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MOTORTRUCK

NOVEMBER DECEMBER 2015

CANADA’S BUSINESS MAGAZINE FOR FLEET OWNERS

SURFACE TRANSPORTATION SUMMIT Extensive coverage of the Industry’s most popular conference

CITY SMARTS How to spec a medium duty truck

ecisions

Shippers and carriers

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on rates, rejuvenating truck fleets and the dreaded “R” word

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Volume 84, No. 06

November/December 2015

contents 18

ecisions

Cover Story 24 RATES, REJUVENATION AND THE DREADED “R” WORD

Shippers and carriers redefine the outlook for surface freight transportation at our annual Shipper-Carrier Roundtable

Features 12

CITY SMARTS

There’s a new powertrain combination gaining a following in Canada among LCV operators. You could even call it a madefor-Canada solution. What’s all the buzz about? Editor James Menzies visits Armour Transportation Systems’ operation in Atlantic Canada to find out.

35 Departments 5 THE VIEW WITH LOU 6 MAILBAG 7 THE BOTTOM LINE 8 THE HUMAN EDGE 10 TAKING CARE OF BUSINESS 11 RISKY BUSINESS 38 INSIDE THE NUMBERS

SPEC’ING FOR VERSATILITY & FUEL ECONOMY WITH LCVS

EYES WIDE OPEN

Northbridge’s Silvy Wright on insurance hellholes, game changers and making time for innovation

LET’S KEEP TALKING

It’s critical to solving pressing issues between shippers and carriers. And that’s exactly what we did at our fourth annual Surface Transportation Summit discussing and debating everything from the state of the economy and freight volumes to effective acquisition strategies and employee engagement. Read our comprehensive report from the largest Surface Transportation Summit yet.

A GROWN-UP APPROACH

When it comes to the battle of supply chains, it is not necessarily the best that win but the most mature. But what makes for mature supply chain strategy and execution and how can carriers contribute?

CITY SMARTS: MEDIUM-DUTY BASICS

Don’t know your gear split chart from your ratio? Read our primer. trucknews.com

November/December 2015 \ FLEET EXECUTIVE 3

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THE VIEW WITH LOU

MOTORTRUCK

is written and published for owners, managers and maintenance supervisors of those companies that operate, sell and service trucks, truck trailers and transit buses. NOVEMBER/DECEMBER 2015

VOL. 84 NO. 06

No ordinary year

PUBLISHER & EDITORIAL DIRECTOR

Lou Smyrlis (416) 510-6881 lou@newcom.ca GEARED UP EDITOR

James Menzies (416) 510-6896 james@newcom.ca

Next year marks my 30th in journalism. So why do I find myself bursting with the enthusiasm of a rookie? Lou Smyrlis

MCILT, Editor • lou@newcom.ca

FEATURES EDITOR

Julia Kuzeljevich (416) 510-6880 julia@newcom.ca CONTRIBUTING EDITOR

Sonia Straface (416) 510-6890 sonia@newcom.ca CREATIVE DIRECTOR

Ellie Robinson ellie@newcom.ca ADVERTISING CREATIVE DIRECTORS

Carolyn Brimer Beverley Richards CONTRIBUTING EDITORS

Ken Mark Ian Putzger John G. Smith Carroll McCormick Harry Rudolfs ASSOCIATE PUBLISHER

Kathy Penner (416) 510-6892 kathy@newcom.ca PRODUCTION MANAGER

Kim Collins (416) 510-6779 CIRCULATION MANAGER

Pat Glionna VIDEO PRODUCTION MANAGER

Brad Ling VICE PRESIDENT

Joe Glionna PRESIDENT

Jim Glionna Head Office: 80 Valleybrook Drive Toronto, ON M3B 2S9 Motortruck Fleet Executive is published by Newcom Business Media Inc. The contents of this publication may not be reproduced or transmitted in any form, either in part or full, including photocopying and recording, without the written consent of the copyright owner. Nor may any part of this publication be stored in a retrieval system of any nature without prior written consent. Motortruck Fleet Executive is indexed by Micromedia Limited. PUBLICATIONS MAIL AGREEMENT 40063170 Return Undeliverable Canadian Addresses to: Circulation Dept. – Motortruck Magazine, 80 Valleybrook Dr., Toronto, ON M3B 2S9 Member Canadian Business Press. Subscription Inquiries Lily Kantor, 416-614-5815, lily@newcom.ca. We acknowledge the financial support of the Government of Canada through the Canada Periodical Fund of the Department of Canadian Heritage.

ISSN Number 0027-2108 (print) ISSN Number 1923-3507 (digital)

very year at this time since becoming editor of this publication 20 years ago, I’ve used this space to provide commentary on the developments and trends I thought would shape our industry in the years ahead. This year I need to take a more inward-focused approach and share with you the changes that will reshape this publication and the two others I head as publisher and editorial director, Truck News and Truck West. You see 2015 proved to be a momentous year for us. After almost 30 years of intense competition with our rivals Today’s Trucking, Transport Routier and Truck and Trailer, owned by Newcom Business Media, we all came under one roof at the start of this year. Newcom purchased about a third of the assets of our former owners, Business Information Group, with my trucking group being the largest part. The bold move created the Newcom Trucking Group, the largest and most diverse publishing group dedicated to Canada’s trucking industry and the largest and most experienced editorial team. Until now we’ve been busy with streamlining operations but in the new year expect to see more visible, more exciting changes. Truck News and Truck West will continue as the newspapers to the industry but we’ve added a full time editor to Truck West as we significantly build our presence in the West. Those of you interested in used trucks and trailers must check out our new Marketplace section, which is now linked with the TruckandTrailer.ca website and search engine. One of the most significant changes will be with this magazine. With so many respected publications under one roof we felt it critical that each publication serve a particular segment of the trucking industry in its own unique way. Motortruck Fleet Executive’s editorial mandate to serve as a business source for Canada’s fleet owners we felt was too close to that of Today’s Trucking, one of the most respected business publications in the country. Removing this duplication of effort allowed us to focus on a segment of the Canadian trucking market we felt has traditionally been trucknews.com

underserved: truck fleet maintenance. Maintenance managers and service professionals are the backbone of every successful fleet. They play an integral part in vehicle and equipment decisions because no one knows more about vehicle and equipment specs and capabilities and how to keep vehicles on the road and generating revenue. We believe they deserve a magazine of their own. And that’s what we will give them next spring as we rebrand and relaunch this publication as Motortruck Fleet Maintenance, the only Canadian trucking magazine exclusively serving the information needs of maintenance managers and service professionals. Over the next few months, everyone with heavy duty maintenance and/or equipment spec’ing responsibilities will be provided with an opportunity to get a subscription to the new publication. But we’re not stopping there. We are also introducing a premier educational and networking event dedicated exclusively to truck fleet maintenance. In conjunction with PIT Group, we are bringing together ATSSA, CTEA, OTA and TMTA to produce the Canadian Fleet Maintenance Summit. The Summit will bring all industry stakeholders – service professionals, manufacturers, researchers and enforcement officials – under one roof to discuss the most pressing maintenance issues and point the way forward. The event takes place April 13, 2016 at the International Centre in Toronto. And there’s more. The Canadian Fleet Maintenance Summit is being held one day before, and at the same place, as the crown jewel of the Newcom Trucking Group: Truck World, the trucking industry’s largest show. Your pass to CFMS gets you into Truck World too. (see the advertisement opposite this page for more information.) I simply don’t have room on this page to speak to all the new touchpoints we are building into this industry and the investments in new staff and technologies we are making in the process. But let me say this: Next year will mark my 30th in journalism yet I find myself bursting with the enthusiasm of a rookie when I think of the positive changes ahead. FE November/December 2015 \ FLEET EXECUTIVE 5

MAIL BAG Not such a SPIF-fy idea Regarding the trucknews.com story “SPIF-fy trailer plans unveiled”, that is all good but what the government doesn’t realize is most log haulers are 50 years old and up and to do this to the logging industry will put a lot of owner/operators out of work. This in turn will have spin offs right down to the mills not getting the deliveries to keep running to lost government taxes, which we all know is a waste these days as it seems only to benefit a few elite connected to government. Ron Woitowicz

Butchering” COR results Regarding the trucknews.com story “What the Trucking Safety Council of BC’s Certificate of Recognition can mean to your fleet”, here we go again with the magic number of 95%. It seems as though some COR auditors are stuck on a standardized COR outcome of a near perfect score. I have to question the fact that I have witnessed and heard of too many extremely high COR results before. I know of two trucking companies whom were allegedly given such high audit scores of 98% and 95% but

6 FLEET EXECUTIVE \ November/December 2015

know for a fact that they are nowhere near that score given by the auditor. I have heard COR auditors ask to give them their better driver files etc. so they can get better scores. My question is this: How can a trucking company get better in terms of safety performance if the COR auditor makes the outcome of the audit based on either favoritism or the fear of saying something to possibly offend the company. Non-biased COR audits are a great benchmark tool for companies to see where they need to improve. Even the best ones need improvement. Too many COR audits have been done by the COR auditor with a glazed over look for the fear of rocking the boat. A COR audit should be non-biased, fair and ethical data reporting for the best results possible. I have been in the trucking industry for 36 years and I can non-biasedly say a COR audit should be no greater than 82% and maybe that’s why they call me “Billy the Butcher”. Will

To read and comment on our industry blogs, visit blog.trucknews.com.

trucknews.com

BOTTOM LINE

Trapped inside

Why the boomer generation decided to hang around in the corner office for longer than expected and how it could impact you. By Mike McCarron

magine you’re at the Super Bowl with 110,000 crazy football fans. As you’re watching the game there’s a loud bang. Fire breaks out and the domed stadium suddenly fills with smoke. The crowd panics and makes a B-line for the nearest exit. How the hell are you ever going to get out of the stadium when everyone else is rushing to the door at the very same time? If you’re a baby boomer, this could be your fate when it comes time to sell your business. There were 8.2 million Canadians born between 1945 and 1964. This “pig in the python” demographic bulge produced the wealthiest, most actively entrepreneurial generation in the history of our country. (Also the most spoiled kids!) In the early 2000s, the first wave of boomer entrepreneurs reached their mid 50s. Having successfully run their businesses for years it was finally time to hang up the skates. Economists predicted that a massive selloff of companies would begin. It would continue for decades until every boomer had driven off into the sunset to enjoy the spoils of a lifetime in the trenches. A funny thing happened on the road to retirement. Surprisingly the expected transition into retirement never happened. Here’s why the boomer generation decided to hang around in the corMike McCarron is ner office for longer than expected and the president of how it could impact you. Left Lane Associates, a firm that specializes in the “monetizing” of transportation companies. A 30-year industry veteran, he founded MSM Transportation which he sold in 2012. Mike can be reached at mmccarron@leftlaneassociates.ca or at 416-931-7212.

Under the Mattress Remember the dot-com bubble of the late 1990s? What about 9/11? Many factors contributed to the downturn in the US economy. While it wasn’t as severe here, the conditions in the US crippled Canadian stock markets. What really got battered was the psyche of the naturally cautious Canuck investor. Want to freak out a boomer? Creep up trucknews.com

behind him and say, “Nortel.” For the first time in their lives, Canadian boomers lost confidence in the public markets. So why sell their business and pray for retirement income when the safest option is to keep working and stash the cash under the mattress?

Nice Rolex As boomers watched their nest eggs getting fried, they realized that EBITDA was their safest investment. Boomers were never short of confidence—in their industry, company, or their ability to succeed. They also fell in love with the “pretax” perks that come with self employment. Fancy-dancy dinners, luxury suites, country clubs and the latest hot rods became part of the gig. Selling the business and signing the mandatory non-comps would mean a reality check and a job at the local Tim Hortons. Keeping the business became the lesser of all evils. It’s a lot cheaper paying the kids car insurance bills before Justin Lefty gets his hands on your dough!

Let’s Go Jogging Boomers are a health-conscious generation. We are living a lot longer than mom and dad. The only exercise my parents got was walking to the Impala to go to Mac’s Milk to buy a carton of butts. A Canadian male’s life expectancy is now pushing 79 years; for females it’s almost 85. Retirement is no longer about a decade of cashing the company pension cheque. Thirty years is a long time to have little or no income coming in. You can play only so much golf and bridge. Very few things in life are as predictable as aging and the reality that one day every business will be sold. Boomers are growing old and at some point in time they will have to cash out. They’ve confidently defied odds for years on their terms. Being the last man standing is a motto that served them well. It’s part of the swagger that has made them so successful. Soon, though, the last man standing may have to choose between being trapped amid the smoke or getting trampled by the stampede heading for the exit signs. FE November/December 2015 \ FLEET EXECUTIVE 7

THE HUMAN EDGE

‘Tis the Season of Company Branding Charitable giving, positive company image offer some of the keys to HR success By Angela Splinter

ne of the great traditions of the holiday season comes in the form of charitable giving, but the trucking industry’s generosity hardly begins and ends in December. The Trucks for Change Network (T4C) offers just one example of the year-round support. Since 2011, the organization has distributed more than 12 million pounds of donated food and materials. In return, charity partners have saved more than $200,000 in shipping costs that can be redirected to other important initiatives. This spirit of giving is one of the best practices that emerged in Trucking HR Canada’s Top Fleet Employers program. In addition to contributing funds and time to charitable initiatives, employers recognized in the 2015 honours also involved employees in deciding which organizations to support. And the benefits reach well beyond warm feelings. A spirit of philanthropy builds stronger teams by introducing a common purpose. The 2013 Cone Communications Social Impact Study showed that a company’s philanthropy influences where people want to work. The 2014 Deloitte Millennial Survey also found that the youngest members of the workforce want to join companies that positively contribute to society. “Our member carriers consistently tell us that their people, particularly younger employees, want and expect to be part of a company which gives back to its communities,” says Pete Dalmazzi, T4C founder and president. Consider just two examples of contributions that some of the 2015 Top Fleet Employers are making throughout the year. In the past five years, Erb Transport in New Hamburg, Ontario has offered $500,000 in donations and sponsorships for a variety of causes. The fleet has given to educational institutions, non-profit housing, community organizations, food banks and musical organizations. It has offered discounted services to food banks, SELFHELP/Ten Thousand Villages, and disaster relief efforts. “Our belief is that, by serving our customers, we can also serve our communities and share our good fortune with families, friends and neighbourhoods where we live and work,” the company says. Prescott, Ontario’s Kriska, meanwhile, has committed $5,000 per year over the next decade to support the Soup for Angela Splinter the Soul community dinner. There have is the CEO been gifts to the food bank, Friends of St. of Trucking HR Vincent Palliative Care, the St. Lawrence Canada

