The Roemer Report December 1984

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The Interstate Commerce Commission is once again at its full seven member strength. Still, one could argue that the more things change, the more they remain the same. A closer look at the current commission roster suggests that an upcoming consolidation will still leave the agency in the hands of members generally described as adamant deregulationists. By law, the ICC will be reduced to five members on January 1, 1986. Two of the seats that will be abolished include current Chairman Reese Taylor, a "gradualist" on deregulation, and Andreav Senlo, a moderate on the matter. Paul Lamboley, another commission member considered cautious on deregulation, will see his short stint on the commission end this month. Once the commission undergoes this exercise in musical chairs, its five members will be dominated by three individuals--Heather Madison,Frederic Andre, and Malcomb M.B. Sterrett--who have been classified as "deregulation purists."

A PAUSE BEFORE THE STORM: We've previously reported on the deep philosophical differences within the ICC. The current Washington consensus is that there will be no further major moves on deregulation while Reese Taylor remains in the saddle. But upon the expira­tion of his term, and barring heavier-than-expected political pressure from Congress, the deregulation purists will be in a very strong position to implement their views.

TRUCKING AND THE MARKET ECONOMY: Whatever the regulatory twists and turns of the next year, one trend is both obvious and instructive for fleet operators. America is rapidly shifting to a market economy where the forces of the market --and not government or unlons--will determine the outcome.

Consider the direction of the dismal science of economics. Perhaps the most significant fact about the nation's most recent recession is that nobody--economists from the Keysenian or Monetarist schools-­ proposed any activist government measures to change the course of economic events. Consider the fact that the Federal Reserve Board has lost much of its latitude for manipulating the economy. The rational expectations of consumers and the financial markets -- now a new school of economics called RATEX -- are setting long-term rates and very narrow parameters for government policy. Industry by industry, union by union, the centralized character of our pre­vious "managed economy" is rapidly passing. Every shrewd trucker realizes the trucking business of 1984 is a far cry from the simpler, more controlled market In 1974. Ten years from now, in our view, the changes will be similarly vast…a wide-open trucking landscape, ruled almost solely by free market forces.

DETROIT ROLLS ON: Traditionally, the typical resurgence in auto sales (we include light trucks and minivans) runs about 24 months. The current boom has gone on for 29 months, and most experts foresee the current upbeat market rollng right through 1985. A con­tinual expansion in 1985 would mark the first few straight years of growth since 1962--a development that many auto researchers deem unlikely. Nobody is expecting Detroit to break its 1978 record of 9.3.million new American cars and 3.8 million truck sales. But this isn't necessary for the firm to reap enormous profits. The Industry has downsized dramatically, reducing its break-even level. At a currently projected level of 8.1 million U.S. made cars and about 3.8 million trucks and minivans, the Industry would haul in an estimated $10 billion in profits, or 60% more than last year.

CEOs CHECK THEIR CRYSTAL BALLS: For the thirteenth consecutive year, Industry Week published its CEO survey on emerging economic trends. Most of the 850 executives who responded did so with optimism tempered by caution. "Up" is still the key word. But, they warn, beware of business vertigo -- the dizziness of sudden post-recession success. Here are a few of their predictions…(1) A cooled economy. Most expect a couple slow quarters, then more brisk business. By the end of ‘85, however, many anticipate a serious downturn-- especially if inflation and the federal deficit swell. (2) Control led costs. The dollar’s power should hold down domestic prices, resulting in a smaller-than-usual rise in operating costs this year. (3) Stronger sales. Sales will climb about 8.3% over 1984 figures, a smaller improvement than the year before. Yet in the burgeoning service sector, sales may jump 12.6%. (4) Aggressive inventories.

Despite tight inventory controls inspired by the Japanese, some CEOs expect to stock up for heavy sales. But now they order for tomorrow -- not for next week. (5) Increased investment. Capital spending is alive and well and getting even better. Nearly 40% of those surveyed plan to up investment activity during 1985, primarily for new equipment. Few firms will invest in new or expanded plants. (6) Higher employment. The executives forecast a labor hike of 2.5% across the boards. Last year's recovery boosted total employment by 1.3%.

WHEN GROWTH IS DANGEROUS: "As the top line grows, the bottom line will take care of itself.” This false assumption can be lethal to expanding companies. Too often CEOs overlook the danger of rapid growth, confusing dramatic sales' success with a healthy overall strategy. In truth, smart leaders realize that growth along the same lines may be a mistake. For a company to beat the mature business trap it must diversify. Here are some tips from business analysts: (1) Concentrate at least as much on efficiency as on growth. One way to maximize profits Is to get better control of costs. Intelligent investments in computer equipment can speed up production and reduce waste. (2) Shift from a "growth-at-any-cost" philosophy to a "profitable-growth-only" plan. Be selective in accepting new accounts and involve the company's salespeople in this plan. Instead of rewarding them strictly for the volume of business they write, hold them responsible for their selling costs.(3) Emphasize research and development. Most companies lack foresight in this area, neglecting R & D while business is good. Later, when the competition closes In, they realize they're riding a one-trick pony. Thus, get set for the next stage of development, even at the expense of current expansion.(4) Recognize that growth creates pressure for more growth. But don't lose sight of your company's fundamentals.

BACK TO BASICS IN INSURANCE: Here are a couple of insurance fundamentals that are back in fashion now that the trucking insurance market has experienced a major shakedown in providers and an upsurge in premiums. (1) A comprehensive, well-conceived safety program is one of the best investments you’ll ever make. It's an investment destined to be returned many times over in reduced premiums. in the days when you could buy trucking insurance from any overnight expert, many providers blinked at clear safety problems and unfavorable records. This isn't going to happen in today's tight market, where the vast majority of the most desirable coverages are being written by knowledgeable underwriting pros. You’ll pay dearly for safety problems and we advise you to elevate this area to a dominant fleet priority. (2) The credibility of the firm that places your coverage is now vitally important. In recent years, many of the big insurance houses have been burned via losses written by over-eager agencies that gave a quick once-over to solid underwriting standards. W.F. Roemer Insurance has consistently followed prudent trucking insurance underwriting standards -- regardless of the prevailing winds of the markets.

Hence, we've got the credibility to place good business at the most advantageous costs for well-run trucking operations.

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