Keystone Habits: What are yours?

Four years ago, I read a book entitled The Power of Habit: Why We Do What We Do in Life and Business by Charles Duhigg. I have since re-read this powerful book four times, and purchased a couple of the books cited by Duhigg in the book itself. It introduces the reader to the concept of Keystone Habits. Keystone Habits can be defined as foundational habits which have the power to transform nearly every facet of your business (and perhaps your life).

As an example of a corporate Keystone Habit, Duhigg details the tenure of Paul O’Neill at the helm of Alcoa (the world’s third largest producer of Aluminum at the time). When Mr. O’Neil joined Alcoa in 1987, the company had suffered through a long period of stagnation, and appeared to be on the patch to succumb to the increasing pressures of global market place. Obviously, this put O’Neill under immense pressure to deliver results.

However, Mr. O’Neill quickly figured out that in order to stimulate growth, profits, and employee morale, he had to find a way to motivate the entire company aside from typical financial incentives. In his first public analyst meeting, instead of focusing on the regular ratios, projections and competitive discussions, Mr. O’Neill decided to focus on something which can now be described as a ‘Keystone Habit’, and that was Worker Safety. He told the group of analysts that instead of focusing his attention on margins, input hedging (and stock price), he intended to transform the company into one of the safest companies in America. The goal – Zero Injuries.

Obviously, the analysts in attendance were skeptical (and puzzled), as was most of Wall Street. In hindsight, many didn’t realize that this focus, had the effect of uniting everyone from the Boardroom to the Factory Floor. The results? During his tenure from 1987 to 1999, Alcoa’s market value rose from $3 billion to $27 billion, while net income rose from $200 million to $1.84 billion. Better yet, Mr. O’Neill successfully transformed the company into one of the safest industrial organizations in the world!

What can we learn from this? When companies go through the process of developing its Mission, Vision, and Values, typically at least one important stakeholder group is left out of the mix (either directly or indirectly). Customers, Employees and Shareholders should all be ‘captured’ in corporate goals and missions. Further, the majority of corporate mission statements are excruciatingly vague, in essence they become placeholder text (in fact, if you google some of them – they are placeholder text). What if your company decided to scrap that vague mission statement and focus on something that is not only going to drive profits, but also employee purpose and customer satisfaction?

In trucking, here are some examples of mission statements from some leading North American Trucking operations:

  • “You’re Safe With Me”
  • “Safety: An Obligation Without Compromise”
  • “Work Safe = Home Safe”
  • “We own it. Every mile. Every job. Every day.”
  • “Delivering On Our Promises”

These are just a few examples I could find. Does your mission need updating? Are your daily, weekly and monthly habits in need of retooling? The start of a brand new year is a great opportunity for that.

A Better Driver Referral Program

As many of you know, recruiting and retention has become a passion of mine. Having progressed from the Driver’s seat to the C-suite, I have seen first-hand what a united workforce looks like. Conversely (unfortunately), I have also witnessed what can happen when that workforce takes their ‘eyes off the road’. The one area I would like to focus on today is understanding the recruiting and retention process from the Driver’s side.

One significant thing many companies fail to acknowledge is that some drivers sincerely do not believe that you know how to run your own business. I have been behind the wheel for a million miles myself, I can tell you first this hand. Your drivers believe that you will, if given the opportunity, hire them right out of a job. They believe that by your hiring more drivers, their miles will be threatened and their livelihood will be impacted. Don’t believe that? It is the number one reason they do not recruit for you – guaranteed. To protect their paycheck, they will tell other drivers to stay away – ‘money is no good’, ‘no miles’, ‘companies a hard place to work at etc.’

So how do you get around that? As a President, here is what my senior managers and I did – we educated them. Part of my managers daily responsibility was to spend fifteen minutes each morning, and afternoon in our driver’s room, which gave them an opportunity to discuss such matters person to person. I used to tell them that this was the most important thirty minutes of our entire work day. To talk about their family, kids’ sports, community events, whatever. People talk to people, I also wrote a memo to the drivers informing them of our customer’s needs, and that they weren’t prepared to deal with multiple vendors to service their accounts, it cost them too much money. I told them bluntly, if we couldn’t keep up with our customers volumes, they would find trucking companies that would, in other words if they’re not helping our recruiting efforts, they are potentially undermining their livelihood not protecting it.