8 FLEET EXECUTIVE \ November/December 2015

Shakespeare Festival, the YMCA, the Rotary Club, the Kriska Education Foundation, and the Ontario Trucking Association Education Foundation. Ultimately, any charitable activities play an important role in building a company brand that affects everything from recruiting efforts to internal morale and public image – attracting and retaining the best employees and customers along the way. A brand is more than a logo, colour or tagline, after all. It reflects the company’s broad reputation. Mike McCarron of Left Lane Associates often repeats a famous quote that a brand is “what other people say about you when you’re not in the room.” Few things play a bigger role in recruiting than that. Talented candidates will be more attracted to a company when current and former employees paint a positive image of the workplace. It’s why formal branding strategies are now expanding well beyond products and services alone. About a decade ago, companies like Unilever, Shell and Procter & Gamble began focusing on their brands as employers, much in the same way that they focused on establishing the brands of individual consumer products and broader corporations. The Employee Value Propositions that emerged clearly described what they offered as employers, and these results further refined recruitment ads and strategies. Of course, an exercise like this is about more than writing words on a page. It begins with a commitment to treating people well, and using that as one of the cornerstones of a broader business strategy, with the buy-in by every member of the management team. When a company truly embraces a positive brand like this, employees become effective ambassadors when interacting with customers and potential recruits. The exercise also involves taking an honest look at the reality which exists. There can sometimes be a gap between the goals that managers have set for the company’s culture and what employees actually experience. This is why one of the first steps in formally defining a company’s brand will involve surveying existing employees to find out what they value most about the company, what motivates them to come to work, and what they look for beyond a paycheque. It is a strategy that will offer many happy returns for years to come. FE trucknews.com

Illustration | ©Thinkstock

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TAKING CARE OF BUSINESS

Investing during volatile times How to turn the stomach churning experience into a rational play By Mark Borkowski

here are bull markets, bear markets, and then there are the volatile markets that can create an emotional roller coaster for investors reacting to economic and political events. Whether you are concerned about your own company’s stock value or investing in the stock market as a way to supplement your revenue generation, it can all make for a stomachchurning experience that can undermine the confidence of even the most stalwart investors and turn a rational investment strategy into an irrational market reaction. With this in mind, here are a few things to remember in times of uncertainty and volatility. John Drover, a financial adviser with one of the world’s largest financial brokerages, Raymond James, gave me this advice:

Have a Plan and Stick to It The most successful investors may follow the day-to-day drama of the markets, but they stick to the strategy they devised in calmer times and let patience—not panic—determine the long-term success of their investments. A well-planned strategy takes into account several important factors, such as your long-term objectives, tolerance for risk (both financially and emotionally), time horizon, and amount of investable assets. This will result in a well-thought-out, broadly diversified portfolio that incorporates different asset classes and investment styles, as well as balances risk and safety, growth and income, and domestic and foreign exposure. Such a portfolio can substantially smooth your journey through rough markets, thus reducing the need to take any unnecessary action.

Stay with Quality Long-term investors who have been through sell offs in previous years know that time is on their side if they own good quality investments. Drover advises that high quality, blue chip investments with a proven track record of earnings performance or dividend payout may be dragged down Mark Borkowski is the president of with the turbulence, but will typically Mercantile Mergers have less dramatic price fluctuations. & Acquisitions Corp. Mercantile is As long as the business outlook for the a mid-market M&A company has not changed, it is likely brokerage for the that its share price will be restored past 32 years. when the market recovers. 10 FLEET EXECUTIVE \ November/December 2015

Listen for the Knock of Opportunity Market volatility can present buying opportunities for longterm investors who have cash in their portfolios earmarked for equity purchases. You may consider investing more in the most viable long-term investments in your portfolio or have a short list of other quality buy candidates that become available at discounted prices. This may also be a time to strategically upgrade your portfolio—selling poor performers and replacing them with stronger (yet also devalued) assets. However, do so only if the buy candidates fit into your overall investment goals/ objectives.

Remember the Big Picture Dramatic markets make good headlines, but they need perspective. Volatility is typically a short-term phenomenon measured in days, weeks, and months. But over the years, the historic performance of the stock market is a patient reflection of the growth in the economy and the businesses that contribute to that growth. Long-term investors can take comfort in the steady increase in value that major stock markets have demonstrated over the years.

Drown Out the Background Noise The media coverage of volatile markets can range from rational and insightful analysis to sound bites characterized by end-of-the-world rhetoric. Don’t make investment decisions contrary to your risk appetite; filter out the background noise and resist falling prey to the herd mentality during turbulent markets.

Think Strategically Talk to your financial advisor to ensure your investment strategy is structured to ride through volatile and uncertain investment periods or if changes should be made in terms of asset allocation, investment diversity, or risk tolerance. There is no such thing as a risk-free investment portfolio in uncertain times, but there are ways to give you peace of mind and help you sleep well at night, regardless of the previous day’s events and their impact on global investment markets.FE To find out more, go to: www.raymondjames.ca/johndrover/ mark@mercantilema.com | www.mercantilemergersacquisitions.com trucknews.com

RISKY BUSINESS

Don’t curse the wind; adjust your sails How to leverage safety and training programs to maximize productivity during uncertain economic times By Rick Geller

s 2015 draws to a close I think we are all breathing a little sigh of relief while anticipating better times ahead for the transportation industry in 2016. Economists remain mixed in their projections – some indicating more of the same for 2016, while others forecast modest growth. Whichever way it goes, carriers are well advised to be mindful of the old adage, “You cannot control the wind, but you can adjust your sails”, when constructing their business strategies for the coming months. The trucking industry operates within a continuously changing environment that is probably best described as transformative and challenging. In its most recent past, the industry has experienced: » Fuel price fluctuations exceeding 30% » Shortage of qualified drivers and driver retention issues » Skyrocketing truck and trailer costs » Ever increasing provincial and federal regulations on both sides of the border » Technology evolutions that are turning trucks into mobile computers » Inadequate freight rates, and; » Detrimental clauses in shipper contracts Against that challenging backdrop, it becomes more important than ever for carriers to take steps that will maximize Rick Geller, CRM, productivity and minimize losses. serves on the board If one considers safety or training of directors for both resources to be expense items, it can be the Truck Training tempting to reduce or divert these efforts Schools Association in favour of activities that are perceived of Ontario (TTSAO) to be revenue generators. But nothing and the Professional could be further from the truth – now is Truck Driving not the time to pull back on your safety Institute (PTDI). He or training resources. is also the incoming Most companies will recognize that chair of the Toronto effective safety programs have the ability Chapter of the Fleet to cut costs and provide bottom-line Safety Council, benefit. However, there is also a direct as well as an executive committee link between effective safety programs and increased worker productivity. member for both In a recent study involving 200 the Ontario and companies (75 mid-sized and 125 largeToronto Regional sized), a whopping 95% of the executives Truck Driving said that effective safety programs have Championships. trucknews.com

a positive effect on financial performance. Of those, 61% reported that they get a return on investment (ROI) of at least three dollars for every dollar invested in safety! So how can you leverage your safety and training programs to maximize productivity and minimize losses? It starts with driver selection. Do you, like most carriers, select drivers based on a minimum number of years of overroad experience coupled with a maximum allowable number of violations/demerits? This may represent traditional selection criteria but how does it contribute to your company’s ability to recruit for the knowledge, skills and abilities that you need drivers to have in order for your company to be successful today, next year and three years from now? Have you identified the knowledge, skills and abilities that you need your drivers to have? Have you given any thought to how these attributes might change in order to align with business requirements next year or three years from now? Well trained drivers are productive drivers. Identifying the knowledge, skills and abilities needed for success enables you to recruit for these attributes and train to them. It also allows drivers to self-direct their training if they so desire. Perhaps most importantly, it facilitates development of key performance indicators that are focused on outcomes that contribute positively to your productivity and profitability. Approaching driver management in this manner provides carriers with the flexibility needed to hire entry-level drivers and home grow the next generation of driver. There are a number of training schools that provide excellent training curriculums. But this only provides you with a driver that is able to shift gears and turn corners safely. If your criteria are based upon the knowledge, skills and abilities that you need your drivers to possess, these drivers can be brought on board provided you have a finishing program that will ensure they acquire these attributes. Consider, too, that investing in your company’s future by providing needed training also positions you to hit the ground running when the business climate does improve – ahead of your competition! Carriers can also influence their productivity and profitability by developing a remedial program that targets in-service drivers that have a preventable crash, accumulate a violation or no longer meet your selection criteria. By providing these drivers with remedial defensive driving training, carriers can reduce their crash costs considerably over a relatively short time span. Preventing losses is powerful stuff - making money is even more potent! FE November/December 2015 \ FLEET EXECUTIVE 11

GREEN to GOLD

SPEC’ING FOR VERSATILITY AND FUEL ECONOMY WITH LCVS By James Menzies

he Trans-Canada Highway from Moncton to Edmunston, N.B. is a long, plodding route with little to see and hills that will test any diesel engine’s mettle. Usually, the only excitement to this drive comes in the form of violent and unpredictable storms, which can arrive with little warning, making the trip harrowing for the ill-prepared driver. But for Dwayne Schurman, it couldn’t be more idyllic. “I’ve been in the trucking industry since I was 18 years old looking for a job like this,” Schurman, who hauls long combination vehicles (LCVs) for Armour Transportation Systems told me as we made his regular run Nov. 25. “I landed it when I was 44 – I wish I would’ve found this job when I was 24.” He arrives to work around 2 p.m. and connects two 53-ft. trailers via a converter dolly, does his pre-trip and hits the road. He needs to be out of the city by the afternoon rush – one of the many additional rules that apply to LCV drivers. Edmunston is about 500 kms northwest of Moncton. There, Schurman meets a Rossignol Transport driver to make a switch. He drops his trailing trailer (referred to as his ‘tail’), disconnects the converter dolly, then parks the lead trailer. He then couples to a new lead trailer (the heaviest trailer must always be at the front), reconnects the converter dolly and skillfully reverses the dolly into position to attach a new tail. All this takes less than half an hour with the help of Marty, a Rossignol driver who lives nearby and leaves the warm confines of his home to walk over to the switch yard in order to lend a hand positioning the equipment. That’s the type of inter-carrier driver camaraderie that you’ll still find in Atlantic Canada. Rossignol Transport will pull Schurman’s two dropped trailers individually across a 60mile or so stretch of the Trans-Canada Highway in Quebec that has yet to be twinned, before re-assembling them as LCVs for the trip on to Montreal. Schurman, doubled up once again, heads back to Armour’s Moncton terminal. All in a night’s work. You get to know a guy pretty well when you spend 12 hours in the truck together. The purpose of my visit to Atlantic Canada was to report on a reasonably new powertrain combination that’s gaining a following in Canada – you could even call it a made-for-Canada spec’. It brings together Eaton’s 16-speed UltraShift Plus LSE automated manual transmission – the only 16-speed in the market – and the Cummins ISX15 engine. I’ve driven this combination in a Challenger truck grossing about 80,000 lbs but never in an LCV application (I’m not LCV-certified) or hauling heavy payloads. The LSE/ISX combo was initially exclusive to Navistar but it has since been rolled out to other OEMs and is now widely available.

12 FLEET EXECUTIVE \ November/December 2015

Armour Transport LCV driver Dwayne Schurman

This powetrain was under the hood of a Volvo VN670, and the powertrain package was rounded out with Meritor MT4014X axles with 2.85 ratio. There’s some downspeeding at play here, but not to the same extent as the linehaul SmartAdvantage spec’, which capped at a GVWR of 80,000 lbs, is too limiting for most Canadian haulers. The LSE/ISX15 combination can be safely used to haul loads grossing up to 110,000 lbs, making it versatile enough to pull regular LTL or truckload freight as well as LCV loads. It’s designed to produce good fuel efficiency at a broader range of gross vehicle weights, which is ideal for Schurman, who often hauls an empty tail to Edmunston but two loaded trailers back, averaging about 110,000 lbs inbound and about 90,000 lbs out. While there’s more freight entering the Atlantic region than leaving it, Armour still has to balance its trailer pool, which is why Schurman often hauls an empty tail west and is why a versatile powetrain spec’ is required. “The 16-speed is designed for 110,000 lbs. It covers that niche we have in Canada,” explained Peter Messeroll, who handles large fleet accounts in Canada for Eaton. “Fleets don’t want two different spec’s – one for 80,000 lbs and another one to do 110,000 lbs. The 16-speed covers the 110,000-lb segment.” One of the trickier aspects to spec’ing this powertrain, Cummins rep Adam Whitney explains, is dialing it in for optimum fuel economy at both 90 km/h, for when hauling double-53s, and at 100 km/h, for when pulling single trailers. The transmission boasts small steps through the entire range of gears, providing quick, precise shifting. It has been well integrated with the ISX15 to remain in the engine’s sweet spot as much as possible – when driven properly, that is. Wes Armour, CEO of Armour Transport, said some driver training is required when switching from manual transmissions to automated manuals. This engine lugs down on the hills more than drivers were accustomed to. “LCVs haul hard,” Armour said. “You can put the same weight on a tri-axle trailer and does it ever haul a lot easier trucknews.com

Illustration | ©Thinkstock

GREEN to GOLD

than that second trailer behind; it’s just a dead pull. I figured, we’ve gotta give the drivers something to work with here.” Some drivers were initially put off because they were moving from engines rated at 450 hp to Cummins’ new 475-hp rating and so they expected to be able to charge up the hills. But the powertrain wasn’t spec’d that way, even if it had sufficient power to do so. “I think the perception of what they were getting was something different or better, or more torque in the hills, but it’s not designed that way, it’s designed for fuel economy,” Messeroll explains. “If you’re hauling heavy, it’s going to run like such.” Whitney said peak torque on this ISX occurs at 1,000 rpm, down from about 1,200 rpm traditionally, so the engine does lug down more than in the past. This ISX15 was rated at 475 hp and 1,650 lb.-ft. of torque. It was equipped with Cummins’ new ADEPT package, including SmartCoast and SmartTorque 2. SmartCoast disengages the transmission while keeping the clutch closed on downhill grades of less than 4% to save fuel. When the truck exceeds the set cruise speed by more than 3 mph, the engine brake kicks in to control the speed. Our drive was well suited for SmartCoast and it did its thing frequently, at times dropping to idle for 10 seconds or more as we descended longer grades. The speed at which the transmission will re-engage with the engine is programmable. You can let it exceed the set cruise speed by as much as 6 mph, but the truck cops here keep a

close eye on LCV traffic and don’t take kindly to violations. SmartTorque 2 interacts with the grade sensor on the transmission to determine exactly how much torque is required given the current road profile, calculating the torque required based on road grade and GVW. “If we know we’re not on a significant grade, we can decrease the torque available at that given time without taking it away from the driver when he needs it,” Whitney explains. “It’s seamless to the driver. It’s going to give maximum torque when the engine estimates there’s about a 76,000-lb GVW. For an LCV application, we’re really not going to take away any of that torque but when you’re light on the way out and heavy on the way back, we may dial it down to 1,550 or 1,450 lb.-ft.” Whitney said in a typical linehaul application averaging 80,000 lbs, SmartTorque 2 can reduce fuel consumption by about 1-2%. Three trucks spec’d with the 16-speed Eaton UltraShift Plus LSE and Cummins ISX15 engine were deployed into Armour’s LCV fleet in June. So far, Armour is pleased with the results versus the 10-speed manuals drivers were previously operating. “We’re finding we’re getting better fuel mileage than I ever thought we’d get with LCVs,” Armour said. “We’re seeing fuel mileage in that 6 mpg range, some a little over 6 mpg. To me, that’s very good when you’re hauling the weights we’re hauling with the drag of that back trailer.” FE

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November/December 2015 \ FLEET EXECUTIVE 13

LEADERS

Leaders Northbridge’s Silvy Wright on insurance hellholes, game changers and making time for innovation

FE: AS HEAD OF NORTHBRIDGE, YOU’RE RUNNING A COMPANY THAT HAS A LOT OF TOUCHPOINTS WITHIN THE TRANSPORTATION INDUSTRY. FROM WHAT YOU’RE HEARING AND SEEING FROM YOUR OWN CUSTOMERS, WHAT WOULD YOU CONSIDER THE KEY TRENDS THAT WILL BE SHAPING THE TRANSPORTATION INDUSTRY IN THE YEARS AHEAD?

