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Marketing haulage: prospects for the fleet operator

Why is it now appropriate and important to consider the marketing of haulage services?

How are changing conditions likely to affect the fleet operator in the future?

These are some of the questions in the minds of those concerned in employing goods vehicles. The accent is shifting from restricted haulage to fairly free competition with higher standards of operation—particularly in maintenance.

HISTORY

Strict demarcation between public carriers ('A', 'B' and 'A Contract' licensees) on one hand, and own-account carriers ('C' or 'C Hiring' licensees) on the other, has existed since 1933-34. During 36 years much legal case history, and many prejudices and practices have developed. The essence of public carrier operation is to work for several customers, and thus to share the cost of the vehicle and to minimise unproductive time or mileage. Yet own-account vehicles outnumber public carriers by about 10 to 1 and in 1967, for example, carried 54 per cent of road tonnage.

Own account

One must therefore examine why businesses operate ownaccount vehicles. Frequently the following grounds, motives or beliefs are found: Economy—this applies widely, but is often misunderstood due to lack of true cost knowledge.

Convenience or service—true in some cases but may in fact conceal managerial laziness.

Suitability or specialization—sole rights over one's own vehicles' design and operation is an undeniably strong argument, if the business can afford the cost.

Company image, pride, status—subsidizing transport costs from publicity budgets may be a justification for "adverts" on wheels.

Established habit—lack of self searching about the original reason for acquiring vehicles, which may not now apply. Security of confidential or high value cargoes—probably one of the best reasons for an own-vehicle operation.

And, dare I say it? Empire building—although this is applicable to only a minority, there are artificial situations created by transport managers who wish to retain their positions as kings of their castles.

There are many reasons for the own-account predominance in numbers but, almost universally in each case, none of these reasons is vital to the success of the main business of which they are an ancillary part.

Public carriers

Public carriers are governed by different circumstances entirely. Their vehicles are operated for profit or at least to provide the owner's living. Their main distinction is this seeking of a return on investment, since—unlike own-account operators—there is no other business or income. The 1933 Road and Rail Traffic Act, and its successors to date, left own-account operators free from restriction in expanding their fleets but introduced hard qualifications for public carriers.

Ve.hicles are only authorized when demand by customers has been proved. Hence larger, additional or different vehicles can only be operated subject to satisfying the costly and involved system of application, objection and proof of need at a public court hearing. It is regularly necessary for customers to attend court to give evidence and to be cross-examined by lawyers for objectors. Embarrassment -and reluctance to disclose their business affairs publicly has resulted in customers becoming reticent about supporting hauliers and consequently the true position is not always available to the Licensing Authority to make his decision. Objectors seek to show at enquiries that their vehicles are adequate for the customer demand and this has led—over many years—to an attitude among hauliers that this is almost "illegal", and certainly improper, to seek another operator's custom. This view is commercially unnatural and serves merely as a mental blockage against following ordinary business practices.

Another distinction of the public carrier is that his entire business is jeopardized in the event of his licence being suspended or withdrawn because vehicles have operated outside the terms and conditions that were authorized.

A greater awareness to avoid convictions under the host of regulations governing goods vehicle operators is also necessary. Too many black marks on the carrier's file may result in refusal to renew the licence and thus again the destruction of the total business. It is not merely a matter of paying the fine. The changing demands, risks and opportunities of the future have to be understood against this difference in attitudes and traditions between own-account and public carriers.

CHANGES IN THE LAW

Transport Act 1968 Since October 1968, small vehicles not exceeding 30 cwt unladen (and now those not exceeding 31 tons gross weight) have been permitted to carry for others without licensing restriction. Likewise, medium vehicles, not exceeding 16 tons gross weight, are intended to be freed from carriers' licensing shortly. Similar relief from carriers' licensing is intended for large vehicles exceeding 16 tons gross weight at some time in the future. All commercial vehicles other than the small group, will instead be authorized under operators' licences.

One can forecast that all operators' costs will rise. This is due to the demands of the operators' licence for stiffer maintenance standards, greater administrative and control requirements (e.g. on legal loading) including extra staff, the employment of a licensed manager, probably the need for better premises, and much record keeping, plus the reduction in driving hours.

Plating and Testing Regulations—The annual submission of vehicles to the M.o.T. stations introduced concurrent with the Transport Act, keeps vehicles off the road for preparation and when undergoing the test. Earlier replacement of vehicles will be required, without any bonuses in the shape of investment grants or allowances. This will cause financial hardship and diversion of capital needed elsewhere.