Implementing a Driver Recruitment program has benefits in terms of the number of good candidates that come your way, as well as the benefit of engaging some of your existing drivers and owner operators in contributing to the company in a meaningful way. Many do want to help, more than you might think, they have chosen to spend their careers with your company, why not.

For our company, once we got the program up and running,we were getting 52% of new drivers through the Driver Recruiter channel. First of all, we asked for volunteers, then we screened them for the role. We looked at whether or not they were good drivers who represented the kind of people we wanted in the company. We looked at their attitude and how they were at talking to other people – were they amiable, honest and positive?

We found that there were different things motivating our driver recruiter volunteers. Some were simply in it for the money, which was fine, as long as they screened well. Others like the recognition, because this was a role with a profile, and the reward was more than just money. We recognized good achievers at our Christmas party, company newsletters and online, presented top recruiters with a plaque etc. And then there were those drivers who simply responded to the call for help. They just wanted to contribute.

A critical part of the program focused on training the drivers for the role. It is important to help build their confidence to prepare them with the skills and tools to succeed. For our program, we gave the drivers training to help them in terms of what kind of candidates they should target, what to emphasize about our company values and objectives, as well as to be completely honest about the demands of our business and customer obligations. We gave them training in conversational sales, we gave them business cards identifying them as Recruiters – and made sure our Value Statement was printed on the back. This was to be a point of discussion with any candidates. And then we put decals on their truck saying “I am a recruiter – talk to me.” This was a popular program with our drivers.

Since this was a valuable service, we were willing to pay for it. Some positions are harder than others to fill so we scaled our compensation to the type of opening being filled. It will be different for you, but in our case, at the time, we paid $2,000 for a flatbed candidate and $1,000 for a van driver.

This could represent a significant boost to income for successful driver recruiters. We had drivers who were responsible for up to 6 new recruits in one year. They pocketed between $6,000 and $12,000 extra that year. And he received solid recognition within and beyond our company.

Pivotal to our program’s success was the payment method we used to compensate our driver and owner operator recruiters. I have seen various programs like deferring payment until after a certain probation period, or so many cents per mile for a determined period of time (or miles) – and even sliding scales over a year or two! For my money, and our results speak for themselves, pay up front once you have hired a candidate. This is most impactful to the drivers – and to any drivers who are not now, but could become recruiters for you. Cash in hand speaks volumes.

Our logic was that once a candidate came our way it is up to us to determine if this would be a good driver for our company.  We put the candidate through our normal hiring/screening process. If we bring that candidate on and it did not work out, that is on us, why should that be on the recruiter, we made the decision to proceed, we made the mistake if the candidate doesn’t work out and we benefit if they success. The driver recruiter did his or her job in bring the opportunity to us. Payment is due, want to support driver recruiting by drivers this is how to do it.

Your drivers will be uplifted by the rewards, recognition and sense of additional purpose that their role will now mean. While delivering benefits to the drivers and to the company, we are also mining just another avenue for building that sense of belonging and community that is the foundation of everything when it comes to Driver Retention.

The Nine Traits of High-Performing Trucking Companies (and their Leaders)

Over the past few years, I have had the privilege and honor of being an active observer of over 100 trucking companies throughout North America. This observation has not been done in a vacuum. Via watching, questioning and learning from the members of inGauge, as well as the Best Practice Groups (the foundation of the TCA Profitability Program), this process has been the equivalent of an education that should have cost hundreds of thousands of dollars – however, this is my job. To state that I’m grateful for this opportunity, and the friendships I’ve made along the way is the understatement of the century. From countless conversations (both one-on-one, and group discussions) with CEOs, CFOs, VPs, Operations Managers and Frontline people, I have recognized and distilled some of the common denominators of those companies (and their leaders) who continually out-perform the rest. My gauge of performance is primarily Gross Margin (Revenue minus Variable Expenses). Those that continually outperform on this measure, not surprisingly, have strong bottom-lines. In addition, I look at those companies who may have some temporary issues with their gross margin and overall performance – but all as a result of a change in strategic direction (e.g. changing operating mode, re-engineering their freight network , re-investing for the long term). Here are the nine common traits of High Performing Trucking Companies (and their Leaders). Please note, ‘Leader’ does not equal executive. A leader can be anyone from the driver seat, right up to the c-suite.

