Trucks at Work Blog

“When investing, pessimism is your friend, euphoria the enemy.” –Warren E. Buffett, chairman, Berkshire Hathaway

It’s been a rough year – one of the worst in my lifetime, at least – and most of the trucking experts I talk to think next year will only bring more of the same. That being said, though, 2009 is certainly NOT the worst year on record in the U.S. and though hard times are here to stay for a while, there is that unique liberation that comes from knowing you are at the bottom; for when you are at the bottom, there is no way to go but up.

Warren Buffett is, of course, a past master of profiting not only during the good times but from the down cycles as well. He’s also a man that needs no introduction, as he’s perhaps one of the most successful investors in U.S. history. While Buffett and his company, Berkshire Hathaway, garnered huge headlines earlier this month for the $44 billion deal to acquire the Burlington Northern Santa Fe Corp. (BNSF) railroad – the largest single acquisition in Berkshire Hathaway’s existence – they aren’t newcomers to the world of freight by any means.

In fact, Berkshire bought trailer leasing firm XTRA Leasing back in 2001 for many of the same reasons that it acquired BNSF – transportation is one of those “must have” wheels in any economy, and, in the words of Eric Starks, president of research firm FTR Associates, “You want to buy when you’re at the bottom and this is as close to the bottom as you can go.”

Yet Buffett is also something of a throwback (a term used here in a very positive way) when it comes to investing and the conduct of business in general. You can buy any number of books about him and his business beliefs, but they are really very basic – something that, in this day and age of increasingly indecipherable world of acronyms, complex risk-assessment algorithms, and obtuse regulatory language, should be closely examined by truckers large and small.

In good years and bad, Buffett and his partner Charlie Munger focus on four simple goals – and you can read this in any of his letters to the company’s shareholders:

(1) Maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of excess liquidity, near-term obligations that are modest, and dozens of sources of earnings and cash;

(2) Widening the “moats” around our operating businesses that give them durable competitive advantages;

(3) Acquiring and developing new and varied streams of earnings;

(4) Expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered Berkshire exceptional results.

He also references a lesson learned from fellow investor Ben Graham: “’Price is what you pay; value is what you get.’ So whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

One of Berkshire’s “bedrock” pieces of its vast portfolio is stock in electric utility companies. Yet it’s not about milking such companies’ dry of their cash flow. Take a look at how Berkshire manages ownership of MidAmerican Energy.

“In 1995, MidAmerican became the major provider of electricity in Iowa and by judicious planning and a zeal for efficiency, the company has kept electric prices unchanged since our purchase and has promised to hold them steady through 2013,” said Buffett. “MidAmerican has maintained this extraordinary price stability while making Iowa number one among all states in the percentage of its generation capacity that comes from wind … growing from zero to almost 20% of total capacity.”

Yet MidAmerican has not paid a dividend since Berkshire bought into the company in early 2000. Rather, the company’s earnings have been reinvested to develop the utility systems its customers require and deserve, said Buffett. “In exchange, we have been allowed to earn a fair return on the huge sums we have invested,” he noted. “It’s a great partnership for all concerned.”

Paying attention to the needs of customers generates profits: not rocket science, you know, but something many big wigs in finance routinely ignored on Wall Street as the U.S. headed towards the brink of economic collapse last year. Buffett also noted that maintaining a good business reputation also helps when federal regulators inevitably become involved, as well.

“It is they, rather than selling shareholders, who judge the fitness of [utility company] purchasers when transactions are proposed,” Buffett explained. “There is no hiding your history when you stand before these regulators. They can – and do – call their counterparts in other states where you operate and ask how you have behaved in respect to all aspects of the business, including a willingness to commit adequate equity capital.”

When MidAmerican proposed its purchase of PacifiCorp in 2005, regulators in SIX states immediately checked MidAmerican’s record in Iowa, he said.

“They also carefully evaluated our financing plans and capabilities,” Buffett noted. “We passed this examination, just as we expect to pass future ones. There are two reasons for our confidence. First, Dave Sokol and Greg Abel [MidAmerican’s top executives] are going to run any businesses with which they are associated in a first-class manner – they don’t know of any other way to operate. [Second] we know that our business behavior in jurisdictions where we are operating today will determine how we are welcomed by new jurisdictions tomorrow.”

[For a little insight into Buffett’s view of business behavior – specifically integrity – watch the video below from as speech he gave over 2 years ago. While the video quality isn’t that good, the message he’s trying to convey comes through loud and clear.]

This is all part of Berkshire’s long-avowed goal is to be the “buyer of choice” for businesses – particularly those built and owned by families. “The way to achieve this goal is to deserve it,” said Buffett. “That means we must keep our promises; avoid leveraging up acquired businesses; grant unusual autonomy to our managers; and hold the purchased companies through thick and thin – though we prefer thick and thicker.”

That circles back to another crucial principle Buffett believes in: A promise is no better than the person or institution making it. “As Ben Franklin once said, ‘It’s difficult for an empty sack to stand upright.’ We focus on blocking and tackling, day by day, doing the little things right and never getting off course,” Buffett noted. “We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.”

And yet amid all the bad economic news this year (and the still ongoing wars in Afghanistan and Iraq we’re involved with), Buffett remains an optimist – echoing the great Winston Churchill in this regard, when, during the truly dark days of World War II, with Nazi bombers raining death night after night on England, he had this to say: “For myself, I am an optimist. It does not seem too much use being anything else. For a pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

“Never forget that our country has faced far worse travails in the past,” noted Buffett. “In the 20th Century alone, we dealt with two great wars – one of which we initially appeared to be losing – a dozen or so [financial] panics and recessions; virulent inflation that led to a 21.5% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges.”

Yet without fail, however, we’ve overcome them, said Buffett. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497.

“Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived,” he stressed. “Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”

“Record-setting revenue drops, high unemployment and far-flung fallout from the housing bust and credit crisis; virtually all states have been stressed by the downturn. We expect that when state lawmakers next spring turn to crafting their new budgets for 2011, many will confront an even tougher set of challenges, as states already have made significant cuts, yet revenues continue to drop, and stimulus funds will be running out.” –Susan Urahn, managing director, the Pew Center on the States

It’s no secret that U.S. state budgets are under extreme stress in this ongoing global economic downturn. The big worry, though, is how many of them are teetering precariously on the edge of fiscal calamity – and how this situation could affect the critical role states play in maintaining our transportation infrastructure.