WRIGHT: Two key trends really impacting the industry are the disparity between the US economy and the Canadian economy. Basically, they’re growing at 3%, while we’re growing at 1%, and that disparity is changing our business flow from an east-to-west to a north-to-south pattern. It’s quite the opposite of what happened in the last five years. We’re starting to see definitely an increase in the flow of business and exposure to the US. Second the US currency. We were at par two years ago. Now we’re $1.30, so basically a 30% increase in the cost of doing business, in particular for US equipment and parts, as well as claims. FE: KEEPING ALL THAT IN MIND, WHAT’S THE IMPACT FROM AN INSURANCE PERSPECTIVE? Photo | Tim Norton

14 FLEET EXECUTIVE \ November/December 2015

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WRIGHT: Insurance follows the operations of a trucking company, and when we talk about operations it’s what a carrier is exposed to in terms of accidents, and that’s really the more costly part of insurance. The physical damage, not so much, it’s more the bodily injury. The US has a very litigious environment compared to Ontario, Alberta, Quebec, and so when we’re entering into a very litigious environment, we are exposed to high dollar settlements and jury verdicts. The American Tort Reform Association publishes a paper every year called “The Top Judicial Hellholes in the US”. These locations change sometimes year over year, but there’s some that are pretty constant. California, Madison County, Texas, Louisiana. In particular, what we’re seeing is the states that have been hard hit by the past recession, if there is an unfortunate accident in New Mexico and the community has been hard hit by the recession, all of the sudden the jury feels very generous in awarding the family involved in the tragedy of having either lost a loved one or in cases of serious injury. Then of course there is the exchange rate. A truck once worth $100,000 is now $130,000, so obviously that is impacting the cost of settling claims. Lastly an insurance policy is issued in Canadian dollars, so you need to be cognizant that If you have a $5 million Canadian limit, when you’re going into the US and you have an accident, that of course covers a $3.7 million US claim. SMYRLIS: THAT’S SOME SCARY STUFF THAT YOU’RE TALKING ABOUT IN TERMS OF THOSE “HELLHOLES”, AS YOU CALL THEM. WHAT CAN CARRIERS DO TO FIGHT BACK?

WRIGHT: If you are increasing your routes in there, planning and understanding when you go through Louisiana or Florida that you are potentially subject to a very litigious environment. So route planning is one way to fight back. Transparency with your customers and shippers is also important. Obviously the cost of doing business needs to be passed on to the prices that your customers pay for your services. I think the major thing that I cannot stress enough is best practices and proper documentation. I’ve read lawsuits in the US where the driver has not done anything wrong, maybe he’s not at fault, but lawyers investigate the company’s documentation and best practices. One claim was basically hanged on the fact that the driver missed various driver meetings and there was no proof why, so their lawyers were trying to basically indicate that there was negligence on the driver keeping up with driver meetings. There needs to be more scrutiny with regards to US claims. FE: LET’S LOOK FURTHER AHEAD, 5, 10 YEARS DOWN THE ROAD. WHAT DO YOU SEE AS SOME OF THE MAJOR GAME CHANGERS FOR THE TRANSPORTATION INDUSTRY?

WRIGHT: The game changer for all of us in traditional industries, whether it’s the insurance or transportation industry, is trucknews.com

emerging technologies, and the speed at which things are changing. Many have heard the expression “Internet of Things”. “Internet of Things” basically means how all objects, physical objects, are connected and collect data and exchange data for decision making. There are estimates that by 2020, 50 billion devices will be connected. It’s mind-boggling in terms of how all these different devices are connected in helping us either make decisions, improve our customer experience, gain efficiencies. Last year, we started using this mobile application that connects cars driving in the same area. It’s a GPS, and basically it can tell you if 2 kilometers away you’re going to experience traffic, and then gives you a detour to arrive at your destination. All these users are connected through this application, and it’s real-time. It’s just a simple example, a simple thing on a phone that is actually connecting thousands of different devices out there. FE: ANY FINAL THOUGHTS?

WRIGHT: We’re all busy in managing our operations and dealing with pressing needs, the driver shortage, being efficient, all the issues that we need to deal with from a n operational perspective, but we need to make time to think about innovation. I really urge, whether you’re a small company or a large company, have a dedicated person or a dedicated time where your executive team comes together and thinks about innovation or what are you doing to improve that. Basically, how do we take innovation to the next level for the transportation industry, because if we don’t, somebody else will. FE

Let’s continue the conversation More than 25 industry leaders spoke at our sold-out 2015 Surface Transportation Summit this Oct. 14 at the Mississauga Convention Centre. To download the presentations go to www.surfacetransportationsummit. com, click on the Presentations tab under Agenda, enter the password STS2015. Also look for video highlights weekly on www.trucknews.com

November/December 2015 \ FLEET EXECUTIVE 15

SURFACE TRANSPORTATION 2016

ummit OCTOBER 13, 2016 NEW LOCATION

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Photo credit: Tim Norton

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LET’S KEEP TALKING It’s critical to solving pressing issues between shippers and carriers

hen we first came up with the idea of the Surface Transportation Summit four years ago it was with the intent of creating a forum where shippers, carriers and other transportation industry stakeholders could come together to discuss and debate issues of key importance. Our focus has been on working together, on collaboration over confrontation. Our aim has been to provide shippers and carriers with information that promotes intelligent decision making. This approach must be resonating as our attendance has more than doubled since the initial year. This year more than 400 top-level transportation professionals accepted our invitation to a full day of education and networking, a new record for us. Our fourth annual Surface Transportation Summit – organized once again in partnership with Dan Goodwill & Associates – took place Oct. 14 at the Mississauga Convention Centre. And we were proud to announce a new partner this year, the Freight Management Association of Canada. Our blue chip lineup of speakers provided insights into the economy, shipper-carrier relations, mergers and acquisitions activity, benchmarking, outsourcing and the future of transportation in the retail sector. As with past Summits, the conversation initiated at the Summit is too important to allow it to end there. We have already provided considerable coverage of the event on www. trucknews.com, www.canadianshipper.com, Twitter and on our Facebook page and will continue to provide more. We are also providing a comprehensive report on the major themes from the conference across most of our Newcom Media properties – Truck News, Truck West, Fleet Executive and Canadian Shipper – reaching more than 150,000 providers and buyers

of transportation services across the country. You will also find considerably more coverage on the Summit in a series of future episodes of our award-winning WebTV show, TMTV. Open dialogue between shippers and carriers that leads to intelligent decision making must continue beyond the Summit and we will be doing our best to ensure that it does. FE GOLD SPONSOR

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November/December 2015 \ FLEET EXECUTIVE 17

GET OUT OF THE BUNKER

Canada’s mini recession is over, stronger growth ahead, Surface Transportation Summit delegates hear BY JAMES MENZIES

anada’s recession is already over and its economy should grow through the rest of the year and into 2016. That was the assessment of Carlos Gomes, senior economist with Scotiabank, when speaking at the Surface Transportation Summit. “Yes, economic conditions did weaken in the first half of the year. We had two negative quarters, but it was a decline that was fairly concentrated within a couple sectors,” Gomes said. “In particular, the oil and gas sector accounted for most of the decline.” Gomes said the oil and gas sector saw business investment spending drop by more than 30% this year. In 2016, Gomes said consumer spending is likely to strengthen and he noted Canada’s employment picture has improved this year. “That is setting up conditions for improvements across Canada as we move into next year,” Gomes said. He is projecting economic growth of 1.7% in 2016, up from about 1% this year. However, he said he’s still concerned about the metals/ minerals sector and the machinery sector, which has seen a sharp drop in demand because of low oil prices. “But I think overall manufacturing activity should start to pick up and that’s a definite positive,” Gomes said. Globally, Gomes is also expecting stronger growth next year from most nations, including the US, Canada, the Eurozone, Japan, India and Mexico - the notable exception being China, which could see growth slow further. Still, China is growing at about a 6% clip and its consumer segment is strengthening and playing a stronger role in the country’s economy, helping offset manufacturing declines, Gomes pointed out. Global growth has moderated to about 3%, but Gomes said it should pick up to about 3.5% in 2016. Canada’s economy and its exports should be buoyed by continued strength in the US, Gomes said. US employment is advancing at its strongest pace since 2000 and US leading indicators “remain very positive,” Gomes said. US consumers have deleveraged and the combination of low interest rates and low energy prices has given them more money to spend. “Coming into the downturn (of 2009) the US was overextended and that has changed significantly,” Gomes said. Canadian manufacturers have significant backlogs to work through, which should bolster freight volumes as those goods are

18 FLEET EXECUTIVE \ November/December 2015

ready to be shipped to market. And the auto sector, experiencing a record year in Canada and the second best year on record in the US, is expected to remain strong in 2016, Gomes said. “The improvement in household balance sheets in the US is enabling them to go out and make major purchases,” he said. Looking specifically at truck and rail transportation, Walter Spracklin, equity research analyst, RBC Capital Markets, said he expects carrier profitability to improve, even though there’s adequate capacity in the market. Spracklin said the driver shortage could tighten capacity but he hasn’t seen it translate into a strong pricing environment for carriers to this point. Spracklin said it’s difficult to predict pricing in the trucking sector, but rail can pass on rate increases of 3-4% annually “like clockwork.” Variables such as segment, region, lanes, etc. will have a major impact on trucking profitability in 2016, Spracklin concluded. FE

WEATHERING ECONOMIC VOLATILITY

Fleets big and small face the same challenges BY JAMES MENZIES

re small or large carriers better equipped to deal with economic slowdowns and recessions? That was one of the questions posed by Truck News publisher Lou Smyrlis when addressing a fleet panel at the Surface Transportation Summit. Wes Armour, president and CEO of Armour Transportation Systems, says the diversity of a large fleet can help it adjust to declines in freight volumes. “I think coming out of a recession for large carriers is easier to do,” he said. “We usually have more resources and more variety of customers.” For example, Armour said his company hauls both potato chips and beer - two products that typically see an increase in demand during recessions. However, Mark Bylsma, president of Spring Creek Carriers, countered that smaller fleets tend to be more nimble and able to adapt more quickly to changing customer needs. As for the Canadian recession that set in over the first two quarters of 2015, Armour said his company didn’t suffer, thanks to its diversity. Port of Halifax volumes remained strong and Atlantic Canada doesn’t tend to experience the economic volatility that’s seen in other parts of the country. “We looked at 2015 as being a very positive year,” he said, with the exception of winter weather-related issues. trucknews.com

Bylsma said his company “held our own” through the downturn in early 2015. “The first four or five months (of Spring Creek’s fiscal year) we were tracking well then the wheels fell off somewhere around February,” he said. “I’d say we’re pleased with our yearend results, given the recession. We were able to maintain previous years’ numbers.” Looking ahead, both Armour and Bylsma are fairly confident about the Canadian economy in 2016. Bylsma noted that in 2014, manufacturing GDP outperformed real GDP growth, which was the key to healthy freight volumes. That reversed in 2015 but with the weak Canadian dollar, Bylsma is expecting manufacturing to strengthen, which should translate into stronger freight demand. Armour is encouraged shippers are seeming to place more value of late on building relationships with their carriers than putting their freight up for bid. “We are seeing less tenders than we have before,” he said. “A tender doesn’t give you an opportunity to use

IN THE KNOW Six questions to ask before making an acquisition BY JAMES MENZIES

panel of M&A deal-makers was assembled at the Surface Transportation Summit to shed light on how to successfully acquire and integrate a company into an existing business. The panel was moderated by Mike McCarron, a former partner in MSM Transportation, who sold that business and then went on to form Left Lane Associates, a new company geared towards helping trucking company and freight broker owners to monetize their businesses. Here are six questions that were answered during the session: 1. Should I grow organically or by acquisition? Douglas Davis, co-founder and partner of StakUp, who also has experience selling his own transportation business, said companies should not focus on acquisitions alone to grow their business. “Every good company has an organic growth strategy and they may supplement that with acquisitions,” he said. He noted acquisitions can contribute to faster growth, but they also bring greater risks than organic growth. “Get the best of both worlds by supplementing an organic growth strategy with acquisitions,” he advised. trucknews.com

imagination, to give new ideas. We can’t say, ‘We could do this with LCVs, through intermodal, short sea shipping’ - the tender doesn’t allow it. We’re finding now small and large shippers are sitting down with us and saying ‘I can’t afford much of an increase,’ and we get creative. Many times they end up with no increase, maybe even a decrease (in rates), because the shipper was flexible…we really look for savings rather than rate increases but in tenders you don’t have that opportunity, it’s what’s the guy down the road going to bid?” While Bylsma and Armour agreed capacity isn’t tight at the moment, they both expect that to change as the industry continues to face a dearth of qualified drivers. Shippers that secure long-term agreements with their carriers will be the ones that have trucks available to haul their freight when the economy picks up steam, Armour pointed out. “If things get really tight, you’re going to stay and deal with the customers that treated you right and did contracts with you long-term,” he said. FE

