This week the world lost a business and technology giant with the passing of the iconic Steve Jobs, for many years the leader of the Apple organization. Steve Jobs’ name will forever be associated with launch of the iPod, iPhone, iTunes, iTouch and iPad, that helped propel Apple to the status of second most valuable company in the world. In the coming days, there will be many books written about this remarkable individual and the leadership skills that he displayed. Here is my take on a few of his unique leadership skills and some of the lessons that trucking company executives should learn from him.

Steve had vision. He understood customer needs and was able to envision innovative methods of meeting these needs. While other company experimented with music downloads and tablet computers, they were not able to create products that were useful to large groups of customers and commercialize them for widespread sale. He was able to assemble a team of talented individuals and mobilize them to execute his vision. Steve could see the finish line and he was able to take Apple there.

One of the driving forces that made Steve and Apple so successful was a single-minded focus on providing customers with a superior, easy to use product or service. Apple designed products with the customer in mind. Every feature was planned to create an exceptional user experience. Apple didn’t just build a customer base; they created fanatical, adoring fans. Steve would not allow a new product or service to be introduced until it met his exacting standards.

Steve also saw how important it was to create synergy between his products and services. The value of an iPod or IPad is the ability to easily download music or videos from the iTunes store. He also saw the value in linking to services of other companies. The thousands of applications designed by other companies, at their expense, to work on Apple’s products, make Apple products so much more useful. Collaboration with business partners, while taking a sizeable cut of their revenues, is smart business.

So many trucking companies are internally focused. They think about balancing lanes and truck utilization. They believe that by measuring and tracking on-time service and billing accuracy, they are meeting the needs of their customers.

While these metrics are important, so many carriers overlook the obvious. Are they creating a superior customer experience? Do they provide the portfolio of services that shippers require? While they may supply a consistent over the road or intermodal service from Central Canada to Western Canada, they break down when the shipper asks for the full range of services, all picked up on the same truck and all delivered on the same truck at destination.. They provide multi divisional representation when the shipper wants one knowledgeable resource to look after his full range of requirements. Their internal silos make their companies difficult to work with. They lose sight of the fact that ease to use is a key to success.

We live in an era when shippers want “one stop shopping”. They want to work with transportation services providers that are “go to” companies for a full range of transportation and logistics needs. Being able to meet this requirement has been one of the key reasons why so many logistics companies have “picked the pockets” of asset based companies. Able to adapt to a changing market, logistics service providers have shown rapid growth by mixing and matching services to meet customer needs, to do essentially what Steve Job has done in personal communication.

Steve was an excellent communicator and sales person. He became famous for standing in front of an audience in his trademark jeans and black turtleneck to present the latest Apple new product or upgrade. While not a singer or dancer, his presentations were as popular as those of leading rock stars. He was the face of is company. He led by example.

In too many trucking companies, the leader hides in his office. When it comes time to land a big account (or salvage an existing one), the leader is not present. By not being in the market on a regular basis, they don’t have a first-hand understanding of customer needs. They don’t receive unfiltered input on what is required to provide their customers with a superior service. They are not able to elevate their companies’ services from commodity to preferred status. They continue to strive for “me too” status. They are not able to create the market breakthroughs that produce superior profits.

One of the unique aspects of Steve’s pricing strategy was that he charged a premium price for his company’s products and services and he got it. While there are other full featured smartphones and tablets on the market, consumers are willing to pay the higher price commanded by Apple’s products. So many industry giants, with Research in Motion being the latest example, have been overtaken by Apple’s superior attention to detail and superior customer focus. The RIM Playbook has not been able to compete with the iPad.

Some may argue that Steve Job’s success was attributable to being in the right place at the right time, to focusing on personal communication devices, at a time when that market was ripe for innovation. While that may be true, the same sort of success has been achieved in other sectors by following the principles of Steve Jobs. Consumers are willing to pay a premium for Lululemon clothes or a Mercedes car or excellent real estate or expedited transportation service, if the value proposition is there. Hopefully some trucking company executives will learn a few lessons from Steve Jobs and take their companies to a higher plateau.

Wal-Mart launched a program in mid-2010 to reduce costs and deadhead miles, leverage the retailer’s logistics skills and scale, improve visibility and control of its merchandise by taking control of deliveries of inbound freight. The company believed they could find opportunities to do the work better and at a lower cost than vendors could do under prepaid freight terms.