According to a new report by the Pew Center on the States – a division of The Pew Charitable Trusts – Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin join California (whose statehouse is at right) as the 10 most troubled states. In the report – Beyond California: States in Fiscal Peril – Pew’s research indicates state budget troubles can have significant repercussions, such as: higher taxes or fees; layoffs or furloughs of state workers; longer waits for public services; more crowded classrooms; higher college tuition and less support for the poor or unemployed.

They also pose challenges for the nation as a whole, Pew noted, as together these 10 states account for more than one-third of America’s population and economic output. And actions taken by state governments to balance their budgets – such as tax increases, additional fees for services, and drastic spending cuts – can not only slow down the country’s recovery, but put a big hole in the wallets of businesses and citizens alike.

“A challenging mix of economic, political and money-management factors have pushed California to the brink of insolvency. But while California often takes the spotlight, other states are facing hardships just as daunting,” explained Susan Urahn, managing director of the Pew Center on the States (seen below at left). “Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers.”

Pew’s researchers identified six major factors that contribute to budget issues for these states: (1) loss of state revenues; (2) the relative size of budget gaps; (3) increasing joblessness; (4) high foreclosure rates; (5) legal obstacles to balanced budgets – specifically, a supermajority requirement for tax increases or budget bills and (6) poor money-management practices.

While the public policy group cautioned that its report is not a comprehensive diagnosis of state fiscal health – demographics, debt burden and public pension liabilities are also major issues – Pew’s research team said it’s an important tool to begin to understand why some states are suffering more acutely from this recession than others.

There are also several big “threads,” if you will, that cut across all 10 states in terms of their fiscal woes; threads that could point to vulnerabilities in others as they try to navigate their way out of the fiscal crisis:

Unbalanced economies. A number of states on the list, including Florida, Michigan, Nevada and Oregon, have struggled in part because their economies have depended so heavily on a particular industry. This reliance on a single sector may have paid off in times past, but it put these states at greater risk when the recession hit. States cannot choose their natural resources, of course, but they can budget and manage for additional volatility that can result from dependence on a particular sector by seeking to diversify their economies.

Revenues and expenditures out of alignment. The severity of the recession has resulted in states across the country facing substantial gaps between what they collect in revenue and what they spend (Gee, does this problem sound familiar to anyone?). Yet of the 10 states in Pew’s study, including California, Illinois, Michigan, New Jersey, Rhode Island and Wisconsin, have a history of persistent shortfalls. “Aligning revenues and expenditures is a key component of fiscal health,” noted Urahn. (Now, if only the President and Congress could understand this …)

Limited ability to act. In most of the 10 states Pew surveyed, including Arizona, California, Florida, Nevada and Oregon, lawmakers’ latitude to respond to the fiscal crisis by raising taxes or cutting spending is limited by their states’ constitutions, ballot measures passed by voters, or other statutory or legal impediments to change.

Putting off tough decisions. (Now here is THE single biggest, thorniest philosophical issue in government today across the globe!!) Several states on the list were unable to muster the political resolve to enact long-term fixes to their fiscal problems. Virtually every state had to make tough decisions this year about where to cut and how to raise additional revenues, including through taxes or fees. But in some states, including California, Illinois and New Jersey, lawmakers punted the responsibility – either by asking their voters or governors to make the call, or by borrowing or using accounting methods to put off the hard choices until later.

To make matters worse, Pew projects the states’ fiscal situations are widely expected to get worse even if the national economy starts to recover. At the end of 2010, federal stimulus money that helped states meet some of their expenses begins to run out. Plus, states historically have their worst years shortly after a national recession ends, when they are coping with higher Medicaid and other safety-net expenses and when revenues lag because of stubborn unemployment, the group said.

When you take all this in and process it from a trucking perspective, you can’t help but ask a single question: what happens to the roads and bridges? If you’re a politician, weighing a reduction in road and bridge maintenance funds against steep cuts to, say, medical care for the elderly or poor, which way might you lean? I can tell you this – roads and bridges don’t go on cable TV news stations to complain about a lack of funding, I tell you.

In my neck of the woods, state governments make bets on Mother Nature being most forgiving and kind to fill in budget gaps – often times raiding funds set aside for snow removal operations in particular. That can backfire awful fast, as no one can predict what Mother Nature may decide to do from week to week in wintertime, or day to day for that matter.

On another level, we’re already seeing a range of fee hikes and the closure of public rests stops along the highways as a result of state fiscal troubles NOW. Yet if things are supposed to get fiscally WORSE in the months ahead, what other cuts might be waiting in the wings?

So as states are forced to deal with an ever rising tide of red ink, those that ply the highways for a living ought to be getting concerned – about things such as higher toll charges, for example. Nothing will be off the table if state fiscal ledgers don’t improve; you can bet your bottom dollar on that … if you have one left, that is.

“The most important object in Boy Scout training is to educate, not instruct.” –Sir Robert Baden-Powell, founder of the Boy Scouts

Professor Jerry Osteryoung from the college of business at Florida State University penned an interesting column the other day about why businesses must stop focus on “training” their employees and instead find ways to help them “learn.” It’s a philosophy that has a lot to do with the business side of trucking these days, too, especially for smaller carriers and owner-operators, for only by “learning” how to adapt to all the changes going on in this industry can they not only survive but prosper.

“Most businesses these days talk about training, and many have entire departments dedicated to training their workers. However, I think the emphasis on training is misplaced,” explained Osteryoung. “Rather, the focus should be on learning, and many larger companies are now changing their training departments to learning departments. While this might just seem like a subtle change in wording, I can tell you that it is much bigger.”

The professor noted that, with most training programs, the emphasis is on the trainer disseminating information to participants. “It is the trainer’s responsibility to get the material across; training simply becomes an event that occurs when staff members attend a training session,” Osteryoung pointed out. “Learning, on the other hand, is an internal event. It transfers the responsibility to the participant. It is now up to them to understand and master the material. Between training and learning, the focus shifts from teacher to student.”