Re-assessment

What should own-account carriers do now? It is now in question whether to attempt to cope with the new situation, or to concentrate on the main business enterprise. The additional costs and responsibilities must be measured against the reasons for which own vehicles have been operated until now. For instance, is company image or established habit or convenience worth the extra commitment, while also sidetracking management skills and time from the real business? Conversely, one can enlarge the operation by also undertaking public carrying. Whatever reason leads to the decision to operate own vehicles in the future, the traditional own-account carrier faces a much more complicated, costly and highly responsible situation.

The established public carrier has fewer new considerations. His existence as a haulier is already tied to good maintenance and operating standards, and efficient driver and vehicle control. The main concern will be true costing of the operation to ensure that customers are served at economic rates. Any artificial customer goodwill, maintained for licence applications only, is no longer required and normal customer /supplier commercial relations must develop. Natural growth may now occur as fast as capital, management and demand for carrier services will allow.

There will, of course, be new entrants to the haulage industry, who will neither be inhibited by the past nor fear competition in the future.

Decisions

Crystal-ball gazing is dangerous, and yet intelligent anticipation has to take place.

Some own-account operators will combine and sensibly complement their vehicles, routes and loads, thus cutting the rolling stock engaged.

Others will be tempted to operate services on an occasional basis for their neighbours, competitors, friends or alternatively will seek to use the others' vehicles. This is unlikely to be acceptable. Leakage of confidential information goes with the handing over of documents, names and addresses of suppliers customers, and goods, to others who may directly or obliquely be in competition. Secondary treatment may be given to goods not belonging to the operator. Reasons such as convenience, service, sole rights over own vehicles, image, and advertising, are immediately defeated by sharing another's vehicle. Most pertinent of all—another own-account carrier is unlikely to offer better service or terms than established public carriers. Initial enthusiasm to pool vehicles and goods will often prove to be a fallacy. Specialist vehicles (for frozen foods, machinery, liquids, crates of drink, etc) are, upon examination, least likely to be "borrowed" because of the extremely competitive nature of specialization.

It is likely therefore that some present C-licensees may reduce or discontinue operations because: (a) New requirements are too cumbersome, demanding, and off-beam from the main business management.

(b) New obligations are too risky for "lay operators".

(c) The new freedom has no advantage, but new obligations are too dear to divert capital from its main purpose.

This reduction in existing own-account operations will compensate for those old C-licensees who are rationally joining the public carrier ranks, together with the newcomers. Coincidentally this will allay fears of a serious excess of vehicles in the initial years. Later the economic laws of supply and demand will take control, and settle the industry to normality without artificial trade conditions created by licensing.

Public carriers (relieved of old licensing inhibitions) will find very little additional difficulty in the new legislation, but will intelligently have to assess investment objectives as a first priority. Return on investment that ought to be produced, and therefore the prices that ought to be obtained to ensure the right profit, will mean the end of cheap haulage. The alternative will be the failure of the carrier, or a breakdown in services. Indeed, public carriers must ensure a fair profit return on investment from established customers (and this will certainly mean raising prices substantially in many instances), or must seek out new markets.

Actions

In future, public carriers under operator's licences (including old C-licensees who deliberately intend to haul for others) will have to run their business by being :— (a) reliable in service: (b) entirely beyond doubt in matters of maintenance; (c) wholly cost-conscious, including the developing of a sound overhead structure to cope with the required sophisticated knowledge and demands; (d) appropriately insured for their goods-in-transit liability to customers: (e) able to market their services at the right price.

This price has to cover all costs, and to show a fair return on the investment, commensurate with the risks and effort involved. It must be assumed, according to the Transport Act, that maintenance and the other requirements will have been tested by the Licencing Authority before the operators' licence was granted, or will be examined by him when licences are varied or renewed.

Such properly operated public carrier services will induce better utilization of assets and skills, provided they are marketed effectively.In turn, own-account vehicle investors should be induced to test earnestly the viability of their arrangements. However, in our commercial society the initiative must come from public carriers by marketing all that they offer, in the widest sense of the word,

MARKETING

Selling is not marketing! Selling is one ingredient, but so are advertising, reputation building, market research, customer relations, etc. Marketing is, further, wholly dependent on training, castings and internal statistics, capital investment and equipment.

Industrial history proves that initially the product or service being good and meeting a demand is an adequate assurance of sales. In the next stage, positive selling has to take place ahead of prcduction. In the third stage—and this is the one that faces the road transport industry now—marketing has to encompass selling. The established industries have gone through these three stages—broadly, initially during the last century, secondarily in the first half of the 20th century, and the marketing stage in recent years.