2. How do I learn about acquisition opportunities? If you haven’t been identified by investment bankers as a potential buyer, than you may never hear about opportunities that may have been the perfect fit for your growth strategy. Robert Hickey, managing director, RBC Mid-Market M&A, said companies looking for acquisition opportunities should work with an investment banker and let them know what they’re looking for. “If we don’t know you, we’re not going to come and talk to you,” he said. “If you have enough touch points out there in the financial services community, you will start to see ideas coming your way.” Prospective buyers, said Hickey, need to develop a pipeline, so they have exposure to opportunities that are out there. 3. Is the company I’m interested in the right fit for my business? Just because you’ve identified a successful company that’s available for purchase, doesn’t mean you should rush to make a deal. Doug Nix, vice-chairman, Corporate Finance Associates, said you must first determine whether or not the prospective acquisition is a good fit for your business. “One of the most overlooked steps is ensuring every deal supports your corporate strategy,” Nix said. “If it doesn’t support the strategy, you may as well be buying beauty salons and tucking them into your organization.” Hickey said a buyer must first “know itself” before it sets out to make an acquisition. Most deals that fail, do so because “the underlying assumptions behind the transaction were incorrect, because November/December 2015 \ FLEET EXECUTIVE 19

the company didn’t do Phase 1, which is know itself,” Hickey explained. 4. Are you capable of integrating the new business? Once a deal has been reached, the LOI signed and the champagne glasses clinked, Davis said that’s when the real work begins. It’s time to integrate the business and this is a step many buyers are unprepared for. Before setting out to make an acquisition, panelists said companies need to assess their ability to successfully integrate their purchase. “You have to think about how you’re going to integrate it,” Hickey said. “If you don’t have good awareness of your own P&Ls, it’s very difficult to conceive how you can integrate another business.” Davis said a company looking to grow by 50% through acquisition needs to determine whether or not its management team is strong enough to run the business that’s suddenly at 150% of its current level. “You need to make sure your management team is appropriately set up as well,” he said. 5. How can you ensure customer retention? Before pursuing a company, consider whether the current owner or the company itself owns the business relationships. “Often it’s the owner of the company that owns those relationships,” said Davis. “If its top five customers are 73% of the business and the owner is best friends with them, then without him the business isn’t worth anything.” Davis pointed out what you’re really buying is future revenue streams. One way to gain a comfort level regarding the nature of the customer relationships is to meet with the customers, an approach that could be met with some resistance by the seller. Davis suggested to “Create a deal structure that has a fairly large earn-out based on customer retention. You would like to have the owners assist in the transition and they are much more motivated when they have some money hanging behind.” Nix said once the letter of intent has been signed, it’s okay for sellers to disclose customer names and to arrange a meeting with key clients. Normally such meetings are brief and no issues arise. The customers generally just want to be assured of a consistent service level under the new ownership. But meetings with customers shouldn’t take place until the latter stages of a deal, Nix added. “Do all the due diligence, negotiate the purchase agreement, then we can go talk to customers,” Nix said. “You don’t want to disrupt customers or employees in the event it doesn’t come to fruition.” 6. What multiple should I expect to pay? Don’t obsess over the multiple commanded by recent deals, panelists agreed. Instead, focus on what the company is worth to you. 20 FLEET EXECUTIVE \ November/December 2015

“No two business are the same,” said Hickey. “Two companies can be doing $5-million EBITDA, but one is assetheavy and one is asset-light. EBITDA doesn’t capture that. One may be growing at 10% per year and the other at 2% per year. One may have three customers, one may have 300 customers. There are a whole bunch of factors that drive value in a company.” Hickey added, “The multiple is a great guidepost that you back into. Don’t say ‘I’m going to pay 5x EBITDA for this business because that’s where they normally trade…the value of any business is unique and it’s arrived at by a fairly detailed negotiation.” Nix pointed out, “It’s the buyer that sets the value of the business, not the seller. The right way to do it is to say, what is the business worth to me as the buyer.” The trading multiple, however, could become a negotiating strategy, Nix added. There’s also a considerable gap between the value of freight brokers versus asset-based trucking companies, so it’s important to differentiate between them when discussing multiples, Nix said. He said there’s a “huge appetite” for $8-million freight brokers, driven mostly due to the customer relationships they hold. But, “On the trucking side, it’s hard to see much more than asset value in the small guys,” Nix said. Trucking companies that have a niche, or some differentiator in their market, however, could command more value, he added. FE

FLEETS FEELING STICKER SHOCK WITH LOW LOONIE BY JAMES MENZIES

he challenges brought on by a low-value loonie was among the topics that came up several times during the Surface Transportation Summit. David Zavitz, senior vice-president, sales and marketing with Canada Cartage, pointed out a $100,000 truck bought in 2010 costs 38% more today just due to currency fluctuations. In 2010, the loonie was worth more than the US greenback, so that same $100,000 truck would effectively have cost $97,000 loonies. Today, that truck, with a 75-cent Canadian dollar, costs $134,000. And that doesn’t include the 8% or so that OEMs have tacked onto the cost of a new truck over the past five years. “The dollar today is creating some pretty significant sticker trucknews.com

stock for asset-based carriers,” said Zavitz. He said it’s particularly difficult for smaller fleets that may have to replace a large portion of their fleets in a single year, whereas most large fleets tend to replenish a smaller portion of their fleet every year. He also noted interest rates are higher today than they were in 2010. Wes Armour, president and CEO of Armour Transportation Systems, said his company will continue to add new trucks, despite the weakness of the Canadian dollar. “We upgrade our equipment every year,” he said. “I get upset over a 75cent dollar.” However, Armour said he still sees a benefit to buying newer, more efficient trucks. “New trucks are giving us 8 mpg. Before that, we were lucky to get 6, 6.5 mpg. So there are some good things happening and as fuel prices increase, that benefit becomes bigger for us,” Armour said. Mark Bylsma, president of Spring Creek Carriers, said the higher cost of new iron also means used trucks will fetch more on the secondary market. “It’s important to have a modern fleet,” he said. “We are getting more on trade-ins than I thought we would’ve, so that offsets a little bit of the ratcheting up of overall cost of capital.” FE

benchmark their performance on six key metrics versus the performance of 10 publicly-traded truckload motor carriers. To introduce the new product, Chris Henry, co-founder and president of StakUp and Ray Haight, co-founder

and partner of StakUp took the podium to explain the benefits of inGauge’s new tool and how carriers can benefit from using it. “How it works is…you put your data in on a monthly basis and we will show

HOW DO YOU STACK UP

A new way to see how your key metrics rate against the competition

new benchmarking tool was introduced at this year’s annual Surface Transportation Summit. The new tool was launched by InGauge – which is owned and trademarked by the Truckload Carriers Association. The new tool provides any and all carriers with the ability to trucknews.com

November/December 2015 \ FLEET EXECUTIVE 21

you how you stack up against certain metrics,” said Haight of the tool. “That’s what you expect, but in addition, we have something that goes along with that, we have a scorecard. The scorecard will not only tell you where you match up, but where your revenue opportunity is from where you are on that benchmark, to what the best in class might be.” Henry explained that the idea for the tool came when he noticed a gap in the market. “We quickly determined, especially in the truckload market, less than 0.3% of the market is doing any sort of formal external benchmarking,” he said. “So on one hand, that’s sad, but it presented a pretty exciting idea for us.” Henry said at the moment, inGauge has the only dedicated online benchmarking tool that exists in the trucking market, because of its focus on truckload. The tool took a total of 17 months to develop and currently has 82 companies who use the tool on a monthly basis. The largest carrier they service has 5,333 power units, while the smallest has 17. “We think we’ve got something that is all encompassing and we’re excited to share it with you,” Haight said. Both Henry and Haight’s hope is to have five carriers in each state jump on board with the tool in the next 18 months so clients can compare themselves to companies regionally, not just across the continent. To test out the new tool go to: www.tcaingauge.com/ comparepublic. FE

NO PASSENGERS ALLOWED Trailer Wizards’ Anne McKee on the challenges and benefits of embracing true employee engagement

have a core belief – and that is that there is only one business in the world and that is the people business. People conceive of product, invent, manufacture, transport and consume. There are a variety of industries but only one business. Therefore in order to drive our business forward and serve our customers we need to harness the minds and energies of those that work with us. For us this is a work in progress. There is nothing as constant as change. Our organization has been in operation for 52 years. With a re-branding and a number of acquisitions in the last several years, we have faced similar challenges to many of you. How do we harness the brainpower of 462 people from a variety of backgrounds, business cultures, social cultures and regions? Like you, we have a variety of resources at our hands: including

22 FLEET EXECUTIVE \ November/December 2015

some fabulous new technologies. But I think lack of resources is not the defining factor in the failure or success of a company, it is a lack of resourcefulness. That ability to think and act to solve problems or generate creative solutions within the group, for the group. That act of thoughtful collaboration that leads to the endpoints of operational efficiency, customer service, public safety and embraced technology. For resourcefulness to be rampant we have to create work environments that allow it to flourish. All voices are heard, no employees are passengers. A few months ago I came Trailer Wizards’ across a talk by Yuval Harari. Anne McKee He had studied what it was that allowed that fairly insignificant group called humans to come to dominance on the earth. He came to decide the big difference is not on the individual level but on the collective level. Individually, are we are kind of weak when compared to most other animals. Put us on a desert island with a chimpanzee and my money would be on the chimp to survive longer. The big difference between us and other animals is we can cooperate collectively in a flexible way to create change. Yes, there are insects and animals that cooperate on the collective level but they do it rigidly, not flexibly. You can’t imagine that a bee colony is going to have a revolt where the worker bees have a coup, behead the queen bee and establish a republic. Humans on the other hand can cooperate flexibly. And furthermore we can cooperate in small and large numbers. For example fifty thousand Torontonians can go to see the Blue Jays and cooperate. If we filled the stands with ten thousand chimpanzees it would be chaos in the same situation. Our ability to cooperate flexibly is unique and has allowed us to thrive. Taking this idea further, we would have to acknowledge there is positive cooperation and negative cooperation. A negative cooperation environment uses fear to control. Think prison. Ain’t nobody rushing to get there. A positive environment harnesses our cooperation to expand and develop. Positive cooperation could inspire those 462 brains at Trailer Wizards to work together. So how can we can create the ideal environments for positive cooperation which leads to resourcefulness? Like you, we say it is our people that matter – but executing on this concept is difficult. What allows cooperation and what inhibits cooperation? Look at the people around you. Now think about collabtrucknews.com

oration. In your heads you are probably already identifying those you could collaborate with. Where did those instant identifications come from? I submit for your consideration that it came from the feeling of trust. What is trust? Trust is an emotion. We consistently want to think of work environments as arenas where intellect and self-interest are the top drivers. But I really think that is wrong. I very much believe it is emotions that are the drivers. The right emotional environment frees the intellect. People in your companies have great minds. As Margaret Heffernan has stated: Companies don’t have ideas, only people have ideas. I want to discuss two ways in which we can build a strong trusting collaborative environment that frees those ideas and two ways to destroy that potential. The biggest inhibiter to resourcefulness is fear. There are layers of fear. At its worst – fear for your job, which is paralyzing. But there is another insidious fear – fear of ridicule, conflict and failure. This fear is rampant in our workplaces. It erodes resourcefulness. Its indicator is silence. The antidote is trust. Trust from our employees that their contributions will be valued. I was at Bison Transport the other day. They have been working with a highly structured model to execute on priorities. Which I quite like. There was visible evidence all over the building that employees were engaged in driving efficiency. The leaders had said to them in a very methodical way ‘your ideas are those that matter’. It is unleashing the creative potential of every person in the building. It harnesses their brains and says you are valuable. There is trust and positive collaboration. This was deliberate at Bison – and needs to be a deliberate statement in which the action reveals the truth. When we say to our employees, we want to hear from you – and you can submit your ideas anonymously or through a group statement what we are actually saying – you do need to be protected from retribution. This may sound like common sense but remember fear erodes trust. Trust is time-based. You can’t say –“Trust me on an individual level” – you need to prove the environment is safe for voices to be heard. Collective engagement takes collectiive action. You can’t just say we need to hear from you – you have to create a structure that provides the forum for the inclusion. A second inhibitor to engaging those 462 brains is the idea of Team A and Team B. You through words or actions make everyone aware that Team A’s ideas matter a lot more than Team B. Look around your table again and in your heads start designating your table mates as either Team A or Team B. I imagine if I were to ask you to verbalize who you named as Team A or Team B your table would get a lot less congenial. I heard an interesting talk by Margaret Heffernan recently trucknews.com

about an MIT study into productivity. Now we all like productivity. The researchers studied innovation within groups. The surprising revelation was that it was not the groups with the highest IQ individuals that had the most profitable outcomes, nor the groups with the highest aggregate IQ, it was the groups in which debate and discussion involved everyone. There was a freedom to use the build effect. An idea was proposed – and the groups understood that there was opportunity to build on the germs of ideas. People did not have to come with ideas fully formed and ready to execute. This approach allowed cooperative resourcefulness to flourish. To make the productive whole take everyone’s efforts, ranges of skills and abilities. I am not going to suggest we don’t hire people with high IQs. What I am going to suggest is that if all 462 brains are going to engage, then the leadership has to create an environment where one voice or a small group of voices cannot suppress, whether consciously or through thoughtlessness. I do not believe that any of us deliberately go to our HR or recruiter and say: please find me someone who will only do what they are told, never suggests improvements and works without thinking. However, I’ll bet we all bring people in, provide them the listing of tasks, and, when they question why something is done in a manner that doesn’t make sense we say, “that is the way we do it here”. That is the beginning of the fear based silence environment and the beginning of Team A and Team B. I am not suggesting we throw away our processes when questioned, but that we create an environment where those processes can be challenged. If they stand up to the challenge, they stay, if not then we tweak them so that they are logical and supportive. As for me and our house? We are not perfect. We are a work in progress and striving to fully integrate the build effect. I really appreciate this quote: “The secret to change is to focus all of our energy not on fighting the old, but on building the new.” What I most appreciate is the date it was written. This was a thought of Socrates – who was born approximately 2400 years ago. I’m thinking we as people have been struggling with change for quite some time now. And it hasn’t gotten any easier. However, it we don’t start, we will forever be fighting the old. We’ve thought that success was achieved by picking the superstars, the brightest persons, in the room, and giving them all the resources and all the power. And the result has been just the same as in the MIT experiment: aggression, dysfunction and waste. The majority of employees as passengers. We are all in the people business. We all seek high performance and high productivity. We all seek to make a difference – not just ride along. Our entire industry gains when we all harness the creative energies’ that reside in our individual companies. Think of the difference we could make if all brains were respected and allowed to build. FE November/December 2015 \ FLEET EXECUTIVE 23

RATES REJUVENATION & THE DREADED “R” WORD SHIPPERS AND CARRIERS REDEFINE THE INDUSTRY’S OUTLOOK AT OUR ANNUAL SHIPPER-CARRIER ROUNDTABLE

FE | WE’VE BEEN DOING THIS TRACK FOR MANY YEARS NOW AND IT IS MY FAVORITE TRACK BECAUSE IT SPEAKS TO WHAT THE SUMMIT IS REALLY ALL ABOUT: BRINGING SHIPPERS AND CARRIERS AND MANUFACTURERS TOGETHER TO DISCUSS REAL ISSUES AND TO AIR THEIR INSIGHTS AND SHARE THEIR CONCERNS ALL IN THE SAME ROOM AT THE SAME TIME. I’M REALLY LOOKING FORWARD TO, AS ALWAYS, A VERY INSIGHTFUL AND A VERY DEEP DISCUSSION. ONE OF THE THINGS THAT STRIKES ME AS WE LOOK AT THE KIND OF THINGS THAT WILL DRIVE OUR COMPANIES IN THE YEARS AHEAD IS THE FACT THAT REALLY WE’RE DRIVEN VERY MUCH BY OUR OWN CUSTOMER NEEDS. I WANTED TO START OUR DISCUSSION BY ASKING WHAT YOU SEE AS THE MAIN COMPETITIVE PRESSURE THAT IS DRIVING YOUR INDUSTRY AND YOUR CUSTOMER REQUIREMENTS RIGHT NOW? IS YOUR STRATEGIC FOCUS CHANGING AS A RESULT? 24 FLEET EXECUTIVE \ November/December 2015