The professor, by the way, travels all over the place conducting seminars on a variety of business topics, and he always tells his participants that he’s not there to train them; rather, he’s there to facilitate the learning process.

[I for one can attest to this, being fortunate enough to hear Professor Osteryoung conduct such seminars a time or two.]

“Thus, the outcome of the seminar rests on them learning the necessary material. It is their responsibility to master the material, and not mine to train them,” he stressed. “This is a big shift in orientation, but it is one that is vital in business.”

This new philosophy, Osteryoung believes, requires that each participant comes into the learning environment with a clear understanding that the responsibility for mastering the material is his or hers and not the instructor’s. In addition, the manager plays a key role in ensuring that the learning is transferred into the employee’s work environment. The manager is then responsible for providing the encouragement, tools and support that will enable the employee to successfully apply the new skills and knowledge to his or her day-to-day activities, the professor explained

“Some people might say that the distinction between learning and training is minor, but in my mind it is quite large. It changes the entire way we approach new material,” Osteryoung noted. “With learning, you begin at a higher motivation point, allowing the students to become active participants in the learning process as opposed to having an instructor force-feed them the material.”

If you think none of this applies to trucking, think again, for this focus on “learning” is something my editorial compatriot, Tim Brady, stresses over and over again in his work. As the business editor of American Trucker magazine and veteran owner-operator with over two decades of experience out on the road, Brady believes “learning” is the key for helping smaller operators to develop the products and services that’ll win them freight on the market.

“If you describe an independent trucker as a true entrepreneur who has done his research, sees a niche the big carriers either can’t or are unwilling to fill, and has spent the time developing a business plan: his company and others like it will grow into the medium and large carriers of the future,” he said in a recent post on his Blog4Truckers site.

“I work with trucking entrepreneurs on a daily basis. The successful ones (and there are many) are providing logistic services with which the big companies can’t even begin to compete,” he noted. “The entrepreneurial truckers with their skill, knowledge and determination have the big carriers beat hands down when it comes to quality of service.”

Brady’s point is that if a trucking company doesn’t know what it costs to provide a service, have a plan on how the company is going to grow, understand the market they service and know how to set a hauling rate range that is competitive in the market they choose – if they haven’t learned how to do all this correctly, as it were – then they will fail.

“But listening and researching how to improve your operation will increase efficiency,” he stressed. “Succeeding in trucking isn’t only what your credit rating is or what your company’s Dunn & Bradstreet Report looks like. It has to do with what you know, how much revenue your company produces against your costs, what your accounts receivable look like, and also the quality and diversity of your customers must be considered. “

Being successful, Brady said, is not robbing Peter to pay Paul, but managing your assets: cash, equipment, property, accounts receivable, customers, employees and contractors, with a plan – a plan developed from all a trucker has learned about the business environment, the freight market, the needs of customers, etc.

“We all know this establishes the foundation of your business, but a foundation is nothing more than a base from which to build,” he added. “You must continue placing stone after stone on this foundation, thus building the walls of success for your trucking business.”

Something to think about, as my friend Brady always says.

“This service is another way we’re constantly pushing the envelope for our customers to help them succeed in an increasingly competitive marketplace.” –Lisa Lynn, director, UPS new product development

In recent weeks, I’ve been hearing a lot about how the “niche” is becoming a more and more critical piece of trucking’s future, for both large and small carriers alike. By that I mean that many truckers are looking at ways – or being encouraged to look at ways – to develop more customized freight services to reach specific freight market segments.

That, in the opinion of several noted industry experts, is what’s going to allow fleets not only to survive but thrive in a freight world vastly remade by the ongoing global economic downturn.

“The dynamic forces affecting this [trucking] market must be accepted – they are things we cannot change. So carriers must find a way to live with them or take advantage of them,” noted Duff Swain, president of consulting firm Trincon Group and a veteran observer of this industry. “This means the big carriers are going to get bigger and fewer, while the smaller carriers need to get smarter and more niche-driven.”

Swain (at right) has long contended that change is essential for truckers. “Some companies learned the lesson early and invested time and money in people and processes which allowed them to identify their markets, utilize technology as a management tool, develop talented management teams, demand greater accountability, and use appropriate strategies to control their markets,” he explained during a presentation at TMW System’s 2009 TransForum user conferences.

“They have learned to operate a capital-intensive business using talented managers and good information management,” Swain noted. “This process has helped them learn how to market themselves where they are most effective – and their actions have allowed them to control the market and competitors have been forced to respond to their moves. We can learn from their example.”

Mark Winkler, vice president of strategic planning & business for Bridgestone Bandag, echoed the same message, noting that both tires produced by his industry and trucking freight services are in danger of becoming commodities – that, at the end of the day, price has become the determining factor of which a tire or transportation service is purchased.

The reason is simple in trucking’s case, said Winkler (at left), as everyone meets the same basic set of standards: tracking and tracing freight, meeting on-time delivery metrics, etc. The key going forward, he stressed, is how to bring unique offerings to the commodity that is trucking. This approach calls for a “zone of segment focus” instead of the more typical “zone of customer focus” used by the industry today – and thus a greater focus on developing niche-driven services.

“A ‘zone of customer focus’ is a generic strategy, if you will– you develop products and services to meet the common needs of your entire customer base,” Winkler explained. “With a ‘zone of segment focus,’ however, you are meeting needs of specific segments with products and services that may be incompatible and irrelevant across the segments. Developing specific solutions this way can help carriers, especially smaller ones, build more profit.”

United Parcel Service is demonstrating how such a niche-driven strategy can be put into play in the freight world, as it is piloting a new service called “UPS Direct to Door” that delivers product samples to residential locations. UPS is initially testing this unusual marketing service in five cities – Chicago, Dallas-Ft. Worth, Miami, Phoenix and Washington, D.C.

It’s a smart niche offering because its taps into UPS’s established freight network to provide something new and different without adding much extra cost to Big Brown – up to 12 product samples are packaged in a custom-designed UPS Direct to Door Pak and delivered to residents that are ALREADY receiving a small shipment that day.