  1. Top Performers Add by Subtraction – Everyone wants to use the latest tools, execute on the latest plans, and automate processes to improve long-term performance. However, the top performers understand that the capacity of their human assets has a terminal velocity. To act on new ideas, opportunities and business plans, a company must first eliminate redundant or non-vital tasks and processes to clear the path for reinvention and sustainability. Further, the very act of identifying the things that “we are not going to do anymore” can be as beneficial as taking on a new project or seizing a new opportunity. Add the phrase “Add by Subtraction” to your daily mantra.
  2. Top Performers Invest in both Tangible and Intangible Assets – when I speak to those in the industry, one of the common phrases I hear is “this is a simple industry, we get paid to deliver X from A to B – end of story”. As soon as I hear this statement (or a derivation of it), I immediately turn off my active listening ears. There are very few industries with as many variables as trucking – it is extremely complicated. Where there are many variables, there are many opportunities. The top performing companies know that simply investing in more trucks isn’t going to cause a net gain in gross margin and ROI. More and more, the top performers are looking at intangible assets (e.g. proprietary software, specialized complimentary services, highly skilled labor, and vertical integration) as the logical step to gain an advantage. Further, they also understand that building intellectual property can be very expensive endeavor – but via incremental development and iteration (starting with building a M.V.P. – Minimum Viable Product), they can reduce the potential capital cost and expedite ROI. Want to build a smart capacity network using the latest Blockchain technologies? Why not build your own? Maybe commercialize it? Companies with strong Balance Sheets and both Tangible and Intangible Assets don’t go looking for a buyer – the buyers are lined up in the parking lot (with a big check).
  3. Top Performers Build a Skilled Workforce – a common trait of all the top performing companies in the TCA Profitability Program is that their leaders, and as a by-product, their team members are hungry for knowledge. Learning from a strategic point of view does not have to be formal – reading books, listening to podcasts and participation in Best Practice Groups, and Industry events are all great ways to refine focus and get ahead of the competition. From a tactical point of view, more focus and discipline is required. Some of these companies have very formal systems and processes in place for ensuring that both their drivers and non-drivers continue to develop themselves. This results in a workforce with a purpose. For industry-specific training, there are companies offering customized and semi-customized platforms for knowledge delivery (e.g. Carriers Edge, JJ Keller, Pro-tread). For other skills (in some cases very specialized), there are other avenues available, at a very low cost and high ROI. Instead of looking via traditional routes, checkout one of the MOOC (Massive Open Online Course) providers such as Udemy, Cousera, Khan Academy and edX. Want to develop group of Data Analysts? There is a course for that. Want to help your operations team learn finance? There is a course for that as well. Want to become an excel ninja? Start here. In summary, top performers stay curious and keep learning. You want to build a top-performing trucking company – you must first start with the stuff between the ears.
  4. Top Performers Get Out of the Whirlwind – How can you get better if you’re stuck in the daily chaos of the trucking industry. Putting out fires, responding to customers and retaining your drivers are all some of the required, and time-consuming exercises you must do most days. However, the top performers understand that improvement requires contemplation – and contemplation can’t happen with the phone ringing and a thousand unanswered emails staring at you in the face. Getting out of the daily whirlwind can simply mean going for a walk (in solitude). It worked for Tesla, Hemingway, Darwin, Dickens and Ben Franklin – it might work for you! Other alternatives are participation in a Best Practice Group, local networking and investment clubs, and industry sponsored events. Whatever you choose – make a commitment to it.
  5. Top Performers Embrace the Concept of an Idea Meritocracy – Although many top performing trucking companies have formal organizational structures, all of them embrace the concept (formally or informally) of an Idea Meritocracy. You can learn more about Idea Meritocracy here. Good ideas sometime result from exposure to, and experience within a industry, market, or skill set. However, some of the best ideas can come from those with fresh eyes and inexperience. Either providing a contrarian approach or a pivot. Suppressing ideas is easy – reinforce the chain of command and simply outlaw discussion above or throughout the chain (resulting in what is commonly referred to as ‘knowledge silos’). The most negative connotation associated with the word ‘bureaucracy’ is status quo, and the suppression of good ideas. If you don’t provide a way for the frontline (drivers and non-drivers) to suggest new ideas, and a way to actively contemplate and test these ideas – the sustainability of your business, in the long term, is questionable. Get rid of the barriers, add new blood (interns etc), question the status quo, embrace change, get better.
  6. Top Performers Spend 95% of Their Time Listening – After participating in over 20 Best Practice Group meetings over the past couple of years, one common thing I notice is that the top performers always listen (way) more than they speak. However, when they speak, the room goes quiet and the rest of the group starts writing. Having something useful to say takes understanding and contemplation. Most people can’t do that while talking at the same time. The top performers aren’t in love with the sound of their own voice, nor do the ever speak of themselves in the Third-Person (instant credibility erosion).
  7. Top Performers Understand the Value of Time – Although meetings can serve as a great way for ideas to percolate, they can also be massive time sucks. Top performers understand the value of meetings (and the labor expense associated with those meetings), but also establish clear rules for making sure any meeting or activity is efficient and has an internal ROI. During 2017, there were five separate Best Idea Presentations from Best Practice Group members with respect to running effective meetings – each of these companies are in the TPP Top Performers Index – coincidence? I don’t think so.
  8. The Top Performers Understand that Discipline Equals Freedom – ‘Discipline Equals Freedom’ is a phrase that has been popularized by former Navy Seal Commander Jocko Willink over the last year. These three words capture the essence of the top performing companies and their leaders. It is one thing to think (and talk) about action, it is another to execute – every day. Doing so, as a by-product, will present many obstacles (physical, intellectual, and technological), but applying daily discipline will remove those barriers. Conversely, the daily discipline of execution will help identify better ways of ‘doing’, and as result, improving.
  9. Top Performers Want to Get 1% Better Everyday – It’s easy, but also daunting to establish a Wildly Important Goal (WIG). Top performers understand that once the horizon has been established, the best way to move towards accomplishing that goal is daily and consistent improvement everyday. Doing so provides forward momentum, and if your mix of team members is right – an intrinsic reward (see ‘purpose’ above).

