all managers on the same page.

New Maintenance Metrics Now Live!

This  past Monday, we activated thirty new Maintenance-related metrics. These metrics were developed based on feedback from executives at Bison Transport, SLH Transport and, Prime. Please consider these metrics to be officially in Beta mode. Both the data survey (including descriptions) will be reviewed regularly based on feedback from our users, both online and Best Practice Group members. For most Best Practice Group Members, six of these metrics do not require any further data.

Here is a full list of all the metrics:

  • Parts Inventory Turnover
  • Tire Expense Average per Tractor
  • Tire Expense Average per Trailer
  • Tire Expense per Mile (Labor and Product)
  • Maintenance Expense per Truck
  • Maintenance Expense per Trailer
  • Total Accident Expense per Truck
  • Total Accident Expense per Trailer
  • Total Accident Expense per Mile
  • PM Compliance
  • Truck Accident Damage to Maintenance Ratio (%)
  • Trailer Accident Damage to Maintenance Ratio (%)
  • Tractor Maintenance (Cost per Mile)
  • Trailer Maintenance (% of Revenue)
  • Breakdown – Downtime Aging (Average # of Days from Call to Roll)
  • External Maintenance Expense – Tractors (per Mile) – Available with existing BPG Data
  • External Maintenance Expense – Trailers (per Mile) – – Available with existing BPG Data
  • Breakdowns per Million Miles
  • Technician Productivity
  • Technician Efficiency
  • Technician Proficiency
  • Parts Expense Average per Tractor –  Available with existing BPG Data
  • Parts Expense Average per Trailer – – Available with existing BPG Data
  • Average Technician Expense per HourMaintenance Metrics 10_01_2017
  • Maintenance Admin Overhead (% of Billed/Allocation Maintenance Expense)
  • Technician – (Average Wages & Benefit Expense per Technician per Year)
  • Internal / External Maintenance Ratio (%) – – Available with existing BPG Data
  • Production Hours per Bay
  • Aging of Warranty Receivables
  • Average Monthly Downtime per Truck (Hours)
  • Retail Shop Revenue (as % of Total Shop Labor)
  • Total Warranty Recovery (as a % of Maintenance Expense) – – Available with existing BPG Data

As always with new metrics, these new data points, descriptions and, formulas will generate discussion among members. We are committed to reviewing this metrics regularly, adding to descriptions and adjusting the formulas if required.

To review the additional data requirements in detail, please download this excel file (which can be completed separately from your existing submissions). If you have capability to report your data via API, please contact us to review the inGauge API developer documentation.