Casey Chroust, executive vice president of retail operations for the Retail Industry Leaders Association, summed up the benefit of UPS’s service pretty succinctly: “Retail marketers are looking for ways to make their messages stand out. UPS Direct to Door serves as a very unique and targeted marketing approach because messages are personally delivered to the door, which makes the delivery special.”

“As marketing channels evolve and consumer choices increase, we need new touch points to connect with customers,” added Pat Connolly, executive vice president and chief marketing officer for Williams Sonoma. “With a UPS Direct to Door delivery, we’re reaching an active consumer – an important factor for increased response rates.”

And that added business – small to be sure for a while – is going to help UPS stand out from its competitors, demonstrating it can do new and different things with its current delivery network. That should help their bottom line and keep their capital-intensive assets busy, without adding a lot of additional costs. It’s this kind of smart, niche-driven thinking truckers on a larger scale need to tap into.

“Remember this: you’ve got to take care of your people, but don’t forget to also take care of your sheepdogs.” –Lt. Gen. Russel L. Honore (Ret.), from a recent speech on Leadership and Preparedness in the 21st Century.

It may seem a bit odd, this reference to “sheepdogs” by retired Lt. Gen. Russel Honore, who won a plethora of plaudits for commanding Task Force Katrina back in 2005, but bear with me here.

I had the great privilege to hear the General speak at TMW System’s 2009 TransForum user conference this week and let me tell you, his rousing speech really drove home what the concepts of leadership and responsibility are all about – and he used that “sheepdog” analogy near the end of his talk to illustrate the value of personnel who perform tough and often times thankless tasks.

“The sheep often forget why there are sheepdogs; all they see is an animal barking at them, driving them this way and that,” Honore said. “They see how the master takes care of the sheepdog. How it sleeps in the house apart from them. They produce the wool that makes the money, the sheep often think – we do all the work. Why is the sheepdog treated differently?”

The reason, the General stressed, is that the sheepdog is there for when the wolves come – wolves that, in the context of his analogy, kill indiscriminately … and often kill “just for the hell of it.”

“Even though the sheep may often despise the sheepdog, it is the sheepdog that takes care of them; that drives off the wolves,” Honore said. “And remember this: compared to wolves, the sheepdog is often underweight and smaller. Yet it goes out to defend the flock. Sometimes, the sheepdog comes back missing an ear or with other injuries; sometimes, the sheepdog does not come back at all. But it goes out to defend the flock nonetheless, despite the danger.”

Taking danger head on, despite the risks, is something General Honore knows a lot about. A native of Louisiana of what he calls French-American Indian-Spanish heritage, Honore spent 37 years in the U.S. Army in a wide variety of posts: commanding the 2nd Infantry Division in Korea; vice director of operations J-3 for the Joint Chiefs of Staff in Washington D.C.; assistant commandant at the Army’s Infantry School in Ft. Benning, GA; and assistant division commander of the 1st Cavalry Division out of Ft. Hood, TX.

Honore is famous for his service in the wake of Hurricane Katrina, taking over recovery efforts for New Orleans and the rest of his native state with a firm yet fair hand and earning the title “John Wayne Dude” from the city’s mayor, Ray Nagin. “He came off the doggone chopper, and he started cussing and people started moving. And he’s getting some stuff done,” Nagin said at the time.

Yet the General did not dwell much on what he did during those long, weary days in the stifling heat of late August 2005. Rather, he stressed that there were valuable lessons to be learned from that terrible catastrophe – ones that all Americans should heed. It’s at the heart of what he calls “creating a culture of preparedness” so both citizens and businesses can survive and recover from the impact of any sort of disaster.

[Here’s a taste of what the General is like, both from his days on the ground after Katrina and as a speaker, sharing his thoughts on leadership and preparedness with Coca-Cola executives and managers.]

“Leadership means being prepared – and you truckers know something about that. You delivered the supplies to help us recover from Katrina,” Honore said at TMW’s conference. “But I ask you: how many of you have three days supply of non-perishable food and water in your house right now? How many of you have an emergency evacuation plan for your families? Many people think something like Hurricane Katrina can’t happen to them. Let me tell you – it can happen. Look at Atlanta this week, suffering from flash floods. It can happen and routinely happens, all over this country.”

The General boils that all down into a phrase he made famous in a press conference during Hurricane Rita recovery efforts: “Don’t get stuck on stupid.” He pointed out, for example, that a major high school and hospital in New Orleans had big backup generators on hand should the city lose power in the event of a natural disaster. But guess what: those generators were, in each case, located in the basement of the buildings – and thus were destroyed by flood waters.

“Let me tell you this: when we lose electricity, we go back to the way we used to live 80 years ago – instantly,” Honore stressed. “I know this stuff is pretty dull, but it’s important for Americans and American business to get and remain prepared.”

This notion of being prepared in order to face down heavy odds should be nothing new to Americans, the General pointed out. His favorite example of this “can do” spirit is none other than George Washington, the nation’s first president and commanding general.

“Go back to a cold Christmas night December in 1776,” Honore said. “Our army back then sat freezing in the snow, 90% of it sick or AWOL [away without leave]. Most didn’t have shoes and much of their ammunition didn’t work. What did they have to look forward to? There were no Veterans hospitals; social security didn’t exist. And they were facing the British army; the most powerful army in the world at that time.”

So what did General Washington do, faced with this sad state of affairs, asked Honore? Washington attacked – his troops crossing the ice-choked Delaware at night in boats confiscated from nearby fishermen, marching through the darkness in frigid temperatures, and then hitting Trenton, NJ, at dawn, killing or capturing over 900 Hessian mercenaries fighting in the British army.

“Remember that: they attacked and the kept the Revolution alive, right at the edge when it flickered and almost went out for good,” Honore stressed. “We must not forget their sacrifices and what they did so we can enjoy our freedoms today. Sure, there’s a downturn right now and we might have to make sacrifices to get through it – but we’ll be better for it in the end. Our obligation is to leave our country free and strong, in memory to those who volunteered to fight for freedom back then – many who weren’t free, being indentured servants and slaves.”