WILDENMANN | Aside from pricing, which is always a key concern for our clients, we are finding that more and more of our clients are keeping smaller and smaller inventory levels. That means that replenishment has to be done more often. There’s more LTL happening. They want to pick up more often which puts more pressure on our dock time. It’s making changes in what do we produce and when. We ask for a forecast and we get answers that are more along the lines of, “I don’t know,” rather than something concrete that we can plan our production around. It makes it harder. We need to keep our inventories in strategic areas and be able to as often as possible meet our client concerns and requirements. BOXHORN | Our industry is slightly different and there are different drivers from our customer base. Our customers expect bigtrucknews.com

THE PANELISTS (left to right)

Doug Munro, president, Maritime-Ontario Jason Dubois, president, Len Dubois Trucking Alex Boxhorn, logistics manager, Loewen Windows Lou Smyrlis, Publisher Kim Wildenmann, traffic coordinator, Lantic Inc Ginnie Venslovaitis, former director, transportation operations, Hudson’s Bay Company Dan Einwechter, chairman and CEO, Challenger Group of Companies

Photo | Tim Norton

FROM THE SPONSOR Shaw Tracking is a leader in GPS tracking technology and fleet management solutions for the Canadian Transportation Industry. Shaw Tracking is committed to bringing the latest technology to its customers that are customer-focused with tangible ROI benefits. Their tracking solutions not only generate data, but also enable users to transform the data into action plans to help improve fleet visibility, fuel management practices, operational efficiencies and driver retention & performance. Shaw Tracking is dedicated to providing those in the Transportation and Logistics industry with value-added insight and support to help run their organization as efficiently and effectively as possible. With more than 750 customers and over 50,000 units on the road, Shaw Tracking has proven results. But “Proven Results” is not just a marketing tagline. Shaw Tracking has demonstrated time and time again that their customer-focused approach, along with their dedicated support team, strives to work hand in hand with their customers to unearth ways that they can help improve how they service and add value to their customers. Coupled with over 25 years experience and dedicated support to the Transportation and Logistics Industry, Shaw Tracking is committed to working with their customers to perform at unprecedented levels. Shaw Tracking continues to act as founding sponsor of the “Shipper-Carrier Issues Roundtable” for the ninth consecutive year. Shaw Tracking is pleased to continue to support the important insight and dialogue brought forward by prominent industry stakeholders. To learn more about Shaw Tracking, visit www.shawtracking.ca. trucknews.com

November/December 2015 \ FLEET EXECUTIVE 25

SHIIPPER-CARRIER ROUNDTABLE

“It’s funny because at a lot of conferences we talk about the need for greater communication amongst all the supply chain partners, among the different modes. Sometimes we have to get our own house in order.”

tomers won’t accept it and they’re expecting more and more quality, higher levels of service, and mistakes, if we have them, we pay for them through either compliance penalties or freight claims or what have you. It has got to the point where with giving the best rates, we also have to provide the best service. We just have to do it or we won’t be in business. DUBOIS | The driver shortage is still the key driver holding us back. You don’t want the driver shortage to dictate your growth, but I think that’s part of what we’re seeing. Secondly, the imbalance between the Canadian economy and the US economy. You have an imbalance in the freight. Too much freight at one end, not enough freight at the other end. You’re having to re-position equipment and become creative on how you manage your fleet and make sure the utilization continues to be high. When you have high utilization, you can be profitable. When you don’t, it tends to hurt.

Photo | Tim Norton

ger, larger windows. Every year the demand grows for more glass, larger visibility over the ocean views, etc. We’re trying to overcome that challenge in supplying them from a logistics perspective because the trailers have a limit in hauling oversized glass and we’re trying to deal with that and help our customers to understand the limits and find ways to actually deliver the glass to them. FE | LET’S LOOK AT THINGS FROM THE CARRIER PERSPECTIVE NOW. WHAT IS DRIVING YOUR STRATEGY?

MUNRO | When I look at our business, I’d say the main driver is always rates. Everybody is looking for good rates. The economy’s slowing down and customers are tightening up and looking at budgets. Although I thought it would have improved with the fuel price drop, it doesn’t seem to. There’s a really high level of competition and rates have been under pressure the last few years or so, and more recently the last six months. I’d say rates are the number one. Then beyond that, it’s the demand for quality. With the way IT has gone with integration of software and technological advancements, we’re seeing a lot of demands from customers. They expect almost perfection. I think that’s where it’s really going technologically. We have to be up there because if we’re not, no matter what the rate is, if they don’t get the service levels they want, cus26 FLEET EXECUTIVE \ November/December 2015

FE | SOME OF THE THINGS YOU MENTIONED SUCH AS CUSTOMER FOCUS ON COST CONTROL, THE DRIVER SHORTAGE, THESE ARE ALL VERY DIFFICULT ISSUES, BUT IN A WAY, THEY’RE SIMPLER IN THAT WE’VE BEEN DEALING WITH THEM FOR A LONG TIME AND WE KNOW WHAT TO EXPECT. SOMETIMES WHAT’S A LOT HARDER IS THE ISSUES THAT YOU DIDN’T EXPECT, THE THINGS THAT JUST HIT YOU OUT OF THE BLUE. DAN AND GINNIE, I WANT TO TAKE THAT QUESTION OVER TO YOU. HAVE THERE BEEN ANY ISSUES OVER THE LAST COUPLE OF YEARS OR GOING INTO THE NEXT YEAR THAT HAVE CAUGHT YOU BY SURPRISE?

EINWECHTER | I’ve been at this for forty years and not too much surprises me anymore because I’ve seen some really stupid things happen. I’m sure I’ll see more happen. Government regulation intervention always does surprise me I guess to some degree. Even though you know it’s there, you have a forewarning that we’re going to work on this or that initiative, I’m amazed at how reasonable, good people can do stupid stuff time and time again. Their intentions are honorable but the outcome is more likely than not counterproductive to our industry needs, to our society needs, to moving freight efficiently and effectively. Our industry is much safer than it used to be. Yet some of the regulatory issues that we face, I’m just surprised by. Regarding recruiting drivers and that the shortage is an issue. It may not be recruiting that is an issue, but rather employee engagement at all levels whether it’s mechanics or drivers. If we engage them better, maybe we won’t have as much of a problem, and that means changing how they work and trucknews.com

SHIPPER-CARRIER ROUNDTAB BLE

what they do. It’s an industry issue. It’s the government’s issue. It’s our customer’s issue. There’s some talk in the United States, among some of the small fleets, that so much capacity will come out once they’re forced over to electronic logs that capacity could shrink by ten percent. That’s maybe an unintended consequence that we’re all going to have to deal with. VENSLOVAITIS | I think the biggest surprise to me, going from Unilever five years ago where I was delivering to customers, going into HBC where I’m delivering it to my own store, I always thought that would be easier; it’s not. I think the part that always surprises me and is unexpected is all of the constraints within your own company. Can’t deliver on Friday. Can’t deliver in the afternoon. Can’t deliver certain times of the day. It’s unfortunate, it can’t be more collaborative within your own group, it’s always bewildered me. I would think that you would want the freight on Friday because the weekend is your busiest time. I think things like that, no matter what industry you’re in, there’s always a big question mark over a process or a procedure or a particular constraint that you probably need executive VPs and presidents and CFOs and CEOs to get in a room and say, “This is silly. We could do this so much better.”

“I think there are probably enough O/Os and big carriers to manage where we are right now. But if we start to grow, are the carriers going to be investing in more tractors, more trailers, more equipment? Or are they not replacing what they have? I think that it’s kind of borderline.”

EINWECHTER | It’s funny because a lot of conferences, we talk about the need for greater communication amongst all the supply chain partners, among the different modes. Sometimes we have to get our own house in order. FE | ONE OF THE THINGS THAT OUR RESEARCH HAS SHOWN CONSISTENTLY, PARTICULARLY SINCE THE GREAT RECESSION WAS AN INCREASING NUMBER OF SHIPPERS CONSIDERING OUTSOURCING AT LEAST SOME OF THEIR SUPPLY CHAIN FUNCTIONS AS A WAY TO CONTROL COST, AS A WAY TO IMPROVE EFFICIENCY. IS THIS A TREND THAT YOU EXPECT TO SEE CONTINUING TO GROW? IF SO, HOW DO YOU SEE IT AFFECTING THE TRANSPORTATION STRATEGIES AND SHIPPER CARRIER RELATIONSHIPS, BECAUSE WITHOUT SOURCING, YOU NOW HAVE SOMEONE IN THE MIDDLE OF THE SHIPPER CARRIER RELATIONSHIP.

BOXHORN | Shippers, definitely smaller shippers, will continue to outsource their delivery services to carriers. I know 10 years ago, we had our own trucks. Now, we don’t have any trucks at all. Bigger box shippers may potentially keep their own fleet due to service levels and the volume they’re shipping. I think in both cases, you can have a combination of both your own fleet and third party carriers. To provide the best service to the customer you need to be transparent and develop trust with the carrier and to collaborate. Obviously training customers to expect a different company to deliver your product to them is a key factor. Setting up an environment and culture with your customer that allows the carrier to be successful is important. The first reaction I experienced 10 years ago was pretty negative. I had to learn from that to train the customers and the carrier and their drivers in order to be successful. trucknews.com

Photo | Tim Norton

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SHIIPPER-CARRIER ROUNDTABLE

“Canadian carriers have been really hardy and worked hard to deal with a deregulated environment. But at some point in time, it needs to be sustainable for everybody in it and there needs to be reasonable rates to have an ongoing enterprise.”

Photo | Tim Norton

WILDENMANN | We also had to get rid of our fleet a couple of years ago. We just couldn’t maintain the level of service that clients wanted for the price they were willing to pay. What we did was we basically sold off our fleet and we tried to work with our clients to help them find the right fit with the carriers. Even if we’re not the paying party any longer, it’s key to us to make sure that the client gets their products on time and working collaboratively with our transportation providers is the only way that’s going to get done whether we’re the paying party or simply part of the solution. FE | DOUG I’M SURE OVER YOUR MANY YEARS IN THE BUSINESS, YOU’VE SEEN THIS INCREASING RELIANCE ON THIRD PARTY LOGISTICS PROVIDERS AND YOU HAVING TO WORK WITH THEM. HOW IS THAT AFFECTING YOUR RELATIONSHIP WITH YOUR CUSTOMER? 28 FLEET EXECUTIVE \ November/December 2015

MUNRO | We deal with a lot of third party middlemen that assist customers. I think for smaller clients that don’t have a transportation department, they serve a valuable purpose. However, I see the trend a little bit different, because it’s kind of changing back a little bit more toward direct relationships because at the end of the day, they are middlemen, they have to take a margin out and it tends to increase cost. We just went through a large RFP about three or four months ago with a client who contracts out our business within Canada and they actually did the RFP themselves because of that, and they took more control. I think that’s where it’s heading towards maybe more direct customer-carrier dealing for the larger shippers and maybe toward outsourcing for smaller companies. FE | OUR RESEARCH SHOWS CONCLUSIVELY THAT THE PRIVATE FLEET HAS REMAINED A VITAL PART OF THE CANADIAN TRUCKING INDUSTRY EVEN THROUGH DIFFICULT ECONOMIC TIMES. BUT I’VE HEARD FROM A COUPLE OF YOU NOW THAT YOU’VE DIVESTED FROM YOUR PRIVATE FLEET AND PLACED YOUR FREIGHT WITH A FOR-HIRE CARRIER. WHAT IS THE FUTURE OF THE PRIVATE FLEET IN THE CANADA?

VENSLOVAITIS | When I first started at HBC one of the jobs that I was tasked with was to look at that. HBC at one time had the largest private fleet in Canada and of course we went everywhere and came back empty in many situations. I was looking at where does the private fleet belong? Is there a balance between service to the store and backhaul opportunities? You have to look at your service component, how specific are your store requirements? Do you have the density like you would have in Montreal and Toronto where you’re out and back and all of your vendors are there? Or are we talking Thunder Bay or some place where you really may not want to go but somebody else can? You have to consider those things and whether you can buy tractors and trailers and pay drivers directly as opposed to adding a few percentage points for somebody else to do it for you? Do you want to invest internally in managing that dispatch and managing operations? FE | WHETHER WE’RE LOOKING AT A PRIVATE FLEET OR FOR A FOR-HIRE FLEET, A KEY CONSIDERATION IS WHETHER THERE IS ENOUGH CAPACITY FOR A SHIPPER TO BE ABLE TO MOVE THE GOODS THAT THEY NEED TO MOVE WHEN THEY NEED TO MOVE THEM. THAT’S THE AREA I WANT TO TOUCH ON NEXT. FOR THE LAST FEW YEARS WE’VE BEEN WRITING A LOT ABOUT THAT THERE’S GOING TO BE A CAPACITY CRUNCH. THEN A RATHER UNFORTUNATE THING HAPPENED ALONG THE WAY: TWO STRAIGHT QUARTERS OF NEGATIVE GROWTH. I’M WONDERING RIGHT NOW, WHERE DOES CAPACITY SIT AND WHERE IS IT GOING OVER THE NEXT YEAR OR SO?

VENSLOVAITIS | I don’t currently see that there is a capacity shortage. But are you always going on the same lanes? Are you always going in the same area? Is your volume rather trucknews.com

SHIPPER-CARRIER ROUNDTAB BLE

“The shippers that want to share information and work together, they’re the ones I think that are going to benefit. The ones that are strictly based on price, they might be the ones that are left with the leftovers, so to speak.”

steady so that a carrier knows that there’s two loads today to this place or there’s twenty a week? Are you consistent? Now, maybe if the shipments were more volatile and it was ten on Monday and none on Tuesday and fifteen on Friday, you might feel that. The challenge that I’ve been seeing is more about the driver. The carriers can have all of the tractors and tons of trailers, they’re all sitting up against the fence, but if there’s not a warm body to put in the seat, then there’s a capacity issue. If you’re just talking about trucking, I think there is probably enough owner operators and big common carriers that can manage where we are right now, but if we start to turn around and come back and grow, are the carrier’s going to be investing in more tractors, more trailers, more equipment? Or are they not replacing what they have? I think that’s it’s kind of borderline. FE | EQUIPMENT REINVESTMENT HAS BEEN AN ISSUE OVER THE LAST COUPLE OF YEARS ALTHOUGH LAST YEAR, WE CERTAINLY SAW FLEETS, INCLUDING THE SMALLER FLEETS, STARTING TO INVEST. THE SMALL FLEETS SEEM TO HAVE PULLED BACK AGAIN NOW THOUGH. ALEX, ARE YOU CONCERNED ABOUT CAPACITY?