In addition to my conversations with inGauge and Best Practice Group members, I have read, watched and listened to very valuable content over the past twelve months. Here are my favorites:

  • Seth Godin (daily blog) – the first thing I read in the morning. He posts everyday, and always has something fresh for readers to contemplate.
  • Principles by Ray Dalio (book) – some consider Dalio as the greatest investor over the past two decades. This book provides a framework for both life and business, distilled as ‘Principles’. The precursor to this book, a free PDF of the same title, introduced me to the term ‘Idea Meritocracy’ four years ago.
  • The Daily Stoic (Daily email newsletter) – each morning, I receive an very valuable email from the Daily Stoic. This daily email serves as a frequent reminder of important things in life.
  • How I Built This (Podcast) – as a frequent traveler, as soon as the wings are up, the headphones are on – and this podcast is one of my favorites. Has chronicled the careers of over 50 entrepreneurs – from Arthur Blank (Home Depot) to Sara Blakely (Spanx).
  • Theodore Roosevelt, A Strenuous Life (Book) – a fascinating read about one of great leaders of the last millennia – from birth, to death and everywhere in between.
  • ReWork (Book) – the founders of Basecamp, provide their opinion on re-imagining your next workplace and work force, including the benefits of remote workers. Although not for everyone and business, your ‘fishing net’ can expand substantially if you don’t have to worry about geography when recruiting. 75% of your workforce is already ‘remote’ why not 90%?
  • The Basics of Blockchain (Udemy Course) – if you’re going to ride the next wave, and one of the most important technological advances since the internet, you need to understand the basics – and build from there. Sign up for this course, sign your entire management team up for this.

 

2017 Year in Review and Gratitude

As 2017 draws to a close, we put the ‘lid’ on a year that was. It is appropriate that we take some time to review our progress, and recognize those that were responsible for this progress.

We started 2017 with five Best Practice Groups and 52 total members. As of today, we have eight groups and 73 members. The growth of the Best Practice Groups are attributable to three key factors: 1) The efforts of existing members, 2) inGauge subscriber growth, and 3) The launch of the TCA Profitability Program (TPP). The most exciting thing is that this isn’t even the tip of the iceberg.