Honore said fighting for freedom, be it on the battlefield or in business, is a critical part of America’s heritage, for while to be born free is an accident and to live free is a privilege, to die free is a responsibility.

“Ladies and gentlemen, this is your world – and your world will be more volatile in the next 20 to 30 years than it was in the previous 20 to 30 years,” the General said – and that is being proved more so every minute; just look at today’s announcement that Iran has a second plant developed to uranium enrichment, this one located near one of its military bases. As the specter of nuclear weapons in the oil patch again raises its ugly head, it brings home how critical true leadership skills are going to be in dealing with this ongoing crisis.

“That’s why leadership revolves around three things: seeing first, understanding first, and then acting first. There’s a value in being first, in recognizing and then acting on danger,” Honore said. “Leadership is about innovation and ingenuity; it’s about being prepared not just to help yourself but to help others. How you survive a disaster, whatever it may be, directly relates to what you do before it strikes. Because if you wait for things to break before fixing them, they will break at the worst time.”

Valuable lessons indeed, from a veteran sheepdog that helped keep the wolves at bay for a long, long time.

“For too long, American businesses—particularly small- and medium-sized businesses—have been fighting against systemic imbalances that make it tough for them to compete and create new jobs.” –Gary Locke, Secretary of Commerce

If there’s any segment in the small business community today that knows exactly what Gary Locke, head of the Commerce Department, is talking about in his comment above, it’s small to medium-sized trucking companies.

To say it’s been a brutal couple of years in trucking is an understatement. Transcore’s 2009 Broker Benchmark Survey laid out in stark figures how bad a bloodbath it’s been for truckers. According to the survey, which covered 2008, year-over-year tonnage declined 12.5% from December 2007 to December 2008 and some 3,065 trucking company failed in 2008 alone, removing 137,650 trucks from service.

But a key indicator in this survey is the slip in gross margins: a drop of 5%. That 5% doesn’t sound like a lot, but it could mean the difference between making a profit and losing money. And it goes against expectations, in a way, as if there are fewer trucks to haul the freight, the marketplace would logically dictate more competition for loads and therefore higher rates.

Yet so it goes: there are still too many trucks chasing too little freight, with a variety of cost pressures putting the squeeze on truckers – especially those on the smaller side of the scale. For it’s the small guys that can rarely cope with high costs, especially when they come on multiple fronts increasing the price of everything from equipment (due to compliance with emission regulations) to healthcare.

Secretary Locke touched on cost pressures like these facing small businesses in a more general way during a speech before the 2009 National Minority Enterprise Development Conference in Washington D.C. back on Aug. 27. He talked about how all small and medium-sized businesses – trucking and non-trucking alike – are feeling the pinch from many quarters, both in the short haul and in terms of future development. While Secretary Locke focused his remarks on the plight of minority businesses, much of what he said speaks directly to the concerns of almost all small and medium-sized American companies today.

“My father was just like many of you,” he said. “After serving in the Army in World War II, my father came back home [and] opened a small, family-owned grocery store. I grew up in that place, stocking shelves, making free deliveries and making sure our customers had everything they needed. My father put everything he had into that grocery store. It was his little piece of the American dream.”

But today, the secretary noted, that dream is slipping away for far too many small businesses. “It’s become uncomfortably normal to turn on the news and hear about massive layoffs at this automaker or that financial firm,” he said. “But hit hardest of all has been America’s small- and medium-sized businesses. Through the third quarter of 2008, half of all private sector job losses had occurred in companies with fewer than 20 employees. For too many American businesses, the bills have kept coming while the payments for products delivered or services rendered have not.”

Going forward, Secretary Locke said, America must end its dependence on economic bubbles for growth. “To put our economy on a sustainable path, we’ve got to make fundamental changes like we haven’t seen in America for decades,” he pointed out. “[Because] for too long, American businesses—particularly small- and medium-sized businesses—have been fighting against systemic imbalances that make it tough for them to compete and create new jobs.”

What are these issues? Secretary Locke named these three: An education system that isn’t preparing our kids or retraining workers for the jobs of the 21st century; Decades of mismanaged energy policy that puts our environment in peril and leaves American businesses – especially manufacturers – vulnerable to unpredictable price swings in the oil markets; and a healthcare system that leaves almost 50 million Americans without care, millions more with too little care, and is riddled with inefficiencies that pile what he termed “backbreaking” costs on governments, citizens and businesses alike.

“There is plenty of room for honest debate on this issue. But let’s be clear about one thing: Those who advocate continued inaction are not only guaranteeing that tens of millions of Americans will continue to be uninsured or underinsured; they are also consigning American businesses to a less competitive future because of unsustainable health care costs,” he said. “Insurance premiums have gone up nearly 10% annually in the last decade. And they’ll likely do the same in the next ten. The average family’s annual premium will jump from $13,000 to $25,000. We can’t let that happen.”

The impact on small businesses is even bigger, Secretary Locke said. Small businesses pay up to 18% percent more per worker than large firms for the same health insurance policy – and as a result, many small businesses are getting out of the health coverage business altogether. “Less than 50% of firms with three to nine workers offered any type of health insurance to their employees in 2008—compared to 99% for firms with over 200 workers,” he noted.

Now, full point of disclosure – as Secretary Locke is a member of President Obama’s cabinet, he’s carrying water for the president’s version of health care reform. You may agree with the president’s vision for healthcare reform or disagree vehemently, but what Secretary Locke stressed is that the cost of health care – much like diesel fuel prices – is projected to head but one way in the future; up. And those rising costs will significantly hobble the efforts of small- and medium-sized businesses to innovate and grow.

“The thing that people need to understand about healthcare reform is that this is a competitiveness issue for our businesses,” he said. “The longer we wait to do something, the worse off we’ll be.”

At the same time, though, there’s something else to consider: American business needs trucks to get things done. So while it’s been tough and is going to stay tough for a while in trucking, truckers need to remember that they provide a necessary and vital service – one American business cannot do without.

“With the economic outlook for the next year or two not looking real bright, running a trucking company is going to be challenging. It is going to require a dedication to detail not seen for many years,” noted my editorial compatriot Timothy Brady in a recent post on his Blog4Truckers site.