BOXHORN | I shouldn’t say I’m not concerned. I’ll always be concerned a little bit, but to be honest at this moment, we’re not overly concerned because of our good relationship with carriers. We’re being proactive and planning the loads out. We’re not coming in at a short notice. It’s very important in having this open transparent communication with the carrier about the volume you’re expecting and the future you have together. I think we have been successful that way. There have been occasional situations where we may have had capacity constraints, but based on the experience we have, we don’t have that concern at this moment. FE | JASON, IT’S CARRIERS SUCH AS YOURSELF THAT IN THE END, BASED ON YOUR DECISIONS, DETERMINE HOW MUCH CAPACITY THERE IS GOING TO BE. WHAT ARE YOUR THOUGHTS ON THIS ISSUE? WHERE ARE WE AT IN TERMS OF CAPACITY AND WHERE WE ARE GOING?

DUBOIS | I think like Alex said, communication, trust, and commitment with the carriers is important. The shipper must trucknews.com

Photo | Tim Norton

want to work with the carriers and be proactive and help solve some of these problems that we come up against each week. The capacity can vary week to week. It’s been fairly volatile in certain areas. The shippers that want to share information and work together, they’re the ones I think that are going to benefit. The ones that are strictly based on price, they might be the ones that are left with the leftovers, so to speak. Again, it just boils down to, you got to have the trust and that is what we try to build on with our customers. We try to be more than just a trucker hauling goods from point A to point B and be more proactive. FE | JASON SAYS IT’S VERY VOLATILE IN THE MARKETPLACE IN TERMS OF CAPACITY. IT DEPENDS ON WHAT MARKETS YOU’RE IN, WHAT PART OF THE COUNTRY YOU’RE IN. DO YOU AGREE WITH THAT?

EINWECHTER | I agree. I’ve talked to a lot of different people. Some people might say they’re a little soft in one area. Some of the LTL might say they’re a little bit soft. The areas that we serve, which make for a pretty broad area, are at or near November/December 2015 \ FLEET EXECUTIVE 29

SHIIPPER-CARRIER ROUNDTABLE

“We bought over four hundred new trucks this year and four hundred new trailers. We believe in the future and we believe that capacity is going to continue to tighten up. He who has the drivers and the trucks will win.”

because the shipper pushed back, we got to “Well, I’ll see what I can do.” We had one customer come to us and say, “Well, we need an eleven percent reduction.” We ended up with a seven percent increase. It was just negotiating, right? Canadian carriers have been really hardy and worked hard to deal with a deregulated environment. But at some point in time, it needs to be sustainable for everybody in it and there needs to be reasonable rates to have an ongoing enterprise.

Photo | Tim Norton

capacity most days. We have a day where we maybe have some excess capacity, but usually there’s hundreds of loads and fifty-five drivers available that day, and you get through it. I’d rather run my business that way, and we always stumble through it, we make it through, we have ongoing conversation with our clients. I’ve seen the other side of it where there’s a hundred drivers and fifty-five loads and it ain’t pretty. From our perspective, we bought over four hundred new trucks this year and four hundred new trailers. We believe in the future and we believe that capacity is going to continue to tighten up. He who has the drivers and the trucks will win. FE | WE’VE HAD TWO STRAIGHT QUARTERS OF NEGATIVE GROWTH TO START THE YEAR AND FREIGHT VOLUMES HAVE EASED OFF BUT IT DOESN’T FEEL LIKE 2009 WHEN HALF THE TRUCKS WERE PARKED. I THINK THAT’S WHAT YOU’RE SAYING DAN.

EINWECHTER | Back then, we had a lot of rate setting that was established by fear, not reality. A lot of that occurred. We don’t know what’s going to happen, so we’re going low with this rate. I want to say there’s a difference in American and Canadian carriers on that particular front. American carriers, when they see the demand go up and supply tightens up, they understand the marketplace and they react. In our industry we’d see time and again customers would come to us and say that, “Oh boy, it’s not in my budget, I can’t pay you” and we would say “Okay, I’ll see what I can do and lower the price.” Well, the carrier may have needed a four percent increase but 30 FLEET EXECUTIVE \ November/December 2015

FE | WE’RE CERTAINLY GOING TO TACKLE THE PRICING QUESTION IN MORE DETAIL A LITTLE LATER ON. FOR RIGHT NOW, I JUST WANT TO STICK WITH THE CAPACITY QUESTION AND I WANT TO LOOK FURTHER AHEAD. THE RECESSION IS HOPEFULLY BEHIND US AND WE’RE MOVING AHEAD TO A PERIOD OF GROWTH, BUT I THINK THE HONEST APPRAISAL IS THAT WE’RE GOING TO SEE MORE OF THE KIND OF GROWTH WE’VE SEEN OVER THE LAST FEW YEARS WHICH IS BASICALLY LUKEWARM. BASICALLY IT’S OKAY, NOT GREAT. WHAT DOES THAT DO FOR YOUR CAPACITY PLANS GOING FORWARD INTO THE FUTURE? WHAT ARE YOU THINKING ABOUT WHEN YOU’RE LOOKING TO ADD EQUIPMENT, WHEN YOU’RE LOOKING AT THE KIND OF LUKEWARM ECONOMIC PICTURE THAT WE’RE ANTICIPATING?

DUBOIS | We’re pretty optimistic about the coming year. Being in Manitoba, we don’t see the peaks and valleys that some of the other regions tend to see. We’re continuing with our replacement strategy as far as our tractors and trailers and hoping to grow our fleet. Again, we like to have good quality drivers so that we can continue to provide a good quality service and build on those customer relationships. We don’t want to necessarily grow for the sake of growing. It’s got to be good sustainable business with good quality people. We’re optimistic for the future for sure. MUNRO | I don’t really think there’s a capacity issue in our market at all. In fact, there’s probably an overcapacity in a lot of areas. You can see that in terms of rates dropping. I mean the rates aren’t going up, so it’s the law of supply and demand. If rates were going up, there’d be more demand. There isn’t a lot of demand. It’s kind of stagnant, I’d call it, flat. There are a lot of large carriers and railroads and companies that have access to large amounts of money right now with low interest rates and there’s lots of equipment available to purchase. The problem is the rates. Carriers will not put the money in to buy equipment at the rates where they are right now. What we look at is just like anybody else. If we can make a buck on it, then we’ll invest on it. If we can’t, we’ll wait. We have to keep our main operation going, which we will, but to trucknews.com

SHIPPER-CARRIER ROUNDTAB BLE

add capacity and to grow, the rates have to go up. I think you’re seeing with the US dollar going up and equipment values and pressure for drivers, it’s all about money and paying more. If we pay more, we’ll need to get more. It’s just that simple. FE | LET’S NOW TURN TO RATES, EVERYONE’S FAVORITE TOPIC. IF THERE IS ONE ISSUE THAT EVERY TRUCKING CEO SEEMS TO AGREE ON, IT’S THAT RATES NEED TO RISE FROM THE PRECIPITOUS FALL THAT THEY HAD DURING THE RECESSION. HAVE FREIGHT RATES ACTUALLY MANAGED TO REACH THE LEVELS THAT REFLECT YOUR INVESTMENT IN YOUR COMPANIES IN TERMS OF THE TECHNOLOGY YOU HAVE TO BE PURCHASING, THE EQUIPMENT INVESTMENTS THAT YOU’RE MAKING?

“I do believe the rates will have to go up because they just are at a point where most of the larger carriers are not making sufficient returns and they don’t have, especially in LTL, returns to invest in trailers, terminals, operating systems, all the technological requirements.”

EINWECHTER | You forgot the other key, the drivers. The equipment price has gone up thirty-eight, forty percent which is a bit of a shock for everybody. That’s why we were lucky we pre-ordered our gear. It’s not just the equipment technology, it’s in your people. I think that’s one thing in the industry that maybe through all of our hard times would tend to be overlooked by many carriers. People were taken for granted. Carriers were taken for granted by our customers because of the pressures they had, and then it’s just sort of worked its way down the ladder. We are spending a ton of money on employee engagement issues, buying the right equipment with the right technology so we can give our customers the service that they need. They want order fulfillment almost at one hundred percent. That means loads got to be on time for that to happen. t’s easy to cut your rates by twenty-five percent, which we saw during some of the tough times. When you cut your rate by twenty-five percent, it’s a fifty percent increase to go back up. Psychologically, it’s hard for your customers to accept that. No, we’re not where it needs to be. We work feverishly every day on rate increases specific to customers or general rate increases for a particular market. DUBOIS | Rates are not where they should be for sure. A lot of carriers maybe don’t have the negotiating skills. They don’t even know what they need for a rate. They don’t know what their costs are. We feel we’ve matured as a company over the last few years trying to utilize our software, the data that we can pull out of our database, benchmarking, comparing ourselves to the competition, and really understanding what the rate needs to be, not just what we think we can get. I guess there’s two sides to that. You can blame the big guys for doing it cheaper because they have the volume or you can blame the little guys because they don’t know what they’re doing, but it’s probably a little bit of both, I would imagine. FE | DOUG, OVER TO YOU. OVER THE YEARS YOU’VE BEEN ON MANY PANELS WITH ME AND I’VE ALWAYS APPRECIATED YOUR THOUGHTS ON RATES BECAUSE I THOUGHT THEY WERE VERY REASONABLE. LOOKING AHEAD TO 2016 AND ONWARD, WHERE DO YOU SEE TRUCKING RATES GOING AND WHAT DO YOU THINK IS GOING TO BE SHAPING THEIR DIRECTION? trucknews.com

Photo | Tim Norton

MUNRO | That’s a real tough one for me to answer Lou. If it’s going to be based on the economy, if the economy picks up, then we’re probably going to get some movement in rates, especially with the equipment and labor costs going up. Rates are not dictated by cost though, they’re dictated by the market. Especially in our world being an LTL freight carrier, it’s more of an art than science when we’re quoting rates and looking at customers, the density in where they’re shipping to and from. There’s a lot of different factors. I do believe the rates will have to go up because they just are at a point where most of the larger carriers are not making sufficient returns and they don’t have, especially in LTL, returns to invest in trailers, terminals, operating systems, all the technological requirements. I think in the long run, they will go up but it’s a tough thing because our customers are all under budget constraints too, so it’s a bit of a tug of war and I think ultimately the market will decide that based on capacity and based on the economy. FE November/December 2015 \ FLEET EXECUTIVE 31

CANADA LOGISTICS CONFERENCE 2015

GROWN-UP Approach 32 FLEET EXECUTIVE \ November/December 2015

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Illustration | ©Thinkstock

CANADA LOGISTICS CONFERENCE 2015

By Julia Kuzeljevich

STEPPING UP TO A MORE MATURE SUPPLY CHAIN hen it comes to the battle of supply chains it is not necessarily the best supply chains that win but the most mature. What is tied to supply chain maturity, though? This was the topic of debate during a panel discussion at the Canada Logistics Conference 2015. Warren Sarafinchan, CCLP, vice president, sales and supply chain, with Sun-Rype Products, moderated the discussion, which featured Perry Lo, CCLP, managing director, Canaan Transportation, Jacquie Meyers, president, Meyers Transportation Services, and Ginnie Venslovaitis, CCLP, a logistics professional and former director, transportation operations with Hudson’s Bay Company. As Sarafinchan noted, the topic of the mature supply chain is wide and deep running from technological adaptation to effectively managing multigenerational and multi-cultural teams. Discussing the challenges of working with teams made up of many generations, Meyers noted that while some of it is generalizing, the Gen Y’s (or millennials) tend to need collaboration, and to seek social connection and fulfilment. “Our biggest challenge in the trucking industry is a sobering question. We are doing an abysmal job attracting Gen Y to the trucking profession, and just an ‘ok’ job attracting them to the office environment. I started looking at this about a year ago. Of 230 drivers (in the company), just one was under the age of 30. We need to find ways to attract that generation into our business-if we do nothing, 63% of my drivers will retire in 10 years,” Meyers said. “Supply chain is not doing enough. There certainly needs to be some effort in creating awareness of supply chain with executives and with the human resources team. In supply chain, there are jobs involving finance and it’s about understanding the whole network design. There should be an increased focus on (supply chain) education in college and high schools,” said Venslovaitis.

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Supply chain, she added, is a big business issue, with a highly functioning supply chain important to the global economy and to global business. “At Meyers one of the things we are doing is that we have changed our driver program. We have a rookie 12-week mentoring program, bringing new hires in right after school for training and mentoring. We now have 15 rookie drivers,” she said. Mandatory entry level training for the trucking industry will take truck driving to a skilled profession, Meyers added, but the industry also needs to ensure there is access to affordable loans for these kids to take truck driving. “We don’t have that for truck driving right now. It’s up to us to lobby this government on how important it is to keep the trucking industry moving,” Meyers said. Bridging the generation gap at the company is another priority. “We have set up multigenerational teams, and collaboration between the groups. We have done mentoring and reverse mentoring, where young people can provide ideas for the business. There’s huge ROI on having these cross-generational teams working together,” she said. “It’s just bringing those teams together where you know there is a big gap, where they can get to know each other in a non-work situation, or at an activity where they have got to work at a task together. There is also professional team building where they have got to learn what makes the other team members tick,” Venslovaitis said. Lo noted it’s important to give the millennial generation challenging assignments. “The traditional practices of making them go through the meat grinder, doing their time, those days are over,” he said. Having a good diversification strategy when it comes to uncontrollable events like strikes helps on the risk mitigation side. “Build a buffer so that you won’t be affected and your supply chain will bend, not break,” Lo said.