Launched officially in July 2017, TPP is the vision of John Lyboldt (TCA President), and built on the foundation of the Best Practice Groups, which has evolved and crafted over thirteen years by Jack Porter (TPP Managing Director).  The TPP vision for the future not only includes the growth of the Best Practice Group, but also the continual development of TCA inGauge  – TCA’s cloud-based Performance Improvement service. These core features are complemented by quarterly TPP Profitability seminars, and a re-imagined (and re-engineered) Truckload Academy, under the direction of Jim Schoonover, TCA’s Vice-President of Education and Operations. The future is bright for TPP!

Our progress over the past twelve months is due, in large part, to listening. Listening to members, and understanding how to build TPP to provide incremental profitability and ROI via participation. We can unequivocally state that this program has been Built by Members, For Members. Over the past year, I’ve been lucky to get to know these members – leaders of the Best Managed Trucking Companies in the World! We thank-you for your active feedback, and your commitment to the growth of TPP!

2017 provided many opportunities to visit trucking companies and cities/towns which I would not otherwise get to visit. One of the best parts for the Best Practice Group programs are periodic meetings, where groups get to visit the location of a specific member, and dive deep into their operations. These visits have been one of my favorite exercises in my entire working life. In 2017, I was able to visit Pottle’s Transportation in Bangor, Maine via TC07’s June meeting. This visit was a great exposure to the main-street of North American trucking. Not only was I impressed with the expertise and commitment from the Pottle’s team, I blown away by their hospitality. This included an authentic New England Lobster Bake (Barry’s uncle Cecil not only handled the bake, he also caught all the lobsters that same day!). Thanks again to the Team Pottles!

My second site visit was a trip to Duluth, Minnesota for a visit to Halvor Lines, via TC05’s September meeting. When I arrived at midnight, prior to the first day, I didn’t get to see much of the surrounding landscape. However, when I woke early the next morning, I was greeted by a scene that I describe as a “Mini Vancouver”. Duluth is a true hidden gem of a town. Situated on Lake Superior, Duluth was one of my biggest travel surprises in my career. Further, it is also the location of my new favorite hotel (and I’ve stayed in thousands) – The Pier B Resort. More impressive, was our visit with the crew at Halvor Lines. Halvor Lines is one of the larger employers in the Duluth area, and it was very apparent that the staff were very proud to work there. Halvor is consistent winner of the Best Idea Sessions, it is now obvious where all these great ideas come from! Thank-you Halvor Lines and Duluth!

2017 also represented the year I started facilitating my first Best Practice Group (via Jack Porter’s mentorship). This first group, now called TC04, includes a diverse group of companies and personalities. The discussions during our first two meetings felt natural and unfiltered (a very important part of successful groups). I want to thank the leaders from PTL, Big G, Convoy, Buchanan, RC Moore, Danny Herman, Duncan & Son, and AT for your commitment and participation (and patience)!

The transportation team at Katz, Sapper & Miller (KSM), specifically Tim Almack and David Roush, have been big supporters of TPP and TCA. We want to thank the KSM team for their efforts and friendship during 2017.

Henry Ford always stated that to build anything great, you need to surround yourself with people smarter, and more capable than you are. In keeping with this premise, it is important that we recognize those people behind the scenes who make our progress possible, including the entire TCA team – Kristen, Marli, Sean, Catherine, Miia, Tripp, Jamil, Patrick, David, Ron, Bill, Jim and John. Let’s also not forget Eddie Wayland and Mark Hunt, for their helpful advice for members and keeping us compliant with Antitrust and Competition Act requirements. The future is bright for TCA and TPP – all due to your efforts!

Happy New Year!

 

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”.

How to Eat an Elephant – Changing Your Company Culture in 2018

Over the years, I have had countless discussions and meetings with a variety of carriers wrapped around the topic of Driver Retention. I must say that for the most part I have thoroughly enjoyed the work I have done in this field. My most recent effort took place at a carrier I was invited to present to. The profile of the company was 350 trucks, half owner operator and half company owned. This company’s turnover is north of 110%. They need help, but the refreshing part is that they know it, and everything is on the table, nothing is untouchable. What I mean by this is that they know they need, and are welcoming a cultural change. They realize that what they have been doing with respect to their drivers and O/O’s is not working.  They are looking for change, and are willing to do whatever it takes to stop the multitude of issues that come with high turnover.