“The good news is, America runs on trucks, and small motor carriers – those with fewer than 35 power units – haul a vast majority of the freight,” he explained. “Over 80% of American manufacturers are small businesses with fewer than 25 employees, meaning these small business owners are going to be facing the same dilemmas and problems as the small trucking company owner. The small business owners are going to need a hauler who understands what they’re dealing with … and who better than the owner of another small business? That’s YOU.”

Something to remember as small truckers battle to survive until freight revives.

“The question on long term strategy is not if it is successful, but if you are still alive.” –Ron de Jonge

A “cannibal” is defined as a creature that eats the flesh of its own kind; in business, “cannibal” is used in a figurative sense (one hopes!) to describe a concept whereby you devour your own sales to preserve or increase market share. Needless to say, it’s an extremely risky strategy at best – one fraught with all kinds of pitfalls – and it’s also one that gets used quite frequently in trucking, usually with unfortunate results over the long-term.

I’m talking, of course, about price cutting – a strategy in trucking whereby freight rates get sliced in order to win business. Often times, though, such freight rate cuts aren’t done internally – they are in many cases forced on the industry by shippers that no longer recognize the value of the transportation service they buy.

In any event, whether self-inflicted or not, such cuts in the price of trucking services leads to cutbacks in other areas – maintenance, driver pay, new equipment, etc. – that end up hurting the carrier, sometimes severely, in the long term. In effect, they are cannibalizing themselves to survive, but it’s a strategy that by its very nature doesn’t offer hope of long term survival.

“The big mistake we make in the trucking industry is we allow sales to set price,” noted my editorial compatriot Timothy Brady in a recent post on his blog.

“The attitude of ‘price is everything’ in the trucking business has caused what was once a vibrant and prosperous service to become an afterthought,” he said. “Frankly, I don’t believe any service or product’s value is determined by price alone. If I sell services at prices that are less than it costs me to provide them, I’m not going to be in business very long. When the customer has a problem with the service and I’m not around to help solve the problem, suddenly that service loses value to that customer.”

What gives a service value, in Brady’s view, is a combination of reasonable price (one that is profitable to the provider), acceptable quality to the customer, and a provider that solves problems when the service doesn’t attain its objective.

“Customers don’t buy price; they buy value. If a product or service’s sale price is less than its cost, it has no value,” he noted. “Discounts can be a great sales tool if used properly. [But] when a hauling rate doesn’t add value for the shipper, it’s a ball-and-chain dragging a trucking company to extinction.”

Professor Jerry Osteryoung with the college of business at Florida State University noted that at times, a price-centric focus may be necessary – event vital – for short term survival. But such “cannibalization” as he calls it is not a road map for long-term success.

“Cannibalization is a business concept where you devour your own sales to preserve or increase market share,” he explained. “For example, BlackBerry is a firm that really understands this concept. They continue to roll out new BlackBerries knowing that by offering new products, some of their existing phones are going to suffer losses in sales. However, by offering new products in new markets, they cover the cost of this cannibalization with the new sales and they stop competition from entering the market.”

However, Osteryoung stressed that it is vital that businesses understand that they must run the numbers to determine whether cannibalization or market expansion makes sense.

“For example, if you are going to offer a new product and you know that you are going to lose 50% of your revenue on an existing product line, the new product must be able to generate a return high enough to cover the cannibalization cost,” he noted. “When considering cannibalization, ask yourself whether it is actually necessary. Sometimes … you’re not really bringing in more customers by offering the lower price. Instead, you may be just shifting customers … [resulting in] a significant drop in price and margins.”

From Brady’s perspective, it’s akin to a professional football coach entering a game without knowing how the game is played, without knowing the strength and weaknesses of his team, without having a game plan customized specifically for the opponents he’s going up against – he’s only focused on one aspect of the game (in the trucker’s case, price) to the detriment of everything else.

“The end result: the opposing team will steam-roll the unprepared one, and the outcome isn’t going to be pretty,” Brady said. “But if you understand how business is conducted – the more you know about logistics, the concept of supply and demand, and the more precise information you have on what it costs to haul a load – that offers the greatest opportunity for success. That knowledge is real power.”

“Like any recession, this one will play out in stages and will vary by industry. Regardless of which stage your company fits, or the speed of change, you must move beyond tactical, reactionary moves and make structural changes needed to support growth. To make this shift, companies need to be proactive and prepare now for the new growth environment, whatever it may look like.” –David Brainer, principal, Deloitte Consulting LLP

It seems fitting on this day when an icon of U.S. political history, Sen. Edward “Ted” Kennedy, passes on, that we take stock in where we’re all headed in this country, especially economically.

Whether you loved or loathed Ted Kennedy, one must at the very least admire his doggedness – a truly American trait if there ever was one. For 40 years he fought for universal health coverage for every U.S. citizen – and he never wavered in his attempt to gain it. Right up until his death early this morning at age 77 from brain cancer, he fought for it – and as yet the final chapter in this ongoing political battle over health care is still yet to be written.

That same unshakeable sense of purpose is going to be needed by all of us as this nation continues its long, slow climb back to economic good health, for there are many unpleasant challenges ahead – with the cost of health care just one of them.

Of late, though, it seems that confidence among consumers is brightening – and more robust spirit is one of the key ingredients we’ll need in the days ahead. The Conference Board said its Consumer Confidence Index, which had retreated in July, rebounded in August, with the Index now standing at 54.1, up from 47.4 in July. The group’s “Present Situation Index” increased slightly to 24.9 from 23.3 last month, while its “Expectations Index” improved to 73.5 from 63.4 in July.

Now, these consumer confidence survey’s are based on a representative sample of 5,000 U.S. households – and considering there are over 300 million U.S. citizens out there, this “sample” seems awful small to me when making such huge broad claims about “consumer confidence.” And course such human emotions like “confidence” are always fickle, apt to change at the slightest bit of bad news (such as, say, the appearance of Godzilla on a city street). Then again, though, we’ve had a lot of bad news of late, so for “confidence” to rise in the face of things is somewhat heartening.

