Trucks at Work

Saddling up for tough times

Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” -President Ronald Reagan

We‘re in a bad patch right now, no doubt about it - and I don‘t need to recite the litany of bad economic news here to explain why, either, despite the nearly 900 point rise in the stock market yesterday.

The question truckers need to ask themselves is how to pull through to the other side. From a general business perspective, one thing truckers should NOT do is pull back on their outreach and marketing efforts with shippers. That‘s the opinion of Professor Jerry Osteryoung with the college of business at Florida State University. Down times often times mean market share - for truckers this translates into freight - can be gained, and not always just by offering a lower price.

In Professor Osteryoung‘s view, controlling costs coupled with a step-up in marketing can help almost any businesses not just survive but succeed during times like these. I‘ll let him explain that reasoning in his own words. Professor Osteryoung, the floor is yours:

“There is no question that we are in tough economic times. We are in a very clear recession with the falling Gross National Product predominantly caused by the slump in the housing market and compounded by the giant mess with the financial institutions.

Some of the basic elements of this slow down are declining retail sales and plummeting car sales. In September, car sales were 19% lower than one year ago. The stock market is on a dramatic roller coaster ride downward with stocks losing over $8 trillion in just one year. Unemployment has been inching up, and people‘s confidence has eroded.

Our economy has business cycles. It is just the nature of capitalism. Just as there are upturns in these business cycles, there are also downturns. We are now in a falling cycle, but it will turn around, and we will be doing well again!

The natural tendency for a business going through rough times is to pull back and be conservative. As our economy has cooled off, so many entrepreneurs we know have responded by hording cash and cutting back on spending money on expansion. However, this is the wrong approach.

During slow downs, you need to make sure that your business is prepared for the inevitable market turn-around and is seizing the opportunity to grab up market share. For those who have the financial resources, market share is gathered much more easily during an economic downturn as competitors do not have the resources to maintain their market share in the face of competition.

You can gain market share in one of two ways: acquiring other firms that are having financial problems, and attracting new customers with increased advertising and more aggressive pricing. More and more firms are going up for sale at very low prices as the owners can no longer afford the business. They are being forced to get out before losses take away all of their assets.

I promise you are going to pull out of this downturn in the business cycle. Of course, the question of the hour is ‘When?‘ I would estimate that we will not really see a turnaround until late 2009 or 2010, but the economy will turn around.”

That‘s why cost control, especially for truckers, is so vital right now. Steve Russell, chairman and CEO of Indianapolis-based Celadon Group summed that up pretty succinctly in the carrier‘s most recent earnings report.

“In periods of weak demand, cost control is exceptionally important. We continued to actively manage our costs, particularly fuel expense,” he explained. “For the past year we have employed numerous tactics to improve fuel efficiency and lower costs. We have reduced the top speed of our tractors, improved tractor aerodynamics, added auxiliary heaters, implemented a strict tractor idling policy, renegotiated bulk fuel purchasing arrangements, and counseled our drivers in more efficient driving patterns. Although the drop in fuel prices from July through September certainly benefited us, our concerted efforts over the past year contributed more to [our] results.”

It‘s also important to point out that good drivers are a critical asset in times like these - something Russell took pains to point out. “We intend to keep our most important strategic asset--our corps of safe and experienced drivers--intact and ready to capitalize on increased market share when the combination of our efforts and a better freight market improve the operating environment,” he said.

Another tip: don‘t be afraid to up-end the apple cart. Van Buren, AR-based carrier USA Truck provides a great example and I‘ve always paid close attention to the strategic ideas Clifton Beckham, the truckload carrier‘s president and CEO, lays out in every earnings report.

“Our long-term strategic plan calls for a halt to fleet growth until we consistently earn at least a 10% return on capital,” he said in USA Truck‘s third quarter statement. “Our goal is to achieve that return by the end of 2010. We have launched eight supporting initiatives to help attain this goal ... designed to help us expand our margins in our asset-intensive trucking operations through more efficient revenue production and cost control.”

He said they are also designed to position USA Truck‘s business model to resume asset-based growth in 2011 after improving our asset-based margins and by building sizeable asset-light platforms for rail intermodal and truck brokerage services - both of which should produce a higher return on capital.

That‘s some sharp thinking - and shows Beckham and USA Truck, along with Russell and Celadon, among others, are indeed saddling up to prepare for the tough times ahead.