The president later told me that one of the key things that helped with his decision to approach me was a reference that I had made at a seminar I facilitated about cultural change, which was, if your company has high turnover I will guarantee the culture is sour. If it is not, then you have somehow managed to separate the ‘inside the walls’ workers from the driver population, no easy feat, and a poor way to deal with the issue. Leadership, and the people who work for you, cannot lose high volumes of drivers and feel good about the company, think of the human tragedy, on a regular basis. In this case, multiple times a week, drivers are heading home to their families to tell them they need to find a new employer – cause this place is the ‘wrong fit’, it’s bad  – it’s not necessary – its demoralizing.

Somehow in trucking we have conned ourselves in to becoming immune to it, it needs to get back to taking these failures personal, from the top to the bottom it’s a failure, recognize it, own it, dissect it and fix it. Beyond the human tragedy high turnover has many other nasty side effects, it deteriorates CSA numbers, it elevates insurance costs, it deteriorates reputations in every part of the business, with shippers, suppliers’, the communities it operates in, prospective employees inside and outside the walls, with DOT and FMCSA, etc. If that’s not enough, it will devastate a company’s profitability, and soon enough you won’t have to worry about turnover or culture – your out of business.

If a company with high turnover is looking to develop a sustainable profitable growth strategy for the future and has high turnover, tackling this problem will offer that future. Like many things it tends to wrap itself up in hard work. The good news is that it’s doable, there are many companies that have done it, there is a formula and it is tried and true, if you have the discipline require to make it happen.

I asked the President if he might be interested taking a day for an impromptu strategy session.

Looks like this, with the senior management team, we briefly updated the group on the Theory of Maslow’s Hierarchy of Needs, and building a base to execute a solid plan of execution. We conducted a SWOT test, highlighted priorities by their ROI factor, and then we discussed how they should proceed with the program.

I think the future looks bright for these folks, they made a brave decision, if there is anything I know as fact, it’s that change scares most folks, and if leadership adverse to change or doesn’t fully support it then nothing will happen. I will report back on the progress of this effort in future articles, I’m set up to talk to them once a month, might sound a little dry to some, not to me, I have challenged these folks to reducing their turnover by 50% from 110% to 55% in the next 12 months. With a 340-truck fleet that means 170 fewer drivers and O/O’s that will leave this company in the next twelve months. If that’s not worth the effort I don’t know what is.

Here is a belated Christmas gift for the fleets reading this that have high turnover, convene a senior management meeting around this subject and let all department managers express their opinion on what the issues are they feel contribute to the driver turnover at your company. Document all this information. Next, I want you to task each of them to return to their respective departments and convene another meeting with all of the employees that work in their department. It’s got to be all of them, and here’s the question that they should pose to them. “What in your opinion are the top three things that we do in this department that rub drivers the wrong way and contribute to the turnover that exists in this company”. From there, they simply list them in no particular order and then each person, regardless of position, within the department gets three votes to cast for those items they feel contribute the most to driver turnover. From here each manager will take this information back to the next senior management meeting and present the departments finding to the rest of the team, BTW it is imperative that the information be presented in an unvarnished fashion, no manipulation by the manager.

So is this a fix for the turnover in your company, likely no but it might start the conversation as to what next steps are. What will likely be revealed are somethings that can be fixed quite easily, some might take more effort and maybe some are just intrinsic to the business and can’t be fixed. Turnover in most companies didn’t happen overnight and can’t be fixed overnight either, but can it be brought back to a manageable level, absolutely!

Ask any little kid “How Do You Eat an Elephant” and they will tell you, “One Bite at A Time”

Time Value of Money: Knowing Your Effective Rate per Mile

Most of us are familiar with factoring companies, as well as the quick pay programs that some freight payment companies offer.  There is a time value to money (receiving a dollar today is worth more than receiving a dollar next month), but are these ‘incentive programs’ really worth the fees?  And aren’t factors just for companies that aren’t doing very well, and having cash flow issues?