November/December 2015 \ FLEET EXECUTIVE 33

CANADA LOGISTICS CONFERENCE 2015

regionalizing your supply chain? If you can create When it comes to the use of technology, Lo, who “Our drivers a supply chain where I can get my drivers home at travels a good deal for his job, said that it “really lim- actually internight, it’s going to help me attract drivers to the its what you see and how you get the job done. I act with our think the art of the deal is those visual cues. It works customers more job,” Meyers said. Carriers should also receive rates that will allow wonders when dealing with problems. Canada is a than our salesthem to reinvest in their business. trading nation but our industrial output on a global people do. “How does your team respect the job the drivers scale is a pittance. Canada needs to get out of its I encourage are doing for you? Are you on time with your apcomfort zone,” he said. everyone to pointments? There needs to be a room for themCross-cultural exposure in today’s world is a take stock washrooms, etc. Without them, their product given, and there are often certain cultural assump- of what you doesn’t go anywhere,” said Venslovaitis. tions that need to be addressed. can do to “The top three things that would make drivers “I had teams in different cities-there are basic improve happier is no harassment, (the availability of) toiattitude differences between Toronto and Montreal the driver lets, and (better) safety. It’s incredible that that isn’t and the West. Canadians assume there are various experience.” available everywhere,” Meyers said. processes and ways of doing things. Americans Carriers have started blacklisting shippers that make some assumptions about Canadians, too. Sometimes (we need to take) a moment to clear the air, and are not treating drivers properly, and they are using this as a recruiting strategy, telling drivers they won’t send them to the correct our assumptions about each other,” Venslovaitis said. “People coming from different cultures will interpret things blacklisted warehouses, said Meyers. “Our drivers actually interact with our customers more than differently. What you might interpret as a yes is not necessarily our salespeople do. I encourage everyone to take stock of what a yes,” Lo said. And working across multiple time zones means you can ex- you can do to improve the driver experience,” said Sarafinchan. When it comes to the dreaded RFQ process, from a shipper pect to be in demand at all hours. point of view, Venslovaitis said that the ‘forces of finance’ will “Suppliers these days expect you to be on call,” Lo said. “As a manager of multiple teams, you have to be inclusive of continue to rule. “There are certainly forces of finance at play when it comes the teams’ time zones when setting meetings. It’s just important to put up those barriers around yourself and consider engaging to RFQs, where senior leaders see transportation spend as an the people by putting it in the right time slot,” said Venslovaitis. opportunity to cut, and to put money back into the bottom line. What are some of the emerging issues that will affect supply So as shippers what benefit do you have to provide the carrierwhat’s the most important part of the relationship-service or chain stakeholders going forward? “Fuel,” Meyers said. “We are at a suppressed level right now cost? Be realistic. Step back and think about that-challenge your but at some point it’s going to be going up again and we have senior leadership,” she said. “I get it-I know there are always those forces at play. I underto figure out how we’re going to work that into our budgets. The strengthening U.S. dollar is just hammering the trucking stand that pressure. I do think it’s changing. I think we’re going industry. Just because of the exchange rate we’re looking at to get to a point where my customers are doing fewer RFQs trucks that are 38% more expensive. How do owner-operators because they are getting burned. There are challenges and it’s get into our market now? We are going to be coming into a expensive for your carrier to get to know you. I’m seeing shipcapacity crunch. Carrier pay and driver pay is going to have to pers going to smaller batches of carriers. Work with those partbe addressed. There’s a proliferation of 3PLs not buying equip- ner carriers to drive costs out of your system. I’m hoping to see longer term agreements so we can invest in customized solument,” Meyers said. Considering the potential impact of the predicted ‘demo- tions (for shippers),” she said. What is the value of a mature supply chain, and how do graphic tsunami’ on the driver base, “it is very important for shippers to understand the importance of their carrier base-you you get it? “Your supply chain has to be robust, and it has to be flexineed to share your business plans, any new business, and new lanes-anything that will affect your carrier’s business. Just have ble,” said Lo. “It’s the understanding of the bigger picture, of all the people your eyes open on how you can make the carrier more efficient that are touching the supply chain. Be prepared for the worst in serving you,” said Venslovaitis. “Look at the total supply chain and ask yourself what you with a plan to manage the disruptions, and do anything you can do to take time out, and to take waste out.” can do to make that better,” she said. “Become a shipper of choice. Be part of the solution. Col“The upside for shippers is that as truckers find efficiencies, we automatically pass the savings on to the shippers. But it’s laborate with your carriers, pay compensatory rates. If you invest hard for us to plan driver and equipment strategy when (for ex- in all of those little pieces, your carriers are able to invest-it’s a ample) we’re managing all the loads on one day. What about very positive ripple effect,” was Meyers’ advice to shippers. FE

34 FLEET EXECUTIVE \ November/December 2015

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CITY SMARTS HOW TO SPEC A MEDIUM DUTY TRUCK

Photo | ©Thinkstock

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November/December 2015 \ FLEET EXECUTIVE 35

CITY SMARTS

MEDIUMDUTY BASICS Y

ou run a handful of medium-duty trucks to get your product to market but trucking is far from being your first order of business. Business is booming and your trucks are starting to show the wear that goes along with increased use. You know it will soon be time to replace them but you’re reluctant to start the process because your understanding of medium-duty truck spec’ing in minimal. Don’t sweat it. To help you make a more informed decision, we’ve prepared a quick primer to guide you through the spec’ing process.

PAYLOAD The first thing to consider is your payload requirements. How much does each container that you haul weigh? How many of those containers do you need to get on a truck and what will be the resulting total weight? The vehicle you spec should reflect the maximum weight you need. Any more is waste, forcing you to spend more money than you need to for a higher horsepower engine. Heading to the dealer with the payload information under your cap makes for a much more accurate spec’ing process. Work through a weight distribution chart with the dealer to ensure the truck can carry the desired payload and the weight distribution over each axle is within legal limits. Don’t forget to include the weight of devices such as refrigeration units. A common mistake is spec’ing a vehicle based on previous weight requirements when in fact the company’s business has increased and there is a need to carry heavier loads. Chances are what you will save by doing it the old way you will more than pay for in overload fines at weigh scales if your truck is running on the highway.

36 FLEET EXECUTIVE \ November/December 2015

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DON’T KNOW YOUR GEAR SPLIT CHART FROM YOUR RATIO? OUR PRIMER ON MEDIUM-DUTY SPEC’ING WON’T MAKE YOU A PRO BUT IT WILL MAKE YOUR NEXT PURCHASE A MORE INFORMED ONE

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CITY SMARTS

WHEELBASE Consider the places the truck will deliver to and check that its turning radius – the measurement from the centre of the rear axle to the front bumper – is sufficient. Cabovers are the better spec if the delivery points are particularly tight places or if weight in an issue. Don’t neglect to consider dock height. Increasing your payload by opting for a vehicle made lighter by spec’ing smaller wheels or lighter axles will cause problems if those options drop the height of the truck below what you need for the height of the loading docks it visits.

POWERTRAIN Consider where your trucks will do the majority of their hauling – whether it’s in the city, the highway or in suburban areas will determine how they should be geared. Trucks properly spec’d for city applications have higher axle ratio and lower speeds. Trucks spec’d for highway or suburban runs have a lower rear axle ratio for higher speeds and better fuel economy. Running city spec’ed will eat away at your profit line through increased fuel consumption and piston crown and bearing failures in the engine. There are two charts you will need to examine with the dealer to ensure the powertrain specs will do the job. A gradeability chart determines if the powertrain has the muscle to carry the payload over the type of terrain it will encounter. A gear split chart outlines how low on the rpm scale the engine can go to pick up the next gear. If your truck is improperly geared it will run in the higher rpm range to keep up with traffic, burning fuel savings in the process. The skill level of your drivers will determine if you can get away with a basic manual transmission or if you need to upgrade to a synchronized manual or automatic that removes much of the shock new or inexperienced drivers place on the drivetrain. For most small private fleets, the person behind the wheel is not a professional driver but rather an employee such as a route salesperson or service technician using the truck to do his job.

MAINTENANCE & WARRANTY Don’t get stuck on the sticker price. There’s more intelligent ways to help you make your final decision. Ask for an annual maintenance calculation, including A, B and C service intervals. Take a closer look at the standard components. Synthetic lube, for example, could be a standard spec for manual trans38 FLEET EXECUTIVE \ November/December 2015

missions and rear axles. It will cost more but it can go more miles before it needs changing, saving lube jobs and money over a non-synthetic spec. Compare the warranties. Some warranties, for example, cover engine and axle casings but not internal parts.

DRIVER FEATURES Extra items such as air conditioning or an upgraded seat are worth the investment if they will measurably improve the productivity of your drivers. Some other options worth considering include heated mirrors, defrost systems that defrost the windshield and the side windows at the same time, tilt/telescoping steering wheels, power outlets for cell phones or lap tops, selfcleaning cab steps, service features positioned so that fluid levels are easily checked and extra insulation from engine and road noise.

PICK THE RIGHT DEALER Buying a truck is the start of a service partnership with the dealer that will last years. Don’t take the relationship lightly. You will probably want to buy from a dealer committed to the commercial truck market, not someone who mostly sells cars with a few trucks on the side. ou need a dealer that has expertise from a technical standpoint and you need a dealer who understands your business and will put you at the head of the line if you come in with a problem. If they specialize in the commercial market they are also more likely to have the necessary parts available rather than needing to order them and causing more delays.

PLAN AHEAD Waiting to the last minute to spec a new truck can force you into buying equipment that is not the best fit for your operation. That rings particularly true when order boards are as backed up as they can get during economic booms. Let’s say you end up running a truck with a wrong gear ratio on it. If you consume 10 per cent more fuel because of that over 70,000 miles the added cost can be over $3,000 per year. In the end, even though trucking may not be your first order of business, the trucks you spec will play an important part in the cost of running your business. The greater effort you put towards making intelligent spec’ing decisions the greater the chance that they will. FE trucknews.com

inGauge® FOCUS: PUBLICLY TRADED TRUCKLOAD COMPANIES inGauge is the only dedicated online Performance Benchmarking Service for the North American trucking industry. Currently tracking over 45 metrics, inGauge seeks to provide timely and relevant data to: 1) Focus your efforts on underperforming areas of your business; 2) Validate your operational success and management; and 3) Provide a valuable resource for Best Practice information from some of the World’s best-managed trucking companies. Included in our database of 106 motor carrier profiles throughout North America are eight publicly-traded truckload (predominant) motor carriers. This group includes: Werner Enterprises, Heartland Express, Knight Transportation, Marten Transport, Covenant Transport, USA Truck and Celadon Trucking. Notably absent from this group are Canadian publicly traded motor carriers, such as TransForce, Mullen, and Titanium. We have purposely excluded the information from these three companies due to: 1) Wide diversification of operations (Mullen, TransForce). Once TransForce sheds it waste management operations, we expect to include their financial and operational data in our database. With respect to Mullen, although they have significant truckload operations, they also have a large exposure to other industry sub-groups which wouldn’t provide suitable benchmarks for our subscribers. 2) With respect to Titanium, they do not currently provide enough financial and operational data to compute many of the metrics included in the inGauge database. Here is a quick summary of the results from the quarter ending September 30, 2015:

NET FUEL EXPENSE (FUEL EXPENSE MINUS FSC)

AMORTIZATION & DEPRECIATION (% REVENUE)

3.73%

12.40% -0.71%

8.16%

7.11%

17.68%

INSURANCE & CLAIMS (% OF REVENUE)

SUPPLIES & MAINTENANCE (% OF REVENUE)

3.92%

8.12% 2.91%

4.92%

OPERATING RATIO

a/R DAYS SALES OUTSTANDING

89.32% 95.83%

5.73%

10.51%

43.94 82.80%

56.06

find out how your company is doing versus 106 other motor carriers, go to: tcaingauge.com

31.81

PROFITABILITY PROFITABILITY

CONSIDERATIONS IN THE “TARGET” – PART III Giving negotiations every chance of reaching a successful conclusion By Doug Nix

n my 20 years of Investment Banking, I have worked on a lot of M&A deals. Deals in all sorts of industries and with all sorts of characters, deals with large-cap public companies and with small-town family offices, deals with Harvard graduates and with high-school dropouts. As I reflect on two decades of experience, I have come to form definitive observations and conclusions on all things M&A. Perhaps the most surprising observation is of the thing that separates successful acquirers from unsuccessful ones. Unsuccessful acquirers jump into the M&A game and make it up as they go. Successful acquirers have a game plan, a framework. Allow me to share.

Rule #5: Negotiating the purchase Suppose that you’ve gone through the framework we outlined in previous issues and you’ve put together a long-list of companies that seem interesting; now what? Perhaps unsurprisingly, I would recommend you contact an investment banker about the long-list before even picking up the phone to make a call to a potential acquisition target. Allow me to explain why. We’ve encountered more than one CEO who has picked up the phone to make that call, only to wish they’d used an intermediary as soon as the call was over. In the case where a competitor is approached by another competitor, the first 40 FLEET EXECUTIVE \ November/December 2015

question that often comes to mind for the CEO of the target company is, “do they want to acquire us or just find out about all our secrets?” It’s a long way back, once the target firm has raised those flags. On the other hand, when an investment banker calls the target company and tells them that they’ve been engaged specifically to talk to them about their interest in selling, in effect, they’re selling off their personal credibility and can quite quickly establish a trust relationship with the target. Once trust has been established, the barriers are removed to have a meaningful Douglas Nix, discussion on a potential acquisition. is vice chairman Investment bankers bring further valof Corporate ue through investing heavily in informaFinance Associates, tion, having extended net works in many a top 10 ranked industries and geographies and above mid-market North American investment all, being able to gain access. Information on a deal is one thing but having the banker. Corporate access to execute is something else. The Finance Associates sooner an investment banker is brought is a founding in, the better for the value of the deal for member of ICFG, the buy-side and the sell-side. the 14th largest Now that you’ve got an investment global mid-market banker on board, you can begin coninvestment bank. trucknews.com

structing a negotiating strategy before approaching the target firm. Strategies may differ but we believe in constructing what we call an “intelligent letter of intent.” In this letter, we try to frontend-load our intentions into the letter of intent because the more you have to negotiate at the start, the less you have to negotiate at the end. This letter of intent must detail your thinking on reps and warranties, pricing, transaction structure and arbitration disputes, among others. Beware of buyers who use the letter of intent to lock up a target and then start to negotiate the price down. We question the ethics of this and so should you. From our point of view, ethics drive trust, which in turn drives negotiation success. The face-to-face negotiation process then comes down to minor and major negotiating points. The major points usually come down to valuation, risk-sharing and structure. Investment bankers show their worth to the process when questions arise, such as “do we need an earn-out?” and “do we need a vendor note?” and “what are the tax consequences of the sale?” Tax consequences can be a major point – for example, in some jurisdictions asset sales are taxed more punitively than share sales. So, in such cases, sellers are looking to net proceeds. These are just some of the major points of a typical negotiation process, but each deal brings its own set of issues. A lot of the negotiation is just trying to sort through what’s important. My advice to buyers is not to drive a stake in the sand too quickly. You have to look at the transaction in its entirety before you decide. The smaller details that are important to the buyer are often irrelevant to the seller and vice versa. There’s no set timeframe for all this coming together, either. However, there’s an old French proverb which applies here: “everything that drags gets dirty.” Although time is far from the defining factor in negotiations, in our experience it’s better to work through details with some haste before either side loses interest in the details. Finally, and most importantly, negotiating the purchase comes down to three things:

Listen

Build Trust

Focus on the Objective

Ensuring these three elements are present gives negotiations every chance of reaching a successful conclusion. These are the non-negotiables of the negotiation process. FE trucknews.com

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GEARED UP

Downspeed safely

How to enjoy the benefits without the unintended consequences

By James Menzies

s more fleets spec’ downsped powertrains in the pursuit of greater fuel economy, not all are cognizant of the effect engine downspeeding can have on related drivetrain components. That was the warning from Bob Ostrander, chief engineer with Meritor, who conducted a Webinar on downspeeding this week. While Ostrander recognized downspeeding can improve fuel economy by about 1% for every 100 rpm slower the engine turns at cruise speed, he also said it has the potential to place more torque on drivertrain components. A traditional pre-EPA10 linehaul spec’ would typically feature an overdrive transmission and axle ratios in the “mid-3s”, with all drivetrain components rated at about 1,850 lb.-ft. of torque. “As we get into a downsped spec’ with today’s engines, many of these are coupled with direct drive transmissions and we’re seeing rear axle ratios of 2.47 and faster - Meritor just recently released a 2.28 ratio - and as a result, you then have to be cognizant you’re going to need higher torque-rated drivetrain components to handle the torque coming through the system,” Ostrander warned. “Keep in mind, if you don’t have the rear axle doing torque multiplications, you’re going to have to make up for it someplace else.” One of the risks involving downspeeding, Ostrander pointed out, is deploying it into unsuitable applications such as city delivery routes with frequent starts and stops. This becomes challenging when a single truck performs both linehaul and regional haul work. But there are alternatives to downspeeding in these applications, which provide similar benefits, Ostrander explained, including pairing slower rear axle ratios with a close-coupled overdrive transmission. “You will be able to accomplish the fuel savings you’re