“Because the speed and intensity of the recovery will largely be determined by consumer psychology and a willingness to spend, I envision true economic stability won’t take root until the first quarter of 2010,” noted Greg Maloney, CEO and president of Jones Lang LaSalle Retail. “And consumer confidence will play the biggest part in our return-to-normalcy.”

“Consumer confidence, which had posted back-to-back monthly declines, appears to be back on the mend,” noted Lynn Franco, director of The Conference Board’s consumer research center. ”Consumers were more upbeat in their short-term outlook for both the economy and the job market in August, but only slightly more upbeat in their income expectations. As long as earnings continue to weigh heavily on consumers’ minds, spending is likely to remain constrained.”

But one of the things weighing heavily on American minds right now is the continuing climb in health care costs – even as we desperately seek some way to do the exact opposite. According to Aon Consulting, health care costs are expected to increase on average 10.5 percent in the next 12 months. After surveying over 60 leading health care insurers, representing more than 100 million insured individuals, Aon found that health care costs are projected to increase by 10.4 percent for HMOs, 10.4 percent for POS plans, 10.7 percent for PPOs and 10.5 percent for CDH plans.

Aon also found that prescription drug costs are expected to increase 9.3 percent, with the specialty pharmacy trend rate is 13.2 percent. In addition, health care rate increases for retirees over the age of 65 are projected to be 6.6 percent for Medicare Supplement plans and 7.3 percent for Medicare Advantage plans.

Then there are the deficits being racked up at a frightening rate by the federal government. We’re on track to post $1.56 trillion worth of red ink this year ALONE, easily topping last year’s record of $455 billion, with a projected $9 TRILLION hole being dug by current spending outlays over the next decade. That’s on top of the $11 TRILLION in debt already on the U.S. books.

While the U.S. economy is actually projected to start growing again by the White House’s budget office, albeit just 1.6% in the second half of this year, unemployment is going to stay relatively high; it averaged 9.4% in July and should peak at 10.2% next year before falling to 9.1% in 2011.

Needless to say, none of this paints a very rosy picture for the future. Yet it’s how we deal with these challenges that will be critical.

Deloitte Consulting LLP recently released new research that found while most major companies surveyed believe that the U.S. economy will start improving in early 2010, many of those same companies will lag behind the general economy when the rebound occurs. The reason: Too much focus on short-term, tactical actions and little attention to structural changes and strategic investments that are needed to support growth in the new business environment.

Approximately 55 percent of the companies surveyed by Deloitte feel the U.S. economy will start showing signs of recovery in the first or second quarter of 2010; though 25 percent think relief won’t come until the third quarter or beyond. But, when the upturn does commence, Deloitte believes many companies will struggle to deal with the new economy, which will likely be a completely different playing field from what companies have seen in previous recoveries.

“After implementing initial cost cutting measures when the economy first began to tumble, such as reducing salaries, layoffs and plant shutdowns, many companies are now are confused about their next steps,” said Kelly Marchese, a principal at Deloitte. “We believe these businesses should stop focusing on short-term concerns and look at their business in this new reality. Businesses need to focus on areas such as talent, growth and structural change so that their business doesn’t just survive – it thrives.”

Deloitte said its survey – Here Today, Where Tomorrow? Taking Action in Uncertain Times – is the result of hundreds of hours of in-depth meetings and discussions with nearly 100 companies across a wide swath of American businesses, including the healthcare, manufacturing, retail, life sciences, financial services and energy industries.

Deloitte believes there are three key economic phases to this downturn that businesses need to recognize so businesses can better focus their revitalization efforts:

• Phase 1: Over the Edge: companies were focused on shuttering their business, generating cash, and looking at tactical cost reduction. Survival was priority number one.

• Phase 2: Lumpy and Bumpy: the current phase of the economic downturn where companies need to place the focus on structural changes, strategic investments and a resetting the profit model.

• Phase 3: Growing into a New Reality: this is what companies need to prepare for; where the new economics, market realities and competitors emerge.

“Every organization grows at its own pace, determined by factors as large as the global economy and as personal as its current balance sheet. But, every business must grow – the only question is how,” noted David Brainer, a principal with Deloitte. “[Yet] that’s just the beginning. It’s not just about strategy; it’s also about practical execution.”

It’ll require a lot of gumption and faith in ourselves to successfully cross all these hurdles ahead, no doubt. But if we can stick to our guns like Ted Kennedy did over his life – despite personal successes and grievous failings, political mistakes and triumphs alike – then there’s no economic challenge we cannot overcome.

“The man who succeeds above his fellows is the one who, early in life, clearly discerns his object and towards that object habitually directs his powers. Even genius itself is but fine observation strengthened by fixity of purpose. Every man who observes vigilantly and resolves steadfastly grows unconsciously into genius.” –Edward George Bulwer-Lytton

“Directed attention” is one of many definitions of the word “focus” as compiled by the Merriam-Webster dictionary – and it’s something that I’ve been pondering lately in relation to the trucking business.

“Focus” came to mind in a recent story I wrote about Con-way Freight’s effort to group until-now disparate less-than-truckload (LTL) offerings into a single “Global LTL” division. From my perspective, at least, the move seemed to unnecessary – I mean, heck, Con-way Freight’s “LCL” or “less than container load” service for ocean container shipments coming from Asia to the U.S. in partnership with APL Logistics as well as its expedited LTL in partnership with TNT for air freight service to the U.S. from Europe seemed to pretty well as is. Why complicate things by grouping them together in one division?

“We’ve already been providing a lot of LTL to global shippers, but it’s an effort that’s been screaming for some organization for some time,” Bill Wynne, Con-way Freight’s vice president of marketing, told me. John Labrie, Con-way Freight’s president, added that the purpose behind forming the “Global LTL” division is to bring all of the carrier’s worldwide LTL solutions under one umbrella. That would make it more convenient than ever for shippers to quickly and intuitively locate the LTL service that best meets their needs, he explained.

In effect, grouping these different serviced together – LCL and expedited LTL – is going to help Con-way Freight sharpen its focus and maybe use those established services to find other business they may have overlooked when the two offerings functioned separately.