Costs and prices

Investment comprises (a) all assets including land and premises as well as vehicles, (b) all cash employed, including net pre-payments and the current net excess Debtor-over-Creditor balance. Account must be taken of shared assets, i.e. machinery, premises, etc.—traditionally regarded as "non-transport" previously, Hence, the first constant cost is the investment's demand to provide its annual return. A figure of 20 per cent, but certainly not less than 15 per cent, is reasonable, as currently public authorities and finance houses are offering gross interest rates ranging up to 10 per

cent. Property letting produces in excess of 10 per cent— frequently 121, per cent with limited risks. Therefore a minimum of 15 per cent for the responsibilities and risks of investing in our business is modest. Top management permitting own-account services ought to demand the same from their transport manager to ensure that capital could not be better employee in their main business.

This demanded return has to be conservatively pro rated into the standing and running costs on a time or mileage basis to ensure the correct end-profit. The judgment of managers engaged in daily price negotiations is too unreliable, hence the need for a built-in system calculated in advance.

Standing costs of vehicles (basic wages, licences, insurances and depreciation) including their share of premises and other overhead establishments, must be tabulated on a time basis and form the second almost constant cost.

Thirdly, running costs have to be established to cover consumption of fuels, tyres and repairs, as well as excess wages and have to be expressed on a mileage basis.

The total of these three cost groups provides the basis for the price at which the service can be given.

Training

Having done the necessary homework and calculations, it is still premature to engage in customer contact, until all staff are trained. Drivers are regularly entrusted with sophisticated vehicles and loads worth well in excess of £10,000 without any appropriate training to ensure their understanding of responsibility and techniques. It is doubtful whether the same driver would obtain the loan of a £50 camera or tape recorder from his manager with quite the same ease! It is a serious indictment of the lack of forethought and false values that prevail in sections of the industry. Training to prepare the driver to represent the carrier to the customer is important, as much as training the voice behind the phone to have an intelligent understanding of what is required. Like costs and prices, training could provide the subject of an entire paper, but its importance in marketing must not be underestimated.

Segmentation

Having mastered the economics and trained the staff, it must be firmly recognized that price cutting should never be used or intended as a marketing tool. Instead, the area of demand has to be established next.

Operators should concentrate on a geographical or functional speciality market, and avoid the "We move anything" supermarket conception. One carrier cannot do everything; hence the need for segmentation. Being a fragmented industry of small fleet operators, the best chance of withstanding competition is a stronghold on a limited market, instead of a thinly spread service across a large area of demand. Investigation on shortand long-term scope, investment planning, and operations must be directed towardsthis end.

Research and intelligence

A soap manufacturer not only studies the needs of the wholesaler or the shopkeeper, he studies the end user—namely the housewife. Likewise, the haulier must investigate beyond the need of the local factory that hires his lorry; he should also study the recipient, his needs, facilities, working hours, etc. Other hauliers, clearing houses, shipping and forwarding agents, airlines, ports, manufacturers' agents and so forth are all mere links in the chain connecting to the end user. Like the soap manufacturer, carriers must study the final customer's needs to be able to please and satisfy him, and so to remain successful. It is his money that pays for the haulier's services. Hence all possible knowledge about the customer and the links in the chain leading to him, must be obtained and recorded for marketing use.

Intelligence is obtainable by deliberate research and by using general information. Trade and geographically based publications provide vast funds of knowledge about practically every industry. Competent representation in the area or industry• selected as the prospective market segment is almost essential. Apart from telling prospective customers about available services, the representative will channel highly important and relevant information to the carrier's records. The representative must be carefully selected and trained, since often he—with possibly the driver and the vehicle—is the only evidence that the customer sees of the carrier's business. The Cumulative information in cusiomer records provides a substantial basis upon which marketing policy can be decided, and will show much of the customers' needs, likes, worries, intentions, etc.

The total information thus ccllated should enable the carrier to settle upon the segment of the market that he intends to serve and this will crystallize the investment policy too. It would be pointless to buy a tipper to carry a ship's bailer! Capital equipment has to be matched to the particular market.

SELLING

Primarily a prospect's interest has to be aroused to be able to point out one's advantages. An opportunity to quote and demonstrate one's performance has to be gained next. Firm regular orders must then. be obtained, and future business with the same customer has to be followed up by continually re-selling to him.

Such sales procedure may be practised on paper, by phone or face-to-face. In transport, the written farm is unlikely to succeed, apart from general sales enhancement for the operator, without specific clinching of orders. The representative is therefore an important and necessary overhead, who—in addition to personally creating a business image—has to sell by this technique. Telephone selling and contact keeping are vital. Again, similar techniques have to be developed by training staff who will also be conscious of inflections in a voice, the mood that is conveyed, hesitation or confidence on subject knowledge—and even the spirit and tone of the switchboard operator matters. It takes weeks to train a gifted person to develop these "sixth sense" qualities and reactions —but again, entire books are available on this subject separately.