The shift to increased use of freight-collect terms by the world’s largest retailer, worried shippers that had been trying to leverage their volumes to secure attractive carrier pricing. For shippers that had spent years optimizing their freight network and negotiating preferred rates, the threat of losing control of their freight to one of their largest customers became a major issue. When program details were first released, there were reports that Wal-Mart was using some fairly heavy-handed tactics in its discussions with vendors, both in terms of not really negotiating as to what would be the best overall transportation decision, and in asking for larger than acceptable "allowances" for picking up the freight against the contractually defined price that included transportation.

Greg Forbis, a senior director in Wal-Mart's inbound transportation group, announced last week at the CSCMP annual conference in Philadelphia that the world's largest retailer has made some changes to the program. In an unusual about-face for Wal-Mart, Forbis stated that Wal-Mart realizes that "every situation is unique," implying that Wal-Mart will discuss various options with its vendors and look for the best total solution, instead of simply mandating that a vendor move from a prepaid to collect freight program.

Some suppliers had efficient transportation operations that Wal-Mart was hard-pressed to improve. “One of the key learnings was that we weren’t as good as they were in some cases,” Forbis said. Wal-Mart’s discussions with suppliers on changes to its inbound transportation were “a very open book,” with discussions of how to reduce costs and improve supply networks, he said. “Some wanted to share, some didn’t want to share. Those who didn’t want to share, we just kind of move on and go to the next supplier and say, "What are our opportunities?"

Nevertheless, Forbis made a strong case that in many situations, the vendor would benefit about as much as Wal-Mart from making the transition. He noted that many vendors, for example, want to focus on manufacturing and branding, and are happy to leave logistics execution to Wal-Mart. Recognizing this, Wal-Mart has focused on smaller suppliers where the retailer can bring its scale and expertise to bear.

He also said that Wal-Mart's vast transportation network, including some 6500 dedicated trucks and 56,000 trailers, covering almost every area of the North America, could reduce total transportation costs because its network density and buying power may result in lower costs, especially in terms of using vendor freight to reduce empty miles travelled, or produce better consolidations. He noted, for example, that Wal-Mart has a number of consolidation DCs that combine less-than-truckload shipments from vendors into full truckload shipments to its stores. For lower volume shippers, this can create an opportunity to reduce costs and improve transit times.

Wal-Mart said it was actively soliciting both new carriers to its network and third party freight that may have nothing to do with Wal-Mart business. He also said Wal-Mart is actively seeking freight moves acting in effect as a common truckload carrier. It would use those shipments again to gain better overall network efficiencies and optimization, and to reduce empty miles.

It is that time of year when many companies are in the process of finalizing their business plans and budgets for 2012. We end 2011 with political upheaval in the Middle East, a major unresolved debt crisis in Europe, political gridlock in the United States and a slowing economy in China. The United States still has the world’s largest economy that has been an engine of growth for so many years. The U.S. is still Canada’s largest trading partner. However, as we saw this year, GDP growth of 3.5 percent cannot last forever.

As one reflects on where we have been and where we are today, there are large question marks about the potential economic growth we will see in the United States and in those countries that trade with it. Interest rates there are down to zero. Two big stimulus initiatives have not pulled the U.S. out of recession. The U.S. has its own debt crisis and cannot continue to spend money, at least not the way it has done in the past.

U.S. consumers that got caught up in euphoria of ever rising home prices have seen their personal debt rise from 50% to 135% of annual income. But high unemployment, high under-employment, the drop in property values, and job retention fears, have created jittery consumers. Since consumers represent 70% of total purchases, we have a big problem. This problem cannot be overcome quickly, no matter what leader and political party is elected next year.

The bottom line on all of this is that there is no quick fix. There is no political party or economic policy that can turn the ship around quickly. The U.S. cannot spend its way to prosperity or cut interest rates to give Americans the “big bang” we would all like to see. Two prominent economic minds (Jim Allworth, Vice Chairman of the RBC Investment Strategy Committee and Noel Perry, a senior economist with FTR Associates), speaking totally independently of each other, forecast the same future - - - slow GDP growth in the 2% range for the foreseeable future. While this may not sound too bad, when compared to what we have become accustomed to, this will likely make people feel that are stuck in quicksand.

What does this all mean to truckers and shippers? The pressure to maintain lean inventories will allow manufacturing to continue to grow at a modest pace, slightly in excess of 1.5% per annum for the next decade. This slow growth will put the brakes on any rapid expansion in freight volumes. Capacity will remain tight as carriers exhibit caution in adding to their fleets and as more regulation in the United States, (e.g. hours of service, CSA) reduces the labor pool. Mr. Perry forecasts a gap as large as 500,000 drivers by the year 2014. While fuel costs have moderated, rising equipment costs and driver pay will likely put upward pressure on costs. Rates will continue to increase albeit at a moderate level.