42 FLEET EXECUTIVE \ November/December 2015

looking for with a slower axle ratio coupled with an overdrive transmission and you can get most of what you are trying to seek without running the risk of subjecting the truck and drivetrain components to very high torques and the issues that may come along with it, including the reduced life and performance of your products,” Ostrander explained. For linehaul applications where downspeeding is well suited, Ostrander warned about the risks associated with the rapid torque rise produced by newer, downsped engines. He said today’s downsped engines can go from idle to peak torque in as little as half a second. During this torque spike, Ostrander said actual peak loads are sometimes far greater than the predetermined output torque and can momentarily overshoot the approved torque loads until the system dampens it out. “That’s where you can end up with some issues,” he said. “It doesn’t take long to end up with fracturing issues. These quick, momentary transient conditions can lead to unintended consequences such as fractured components, from clutches to rear axles.” Ostrander suggested fleets talk to their engine OEMs to discuss strategies for mitigating these peak torque transient conditions. He also noted ceramic clutches in more widespread use today have a faster response time, making it easy for an inexperienced driver to accidentally slip off the clutch, which can send a shock load through the system. Even low rolling resistance tires can play a role, Ostrander said, since slip torque doesn’t always occur, again placing more strain on components. One option is to upsize the driveline to something like, in Meritor’s portfolio, the RPL35, which is designed to withstand higher torque loads. While a traditional powertrain, with a 1,550 lb.-ft.rated engine and 3.55 rear axle ratios and overdrive transmission will see torque into the driveshaft of no more than 16,000 lb.-ft., a downsped powertrain with 2.47 rear axle ratios and a 1,750 lb.ft.-rated engine could produce torque loads closer to 21,000 lb.-ft. trucknews.com

GEARED UP

“So we’re talking about a 5,000 lb.-ft. difference and we have to understand and account for that as we’re sizing and spec’ing our trucks,” Ostrander pointed out. The RPL35 is rated to 21,500 lb.-ft. With drivetrain torques as much as 44% higher than in a traditional linehaul spec’, Ostrander said fleets employing downspeeding that haven’t accounted for this have seen issues such as broken driveshaft u-joints, fractured rear axle pinion stems and damaged transmission gears, synchronizers and clutches. Another step fleets can take is to torque-limit the engine. This can limit the maximum amount of torque produced by the engine until the truck reaches Jim cruising eliminating Martinspeed, demonstrates the torque spikes Ostrander alluded to.Highway Pilot works. how “You really need to talk to your engine folks and ask, what controls do they have in place to clip that peak overshoot, to try to bring that down?” Ostrander said. “The torque values coming off the cam bus to the engine are not necessarily the real torque driven through the system momentarily. Talk to your engine people about what strategies they have to clip that torque.” It’s also a good idea to reduce engine speed at clutch engagement to about 700-900 rpm, Ostrander said, especially if ceramic clutches are used. The bottom line, Ostrander said, is that when employing downspeeding, fleets need to consider the effect on all related components, and speak with their suppliers to ensure the entire drivertrain is spec’d accordingly. “Talk to your truck OEM, your engine supplier. Make sure you have the right controls in place so you can optimize for downspeeding but mitigate these peak transient torques,” Ostrander advised. “You have to take a look at everything from the engine all the way back.” For trucks that have already been deployed with downsped powertrains and traditional components, Ostrander suggested speaking with engine reps to see if they can re-program the engine to reduce torque spikes. He also warned against simply spec’ing larger drivetrain components as the sole approach to addressing these issues. “Don’t simply say you’re going to put bigger drivetrain components in there because if you don’t put in proper mitigation controls for peak torque, you’re simply going to move that problem someplace else,” Ostrander said. “You may end up moving that problem into a very expensive component and I know of cases where that has happened. Take a look at the whole truck and if you’re going to put in larger-sized components, let’s make sure the entire vehicle is properly designed to handle that.” FE

Meritor has produced a white paper on the effect downspeeding has on drivetrain components, available for download here:

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GEARED UP

Looking for smart spec’ing choices

A new direct drive SmartAdvantage is introduced for regional haul applications

By James Menzies aving recently completed a coast-to-coast tour in the US and Canada showcasing its prototype 2017 ISX15, Cummins joined with Eaton in Michigan to allow the first editor test drives and to announce the launch of a new SmartAdvantage powertrain. Michael Taylor, general manager, global powertrain with Cummins, said the 2017 engine has already been well tested, even though it won’t launch until late next year. He said it has already accumulated more than nine million miles in realworld customer applications, which is equal to 4,000 trips from coast to coast. Early indications are that the engine will excel in the four key areas customers care about: uptime, fuel economy, driveability and maintenance. Taylor vowed the 2017 ISX15 will deliver the best fuel economy and lowest overall total cost of ownership in the industry, even when compared to 13L engines. Asked how a larger, heavier engine can compete with a more compact 13-litre in terms of fuel economy, Taylor said, “With a big bore engine like the 15-litre ISX, you are able to take advantage of the low-end torque and you’re able to lug the engine down to a lower speed. As you go lower in speed, you reduce frictional losses and improve your overall parasitics, so you’re actually operating in a more efficient range of the engine. With a big bore engine you have the opportunity to utilize that low-end torque and therefore get higher efficiency compared to a smaller engine, where you’re not capable of lugging down as far and therefore have to run at higher speeds, which generates higher friction.” Taylor also noted 15-litre engines tend to last longer and maintain a higher residual value than 13-litre engines. The truck I drove on some Interstate highway and secondary roads near Marshall was equipped with the 2017 ISX15 and SmartAdvantage powertrain. The SmartAdvantage combines the ISX with the Fuller Advantage Series automated manual transmission. The overdrive transmission features a small, 26% step between ninth and tenth gears, allowing for quick shifts and the ability to easily and efficiently pop back

44 FLEET EXECUTIVE \ November/December 2015

and forth between the top two gears so the transmission is always in its most efficient gear. “The small step between ninth and tenth gives us the opportunity to switch between ninth and tenth and keep the engine right in the sweet spot,” Taylor explained. “It’s okay to downshift. It’s switching gears fast enough and selects the most efficient gear based on all the data exchanged between the engine and the transmission.” Taylor said this is an ideal line-haul spec’, where engine cruise speeds would average 62 mph or higher. During my drive the transmission did change frequently between ninth and tenth gears. We were loaded to about 65,000 lbs and cruised at about 1,150-1,200 rpm. All SmartAdvantage powertrains are limited to gross combination weights of 80,000 lbs, making it an ideal spec’ for north-south runs into the US but posing some limitations for higher-payload domestic routes within Canada. The SmartAdvantage powertrain with small step technology can now be ordered with 400- and 420-hp ratings, in addition to the 450-hp initial offering. The 2017 ISX15 carries over all the latest features Cummins offers on its current product. These include: vehicle acceleration management, which limits power on acceleration to save fuel; SmartTorque2, which senses vehicle weight, grade and operating gear to slect the appropriate torque output; and SmartCoast, which disengages the driveline when coasting downhill to save fuel. Cummins officials were reluctant to divulge specific changes that have been built into the 2017 product, but those details will be available closer to the official launch date. The engines available to drive this week were prototypes, but fairly advanced in the development cycle. During their joint press event here this week, Cummins and Eaton also announced availability of a new SmartAdvantage powertrain featuring a 10-speed direct drive transmission. The new offering, intended for regional haul and LTL applications with average road speeds of less than 62 mph, gives the SmartAdvantage broader coverage of the industry. While the smallstep overdrive SmartAdvantage readily jumps between the two top gears to ensure maximum efficiency, the 10-speed direct drive is inclined to grab and hold tenth gear to maximize the time spent in more efficient direct drive. The direct drive SmartAdvantage features faster rear axle ratios (2.26, 2.28 and 2.39 ratios are available, while the small step overdrive version offers rear axle ratios of 2.64 and 2.78). “One of the key enablers of this technology is the release of 2.26 and 2.28 axles, which gives us the opportunity to downspeed our direct drive transmission,” explained Ryan Trzybinski, product strategy manager, commercial powertrain, Eaton. “With those axle ratios, we can run our direct drive as low as 1,240 rpm at 65 mph - not quite to the overdrive level, but running in direct drive brings new features and opportunities to us…In regional haul applications with slower speeds and where you’re able to maintain and hold top gear, direct drive can give you an advantage over our SmartAdvantage small step.” Generally speaking, direct drive transmissions, with their ability to transmit power directly through the main shaft without parasitic losses, are more efficient than overdrive transmistrucknews.com

GEARED UP sions. But throw in some hills and higher average road speeds and an overdrive transmission could provide better performance, which is why Cummins and Eaton are now pleased to be able to offer both solutions. The two companies first announced their SmartAdvantage integrated powertrain in 2014, touting a 3-6% fuel economy advantage compared to their existing products at that time, which

weren’t yet fully integrated. The addition this year of SmartCoast has added another 2% in fuel savings, the companies say. Having expanded the SmartAdvantage options available, Cummins and Eaton have also revamped their joint Web site. Customers can now access more tools and information at www.SmartAdvantagePowertrain.com to determine which configuration is best for their application. FE

Integrate and synchronize Daimler now manufacturing entire powertrain lineup in Detroit

aimler Trucks’ Detroit brand is celebrating the start of production of its DT12 automated manual transmission and has announced the launch of its midrange engine line. The hot-selling DT12 was previously built in Gagenau, Germany and shipped to North America for installation in Freightliner and Western Star trucks. Daimler pumped US$100 million into its Redford, Mich. plant to bring production to these shores. “More than 40% of our Freightliner Cascadia and Western Star trucks are sold with an automated transmission and the take rate is still climbing,” said Dr. Wolfgang Bernhard, head of Daimler trucks globally. “It is a huge success and it makes us really proud. It is now time to make the next step; it’s my pleasure today to announce the start of production of our DT12 right here in the US, right here in Detroit, right here in Redford.” Production at the plant was momentarily halted to celebrate the milestone and about 2,000 employees, media and dignitaries gathered to hear Bernhard’s remarks. The plant inauguration was emceed by former Detroit Red Wing Micky Redmond. It was also attended by a beaming Roger Penske, who bought the company in 1988, saved it from potential bankruptcy, turned it around on the success of the Series 60 and then sold it to Daimler. “I didn’t know what I was getting into but it was an opportunity,” Penske said, noting at the time the company had lost $600 million in three years, languished with 3% market share and was suffering strained relations with employees. “I’m proud to see what is taking place today.” Martin Daum, CEO of Daimler Trucks North America, said the company has “completed the hat trick” by bringing DT12 production to Redford, where it also builds its heavy-duty engines and axles. “We now manufacture the entire powertrain lineup – engines, axles and transmission – right here in Detroit and that means we can integrate, synchronize, make it perfect,” said Bernhard. “We can offer the most powerful powertrain in the country and it gives our customers more reason to demand Detroit.” Daimler also announced the launch of its medium-duty DD5 and DD8 engines, which will also be built in Redford, eventually. Configuring the plant for the mid-range engines represents another US$375-million investment into the facility. “Today, we complete our lineup,” said Bernhard. “We trucknews.com

By James Menzies

launch our new medium-duty engines, the DD5 and DD8 into the US market and what’s more, we’re not only going to sell them in the US, but by 2018 we will also build them right here in Detroit, right here in Redford.” With the new engine launch, Daimler says it will bring the benefits of vertical integration seen on the heavy-duty side to the medium-duty market. “Detroit medium-duty engines will provide what no other manufacturer in North America can offer – a total vehicle solution that matches Daimler’s global engineering prowess with the most complete lineup bar none in the industry,” said Daum. “I am pleased to announce that select Daimler Truck North America vehicles will be available with medium-duty power by the end of 2016, and full production will take place in Detroit by the end of 2018.” In a press conference following the plant inauguration, Daum said Daimler will continue with its two-supplier strategy, offering Cummins engines as well in its medium-duty trucks. “This won’t change our business with Cummins because we have in every segment a two-supplier strategy. We want to give our customers choice and ultimately it’s the customers that are going to decide,” Daum said. When medium-duty engine production is brought to Michigan in 2018, it will add about 160 new jobs. Until then, they’ll be produced in Mannheim, Germany. The new engines will be available for order in 2016 in the Freightliner M2. Details regarding engine ratings and other specific features of the new mid-range engines were not yet revealed. Daimler Trucks North America has in recent years become a stronger player in the medium-duty market, capturing about 40% of the US Classes 6/7 segments in each of the past few years. Daimler also announced its entire lineup will comply with impending 2017 greenhouse gas emissions requirements early. Daum said he expects the truck market to remain strong in 2016, though orders will likely land somewhere between an excellent 2015 and a very good 2014. “We will finish the year strong and the start of the year will be strong through the first quarter,” Daum said. “We’ll see how the rest of the year unfolds. We don’t have that security we had a year ago where we were sold out at the beginning of the year but this is not normal for business, you should every day worry for your business and fight for it.” FE November/December 2015 \ FLEET EXECUTIVE 45

INSIDE THE NUMBERS

FAST FORWARD

DIRECTION OF SHIPMENT LEVELS IN 2015 Down 5-10% Down 10-20%

Down more than 20% 11%

10%

As Canadian shippers, who cut back on their freight volumes this year, look ahead to 2016, they see a similar year, interim results from our annual Transportation Buying Trends Survey indicate. Just a little over 40% expect to grow their freight volumes in 2016 â€“ a similar amount to those who grew their shipments this year. On the good news side, 47% expect their freight volumes to remain even, compared to 29% who thought likewise last year.

Not sure

3% 5%

About the same

Up more than 20%

Up 10-20% 29%

13%

26%

Up 5-10%

PROJECTIONS OF SHIPMENT LEVELS IN 2016

MODES SHIPPERS EXPECT TO USE MORE

23% Down 10-20%

Down 5-10% Down more than 20%

0% 8%

Up more than 20%

17%

About the same

2% 3%

15% 13%

47%

Up 10-20%

10%

11%

Not sure

4% 29%

Up 5-10%

Rail

MODE EXPECTED TO HAVE GREATEST PRICING POWER

For-Hire Truckload

For-hire LTL

Courier

Air Freight

Intermodal

SHIPPER PERCEPTIONS OF CAPACITY BY MODE (10 = TIGHT CAPACITY; 1 = EXCESS CAPACITY; 5 BALANCED CAPACITY)

19% 16%

Marine

Rail

16%

17%

Truckload 4.65%

Intermodal

4.42%

10%

4.89 %

LTL

Marine

4.45% 4.61%

4.83% Rail

For-Hire Truckload

For-hire LTL

Courier

Air Freight

46 FLEET EXECUTIVE \ November/December 2015

Marine

Intermodal

Air Freight trucknews.com

3.58%

Courier

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