The Roemer Report March 1986

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The continuing drop in oil prices is beginning to create some powerful economic benefits for truckers. Consider the slide in diesel fuel costs. Average pump prices have dropped from about $1.35 in December to a late February level of about $1.20. Some are now suggesting that these pump prices could slide under $1.00 per gallon before the OPEC price cuts run their course. The nations biggest outfits, who buy fuel in bulk, are already paying roughly 30¢ a gallon less than they paid in December. This 30¢-a­gallon break translates into roughly $5,000 a year in fuel savings for a long -haul rig that racks up 100,000 miles a year. Plummeting diesel costs are a prime reason why A.T.A. now projects a 5-10% hike in operating income for truckers this year. Traditional truckload carriers will get the biggest financial break. Diesel costs account for about 20% of their operating costs. Less-than-truckload outfits have a lower fuel component in the area of about 8%. Still, all truckers should benefit from an anticipated healthy surge in freight volume this year…spurred by declining oil prices and the accompanying surge in manufacturing.

TRUCKING STOCKS VIEWED AS ATTRACTIVE: The two billion tons of freight moved last year was only about 1% above the 1984 level. This year almost all analysts are looking for a much healthier jump in freight value. There's one caveat. A number of state governments are eyeing fuel-tax increases. Given the bleak eco­ nomic news in recent years, some truckers may be excused for pinch­ ing themselves as diesel prices head southerly. Just remember our previous suggestion when the market began to turn a few years ago. The winners and losers simply are changing places. For trucking, it's nice to be a winner once again. Some Wall Street observers are now suggesting that trucking stocks may just be on the verge of taking off. When was the last time you heard that kind of news?

INSURANCE AND THE DEEP POCKET PHENOMENON: Our readers are aware of the prime factor behind today's high trucking insurance costs…spiraling court awards. There's also a dandy legal concept called "the doctrine of joint and several liability." It means that a party with only minor responsibility for an accident can end up paying the full tab. For example, in some states a driver who is deemed 95% responsible for an accident--but with no assets or insurance--may end up paying little or nothing. But, a "deep pocket" that is perceived to have large assets or insurance, can easily get hit with a huge claim…even though it actually has only about 5% of the responsibility. Many in the insurance industry believe this doctrine of joint and several liability is just a legal device to find someone who has money. There are two results here. First, insurance companies incur losses they had no way of anticipating. Secondly, these providers become increasingly reluctant to cover what are seen as high-risk groups such as truckers.

INSURANCE HELP COULD BE ON THE HORIZON: As we've said earlier, don't expect any immediate help from the federal government on today's insur­ ance. But, we are seeing some movement at the state government level designed to reform the laws governing civil damage suits (torts). All 44 states with legislatures in session this year are reported to be­ examining tort reform. Many state legislatures say that constituent screaming about dramatic liability insurance costs increases has made this issue their top priority. Some proposals, such as one under review in California, distinguish "actual" from "noneconomic losses." Victims would still be fully compensated for medical costs, property damage and lost wages. But, the "deep pocket" would not have to pay more than his share of noneconomic damages--awards made for 11pain and suffer­ ing," "mental distress," or for punitive reasons. A number of other states are considering limits on these hard-to-define noneconomic factors. Look for actions in individual states that limit the damages for pain, suffering and anxiety. Lawyers' fees are already limited in 22 states but could well be restricted by more. Overall, a general tightening up of these areas is probably long overdue. Finally, the Reagan Administration has a study group working on tort reform proposals. When completed, they'll be forwarded to the White House Domestic Policy Council.

DEFINING THE VITAL DIFFERENCE: Energy is the source of all creativity. Virtually limitless, it can be stimulated and directed to fuel innovation and growth. According to co-authors Frederick G. Harmon and Garry Jacobs, energy is what distinguishes the successful individual or corporation. It is, as their book title proclaims, The Vital Difference. When an organi­ zation stops rowing and innovating, it starts to atrophy. Sadly, this decay is often due to managements benign neglect of talent…the failure to understand what makes an enter­ prise thrive and survive…Harmon and Jacobs refer to an organization's vision and values as its "psychic center." This, together with the company's structure and skills, comprises the corporate personality. To develop and engrain a creative corporate personality, the following five ingredients must be institutionalized: (1) committed and skilled employees on all levels; (2) coordination between ranks and divisions; (3) top-of-the-line technology and products; (4) thorough understanding of the market; and (5) wise and innovative use of financial resources. Harmon and Jacobs stress that dramatic, enduring improvements are not accomplished in one fell swoop. But all workers--and hence all aspects of an enterprise-­ are ca able of achieving and sustaining peak erformance. The key is to perpetually inform, empower and reward them…More on this vital formula next month.

CREATING AND SUSTAINING THE COMPETITIVE EDGE: Whatever the market, leading firms have one thing in common--some kind of competitive edge, the key to market dominance in any niche. Though hard to define, "competitive edge" is not measured in terms of enthusiasm or aggres­ siveness. It is a function of three main factors: (1) Customer perceptions. A product has a clear competitive advantage if buyers deem it superior to others in price, quality, features, serviceability, etc. (2) Aptitude. The competitive edge also implies corporate excellence. This may be conveyed through new patents, favorable labor relations, competent personnel and creative managers. (3) Time. A temporary advantage is no advantage at all. Whatever differentiation can be duplicated by competitors, will be. So competitive advan­tages must be sustainable. Prolonging a competitive advantage depends on two conditions: a product's continuing value to customers and the difficulty for others to emulate it. Companies must protect themselves from the end run as well as the frontal attack. Rail­ roads, for example, weren't done in by other railroads, but by the emerging automobile technology of the early 20th century.

INCREASING THE LEADERSHIP QUOTIENT: "Managers control. Leaders create commitment," wrote John H. Zenger in a recent issue of Training magazine. He acknowledges that both are necessary, but suggests enhancing the organization by teaching administrators to lead… (1) Learn the nature of leadership. Business school curricula cover management theory but rarely the psychology of leading. Thus it's up to corporations to educate their own. One approach is to conduct seminars in identifying and analyzing leadership traits. (2) Learn leadership skills. Resources include: video-taped demonstrations, role-playing, and public­ speaking or writing courses. (3) Practice in the proper environments. America might take a lesson from Japan. Instead of starting trainees in a specific division or office as most U.S. firms do, Japanese companies rotate new workers through many departments before allow­ ing them to specialize. Each is required to work under several supervisors and to solve diverse problems. (4) Coach subordinates on leadership. Executives should help employees sharpen their communication skills and sense of commitment. Knowing that good subordinates pay big dividends, wise leaders encourage workers to forge links throughout and beyond the corporation. (5) Relearn leadership from the bottom up. Zenger insists that no one sees leadership more clearly than those being led. Hence true leaders inspire workers to inform as well as confront them.

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