My journalistic compatriot Tim Brady mentioned in a recent post on his blog that this type of “focus” is how even small motor carriers can still make a profit in the trucking business – focus sharpened with planning, forethought, and the use correct business principles. “If you’re a small motor carrier, you should be looking for a specific niche in which to specialize,” he wrote.

“If you want to compete in the truckload side of the business, you have to provide something no one else is willing to do, and then do it better than anyone else could,” Brady (at left) explained. “There’s always a need for any size company which provides excellent customer service. So yes, you can be successful in trucking, as long as you make a plan, know your costs, and be sure your rates reflect those costs. Find and fill your niche and become the best in the lane you service.”

Another business expert I regularly follow, Professor Jerry Osteryoung (below on the right) from the college of business at Florida State University, also believes “focus” is a critical attribute to have in business today. In a recent column, he related an interesting story illustrating why a lack of focus could morph into a big problem for any company today, large or small, trucking or non-trucking:

“We’ve been helping an entrepreneur who has been in business for over 15 years, but whose revenues have lately been on a free fall. I asked him to develop a marketing plan, but he had so many problems doing so. It just baffled me that this intelligent, bright man was having so much difficulty writing a marketing plan.

Given [his] difficulty with the marketing plan, I went back to ground zero and asked him what his mission and vision statements were. Both turned out to be so general that they were of no value. During these conversations, he showed me the company brochure, which listed ten different, unrelated services that his company provided. I then understood why the marketing plan and other core statements were impossible for him to complete: There was no hope of having a focused message or a focused business while providing so many different services.

I asked him how he managed to get involved in all of these different areas, and he said that his clients had asked him to do additional work outside of his core strengths. In response, he went ahead and did these things and developed an expertise. He just thought the more services he offered his clients, the more business he would generate. Unfortunately, he just neglected to consider how trying to do too many things for too many different types of clients would dilute his efforts.

We spent one meeting just discussing which of the areas he was passionate about and which there was a market for. He decided to focus on business coaching. From this, it was easy for him to develop succinct vision and mission statements as well as a very good marketing plan. Once he was able to focus, the rest was simple. Without this focus, everything was just too scattered.

Now, there is nothing wrong with having multiple product lines, but having too many will cause you to lose focus – and the more you lose focus, the less control you have on your business. You need to understand that every new market thrust leaves less time to manage and run existing product or service lines. So instead of asking what the returns from the expansion are, the question should ask what the returns from the expansion are less the losses brought about by reduced effort on existing products or services.”

“Without a compelling cause, our employees are just putting in time. Their minds might be engaged, but their hearts are not.” –Lee J. Colan, author of “7 Moments that Define Excellent Leaders”

You know, sometimes in the trucking business there seems to be far more care extended to equipment than to people.

Don’t get me wrong; obviously, I’ve filled this space with stories about the exact opposite many a time. Yet just look at the rigorous preventive maintenance practices for tractor-trailers; they get brought into the shop at regular intervals, usually every 25,000 miles which roughly equates to every three to four months. Good truck drivers conduct a thorough pre-trip inspection on their equipment before they hit the road for the day.

But do we extend the same level of “maintenance” to the folks behind the wheel, turning the wrench, at the dispatch desk, or in the back office? It’s an interesting question, one asked recently by Professor Jerry Osteryoung with the college of business at Florida State University in the context of dealing with what he termed “problem employees.” He makes some interesting points, so I thought I’d share them and see what you think. Professor Osteryoung, the floor is yours:

“Problem employees are an unavoidable part of the working world. We all have had to work for, work with or supervise a difficult employee. Although in many cases you inherit the problem worker, he or she is still your responsibility. It is so glib to say, ‘Let’s just get rid of the problem worker,’ yet this is an unreasonable solution for many reasons.

I do not think that there is a clear definition of a problem employee. What is clear, however, is that these employees tend to affect the morale of the entire organization and make your life very difficult. Too often, the implicit assumption is that a replacement worker must be better; however, this is frequently not the case.

Look at it this way, then: How would a manager make a decision on a piece of equipment that was causing a maintenance headache? Well before it was replaced, I guarantee you that a thorough analysis of the problem would be conducted, and possible alternatives for fixing the problem(s) would be evaluated. It is just good business to make sure that the problem cannot be corrected before a new asset is purchased. Yet this same type of analysis is not done on employees who are having difficulties.

So many times I see employers letting staff go simply because they did not give the manager what they wanted. However, when I go back to the staff member and ask if they understood what was expected of them, the majority of the time, they say “No.” In these instances, management never attempted to work with them to see if it was possible to overcome the problem.

I think so many times the cost of replacing a worker is either unrealized or is perceived as small and inconsequential. There is no question in my mind that if you fully account for all of the time involved in hiring a replacement (i.e.: time spent advertising to find a new employee, interviewing candidates and training a new hire) and numerous other indirect expenses, the cost of replacing a worker amounts to at least 100% of the annual salary.

If the cost to replace a worker is so high, why do so many firms keep on doing this over and over? I think the answer is that many managers lack the skill set to deal with problematic employees or behaviors. For example, if you have a worker that has been coming in late to work, and you are disappointed because you believe you have made the company policy clear to everyone, maybe the issue is that you are not connecting with the employee, being clear about the expectations or there is something going on in their personal life that is influencing their behavior.

Changing behavior is especially difficult if it has been tolerated for a period of time. However, working to overcome an employee’s problem rather than seeking to hire a new worker will often pay off in the long run.

[At left: Professor Jerry Osteryoung]

In looking to overcome behavioral issues, consider the root cause of the problem. For example, is there something in the company culture that is contributing to the problem behavior? In the case of the late employee, maybe you are being inconsistent about enforcing company policies. Are some people allowed to come in late due to personal circumstances that are not explained to the other employees? Are you holding people accountable, or do you let things slide?

Once you have determined the reason behind the behavior, there are many things that you can do to turn the situation around. Firstly, provide specific guidelines and processes to help clarify expectations. Secondly, ensure open communication with managers and employees to help resolve minor issues before they become serious problems.

A third possibility is the use of incentives, rewards and recognition as ways of reinforcing the change you are looking for. I have seen some managers simply start acknowledging positive changes in behaviors, and that has been the key to effecting the change.”