Sales literature should be attractive, clear and informative without exaggerating, and beamed at the desired market section. It must reach the right man who hires transport services and may take various forms—letters, printed leaflets, booklets, even calendars.

Some of these methods and others will be applied by enterprising managers who recognize the marketing need. There must be a planned system before successful selling at the right price can be reasonably assured. Price must never be sacrificed since the fair profit return on investment is what it is all about! It is one of the weaknesses of the haulage industry, that often the object of the investment is overlooked.

Past attitudes by public carriers will have to change. Waiting by their phones for customers' enquiries and some do not even do that, but trust that the customer may find them in the workshop under a lorry) will have to be overtaken by imaginative and sometimes aggressive marketing beamed at even their oldest customers. It is not illegal or immoral to sell transport services and it will be the duty of management to obtain the right custom for their aptitudes and abilities, by going out to get it I Added Value One must focus on attracting more business by demonstrating better services over those formerly employed. The attraction of positive improvement obviates the inclination to attack or run down competitors. Pointing out to prospective customers any added value in the proposed services, provides an advantage. it could be a bigger vehicle; or for geographical reasons a more local and prompt service; more suitable vehicles may have a larger, smaller or different design of body, etc., etc. Some advantages could be "window dressing" and a little exaggerated, but they must contain a good substance of reality somewhere. The haulier's "image" created by appearance is another advantage—the driver, the representative, the vehicle, and telephone impression matter greatly. Confidence, real knowledge, understanding of the customer's problem and solving it all provide added sales value. Further, carriers will have to act as advisory consultants to retain added value of service in the view of the customer. Price cutting should be dismissed as an attraction, as everyone else can readily copy this way of getting business, by cutting yet another penny off.

This leap-frog situation will invite customers to play off one carrier against another, and ultimately can only lead all the participating operators to liquidation or bankruptcy. It is sheer commercial suicide.

Haulage has an unusual marketing situation, as the goods carried publicly announce the customers' names to all com petitors. Hence there are few sales secrets and by virtue of this, competition must be faced at all times. This re-emphasizes that services have to be re-sold regularly even to satisfied customers. Additionally "trouble-shooting" is vital when things go wrong, by initiating the first move to investigate and rectify the complaint.

Marketing is continuous because business cannot stand still.

Sales reductions will occur from normal customer mortality, and therefore it becomes essential to provide ever new outlets for one's services and skills. Yet, despite all marketing techniques, the haulier must not lose the good neighbourly relations that are one of the greatest traditional advantages that he has, and which have provided this country with a transport network that by and large copes well.

In future, public carriers will be distinct from own-account carriers not through licensing but because of a commercial decision by the top management of the operating firm. After this choice some differences in casts will be highlighted. For example—changed requirements in costly goods-in-transit and motor vehicle insurance, and the public carrier's perpetual risk of being unwittingly involved in international haulage, committing him to far-reaching statutory obligations; whereas the own-account operator retains advantages in the packing, consigning and construction of goods, because his drivers and vehicles will be exclusively concerned with these.

All such advantages are nullified the moment there is a pooling of traffic or vehicles, together with the loss of the direct control which is the hallmark of own-account operators,

CONCLUSION

One can never enforce a strictly theoretical and inflexible attitude in a free enterprise society, and it would certainly be wrong to attempt to do so. Yet a plea must be made that all operators should consider very carefully the issues challenging them now. Deep soul-searching is required because failure to recognize true costs, and to assess employed capital, will place a substantial extra burden on the main business of C licensees.

Own-account operators will have to take a long, hard look at their own operation to:—

(a) test its true commercial justification and viability in terms of return on investment, and (b) if continued carrying for own account is decided, the size and scope of the operation. and (c) whether to include public carnage, thus fully entering this complex and competitive business.

Public carriers are accustomed to change, and over the years have shown their adaptability to meet new conditions—or they have the option to get out now. Once the own-account carrier has taken the decision to operate as a public carrier, it has to be done properly without half measures. Full regard will have to be paid to capital investment and return, costing and prices, marketing, and legal obligations.

The prospects for the well-prepared and competent public carrier are probably better now than they have ever been. Clear awareness of the object of investment, and of the need to create a sound business structure to market and provide these services, will be the foundation of success. Nothing less than the required percentage return will be acceptable, as it would pay better to get out of haulage and invest in a safer and less headachy business elsewhere. Transport is an industry which makes extreme demands on skills and efforts, and this can only be justified by an adequate end result. The imaginative investor and the enterprising manager open to new ideas should thrive in transport—and if they are competent, they are well placed for success.