The tug of war on freight rates between shippers and carriers will continue in 2012. With slow business growth and economic uncertainty in 2012, shippers will continue to try to restrain increases in freight costs. But tight capacity, rising equipment costs and competition for qualified drivers will put upward pressure on freight rates. The New Year is shaping up to be another interesting one for transportation professionals.

In last week’s blog, I tried to capture what appears to be the sentiment of a majority of economists. Their prediction is for slow growth not just for 2012, but also for several years after that. In the next two blogs, I will outline a number of the approaches taken by shippers and carriers to bolster profits during the upcoming slow times. The following are some of the strategies that are playing out among North American carriers.

Maximize Yields from the Current Fleet

The most successful carriers are getting back to basics. They are allocating their assets where they can maximize fleet utilization and yields. This has become very apparent in the freight bids conducted by our organization during 2011.

Carriers are focusing on those lanes where they have the best balance with the highest yielding freight. They are being very careful about how much capacity they add. By providing reliable, consistent service in these lanes, they are building their business by doing what they do best and where they can command the best price for their services. Lanes that cause a carrier to go out of route, where backhaul freight is a challenge or where there are any impediments or deviations to their normal service (e.g. mall deliveries, pallet returns) are being passed over in favour of accounts that fit better with the company’s “sweet spot.” I expect this deliberate, focused asset optimization approach to continue for the next several years.

Industry Consolidation

If volumes don't increase in the next six months, 15 percent of fleets will consider getting out of the trucking game. That's according to Transport Capital Partners' (TCP) Third Quarter 2011 Business Expectation Survey. Twenty percent of fleets with under $25 million in revenues would consider leaving, while 11.8 percent of fleets over $25 million in revenues would also think about leaving.

The number of carriers thinking about selling in the next 18 months also rose, said TCP, from 25 percent to 28 percent. This marks the highest percentage since TCP started the survey in February of 2009. Nearly 40 percent of smaller carriers are considering leaving the industry in the next 18 months, compared with 23 percent of larger carriers.

When one looks at the slow growth forecasts and then relate them to likely upward pressure on fuel costs, downward pressure on rates, intense competition, government regulations (e.g. hours of service, CSA), ever increasing emission standards that place pressure on equipment costs and rising driver wages due to driver shortages, “the business isn’t fun anymore.” Then there is the issue of demographics. For aging “baby boomers” who own truck fleets and don’t have a good succession plan, the option of leaving the business is an attractive one.

There is already evidence of industry consolidation. As an example, Celadon Group purchased a 6.3 percent stake in rival truckload carrier USA Truck for $4.7 million, raising the prospect of a merger between the competitors. A merger with $386.9 million USA Truck would make Celadon a $944 million company and one of the 10 largest truckload carriers in the United States. It remains to be seen how much Celadon will be willing to increase its state in USA Truck. Nevertheless, this move may signal a strategy that other carriers may employ to acquire what they deem to be value attractive under-valued trucking businesses in a low interest rate environment. For companies like TransForce that have grown largely through acquisition, one can expect to see more additions to their stable of carriers as this slow growth market plays out.

Adapt and Innovate

A key to survival will be the carriers’ ability to adapt to the evolving needs of their customers and innovate to achieve above average growth during a slow period. This is manifesting itself in several ways. Schneider Logistics has recently introduced a shared LTL service for high volume LTL shippers seeking to take advantage of truckload type pricing.
In an effort to reduce energy consumption and improve service, CN has added 200 EcoTherm containers to their EcoTherm fleet. Now with nearly 500 containers, CN's EcoTherm fleet is the largest in North America. CN's temperature-sensitive intermodal markets have been growing, according to the company, and the EcoTherm containers allow food and beverage customers to load the same volume of goods in the 40-foot container, without the need for blocking and bracing required in a 53-foot container.

The recently announced alliance between CP Rail and the Contrans Group, using “Rail Deck” equipment via an intermodal service to move flatbed freight (e.g. pipes) is another example of companies seeking to provide innovative, cost-effective services during slow times. Certainly one would expect to see more marketing alliances since these allow companies to share assets and increase volumes without increasing capital expenditures and overhead costs. One can also expect to see more carriers expand their dedicated fleet business as some shippers seek to concentrate on their core competence and divest their private fleets.

Clearly fleet optimization and yield maximization, industry consolidation, adaptation to evolving customer needs, innovation and more dedicated fleet services are among the strategies being employed by carriers to maintain and build profitability during these slow times.