We are going to address the second statement first.  Traditionally this point of view was correct, and factoring companies were there to service the smaller companies that were unable to get a more traditional financing arrangement to help fund working capital (e.g. Line of Credit).  At one time it was not unheard of that some carriers would look at the use of a factoring company when evaluating carriers for brokered loads.  In today’s economic reality some larger, more stable companies have started to turn to factoring companies in lieu of an operating line of credit facility.  The reason for this is depending on the risk profile of your customers you may be able to get the percentage rate that the factor charges into the range of what a bank will charge for an operating line – into the 3.5-5% area for customers that meet the factor’s credit rating scores.  With most factoring companies you no longer need to do an “all in” arrangement so you could just factor an amount that will cover your operating needs.  This may make this a potentially interesting arrangement for a fleet that is in need of a large scale equipment refresh, and needs to maximize their ability to finance these investments.  Additionally a factor can provide funds as quickly as the same day if a wire option is chosen or the next day if using an ACH.  In terms of drawbacks, these are shared with the Quick-Pay programs so we will discuss them at the same time.

Quick-Pay programs offer another way to accelerate the payment cycle.  Many of them are structured as a 5% discount to be paid in 5 days and then a second option in the range of 3-4% to be paid in 10-15 days (the second option tends to vary).  For larger carriers, the discount may be between 1-2% and 0-1% respectively. The discount may vary between freight payment companies and brokers, but they follow the same principles – accept a discount and we will pay you quicker.  Part of this discount is to cover the cost of fronting the payment to you, while they are waiting to get paid by their customer.  However these are also a profit generator as the cost of short term financing the fronted funds is nowhere near the discount they are asking.  The true cost of advancing the funds to you is less than half of a percentage point so they are making a decent profit on the spread.  One thing to consider with this scenario is that in the best case scenario you are paid via EFT or ACH after the waiting period.

Both scenarios share some drawbacks.  First of all, you are taking a discount to get paid quicker than the normal 30-45 day terms.  Using a very simple example, if you charged $2.00 per mile all-in, and you have to accept a 5% discount under either scenario, that is the same as only having charged $1.90 per mile.  You need to make sure that you have a good handle on your operating costs to ensure that this does not put you into a loss position, especially after allocating for fixed overhead.  You need to consider that many of these freight payment companies have already been working at getting the rates reduced, so have you really left enough margin in the rates to allow for an additional discount?  Another consideration in factoring is if the factor has recourse or not.  Having recourse means that you have assumed the risk of non-payment by your customer.  This will generally reduce the discount rate (in some cases, by a significant amount).  There may be an additional holdback involved – as an example, 80% of invoiced amount next day via ACH, a 5% discount on the total amount and then the remainder after the customer has paid the invoice.  If the customer defaults on the invoice then the factor can come back at you for the advanced amount.

So, now we offer a few generalized statements in conclusion.  First, is that any quick-pay solution likely has some hidden costs in terms of how quickly you receive the cash.  These options are generally non-recourse, so the payment company takes on the risk of default.  However the delay between when the payment is processed, and the receipt of the money needs to be taken into account when determining if the discount is worthwhile taking.  A similar argument exists for the use of factoring companies.  One notable exception is with a customer that takes extended payment terms.  A recent example shared by a client, was a major manufacturing company whose standard payment terms were 120 days, and generally stretched closer to 150 days.  In an extreme example like this the discount required for a quick pay may be worth it as the lost interest on the money will be close to the cost.  However unless you are a small cash strapped carrier, the discount cost is unlikely to be worth getting paid in 5-10 days instead of 30.  The only other exception would be if you are using these scenarios to avoid or replace an operating line.  There will be some fairly complex calculations (that are beyond the scope of this discussion) to determine which is the best option for your situation.  Remember to keep your margins in mind when determining if you can afford to use either of these options, especially for dry freight lanes that will have more “commodity” pricing as opposed to more specialty work such as temp control or flatbed.  Finally, if you have to use these services, like anything else, try to negotiate a better rate where possible.  This is more likely with a factoring company, but if you are doing a large amount of business with a company that offers a quick pay option you may be able to negotiate a better discount rate or a better payment vehicle (wire or ACH instead of a check).  Regardless the calculations will be different for different carriers and even different customers and/or lanes.  Know your costs, follow best practices, negotiate your best deal and monitor on an ongoing basis to ensure that the assumptions have not changed.

These two options may not be your preferred vehicles, and for some companies it would never be a consideration, but they are good to keep in the tool box in case if, and when they are needed.  It’s just like in baseball – any pitcher can throw a fastball, most can throw the curve, but to be highly successful you need to have an off-speed, a split finger, a cutter, a knuckler and maybe even an Eephus to match specific batters and counts.  You may not ever use them but understand how and when they work and then have them as an option if the situation arises.

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.