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,0 matters by John Darker, AMBIM iThe feast and famine in road haulage kNGLO-AMERICAN comparisons in oad transport may not always be strictly .elevant—the commercial climate and the .egulating authorities differ, of course. But if .oad habliers across the Atlantic grumbled ess frequently than British hauliers there night be reason to think that the American :conomy was a more favourable place for .oad hauliers.
Judging from a recent paper by Mr John Murphy, president of Gateway fransportation Co Inc, entitled: "Some houghts on stabilizing the financial &nation for companies in the trucking ndustrY" the business climate in the United Rates does not especially favour road lauliers.
At a conference on "Financial prospects 'or transportation" held earlier this year at Northwestern University, Mr Murphy's aper—read for him in his absence by the :..ompany's treasurer, Mr J. H. Kothoven—began with the trenchant ;tatement: "The financial history of the :rucking industry is one of feast or famine. Unfortunately, there is often far more famine than feast."
Mr Murphy detailed the experience of three recent years. In 1967 there was a strike and lockout, plus extremely bad winter weather in much of the country. "It was Gateway's worst year in its recent history and most of our industry didn't do much better, if any." There was a recovery in 1968 and the company did well. But in 1969 the added burdens of increased labour costs, higher taxes, higher equipment costs and a substantial increase in the cost of borrowing money, eroded higher revenues earned in a generally good business year. And 1970 faced the industry with the difficult negotiations with the Teamsters' Union. In summary, Gateway had achieved what could be called normal earnings in one out of 34or 4 years.
Mr Murphy examined the root problems of the trucking industry and attempted to plot a strategy for its future development.
Increased costs could be compensated in two ways: by charging customers more and by increased efficiency, or lower handling costs. The first solution was inflationary, obviously not in the best interests of the country, and likely to be frowned upon by the Interstate Commerce Commission (in this context akin to our Prices and Incomes Board). Moreover, said Mr Murphy, putting prices up did not always put industry profits up. In 1969 American truckers obtained 8 per cent higher revenue, but costs were up 10 per cent and earnings 13 per cent less than in 1968. "While many industries experienced a profit squeeze last year, profits for all industry were up 2.5 per cent over 1968, not keeping pace with sales growth, but up. This is in distinct contrast to the trucking industry, of course."
Twin trailers
Turning to the contribution to be made by increased efficiency, Mr Murphy said the industry could do something to computerize and automate but major increases in efficiency required official approval by all states to use larger highway units, twin trailers for example, and more realistic load limits on major highways.
Was it not reasonable that for roads largely financed by federal funds, the federal government, with its access to extensive research, should be allowed to set load and size limits? Even if it were possible for carriers operating over relatively wide areas to use twin trailers throughout these areas on federal roads meeting certain standards—and here Mr Murphy referred to major, divided, limited access roads—the efficiencies realized would be helpful to the industry and to its customers.
On the question of rates some stimulating views were expressed. The rate-making structure needed overhauling because it defied computerization in its present form. More significantly, Mr Murphy wanted rates tied to costs on a sliding scale. "If our labour costs advance 10 per cent and our taxes increase 5 per cent and our equipment costs go up 8 per cent, our rates should automatically go up sufficiently to cover these higher costs. This is a revolutionary idea in our business, although it is used in other areas of business.
"Even in the mortgage lending industry it has been advocated that mortgage loans be made at a variable rate, tied to the prime rate. A similar formula, perhaps a bit more complex, would be of benefit to all who use trucking, for then they would relate higher prices throughout the economy with higher costs for our industry and expect to pay more. After all, nobody now expects to buy a 5 10,000 house with a 4+ per cent mortgage loan."
Mr Murphy urged the establishment by the trucking industry of a research body to look into possible solutions to the problem of maintaining fair return to investors while at the same time providing the kind of service that customers expected at a realistic price.
He instanced the endeavour of the American Trucking Association, through its accounting and finance council, to revise the accounting and reporting methods of motor freight carriers. The ATA had granted $40,000 toward this project and an automobile manufacturer a like amount. A prominent firm of accountants was selected to prepare a complete revision of the industry's chart of accounts into an accounting system in conformity with generally accepted accounting principles. This would also reflect the income and expense of motor carriers into natural activity classifications of income and expense.
The chief changes proposed by the accounting study would provide recognition of deferred income tax accounting, the inclusion of gains on the disposition of equipment as extraordinary income, and the recognition of interest expense as cost to be recoverable in the cost finding method used in developing rate increases.
But changes brought about by long-term research could not help the industry in its present difficulties. The tools at hand must be used for present problems.
Mr Murphy anticipated an increasing trend towards mergers and consolidations. "Our industry is still very fragmented. The economies of size remain one of the few avenues left open to us to achieve greater efficiency. I would expect that 10 years from now there will be far fewer trucking companies and that the average size of companies in our industry will be much larger than at present."
There was scope for much more automated freight handling in terminals despite the wide variety of freight sizes and shapes and the great number of destinations. His own company were using what they called a "mini-sort" system for small shipments at their large Chicago Ridge terminal. Much more could be done in the area of sorting and consolidating
small shipments. Ideally, freight would enter at one end of a terminal, flow straight through and go out the other end without human labour involved and without tying up either space or equipment.
The growing use of "warehouses on wheels" or, in some cases, on wings did not always work to the best interests of the freight haulier but because it was efficient for his customers it would be likely to increase. The mobile warehouse idea enabled a merchant to keep a very small stock on hand and order almost day to day. The "warehouse" was a truck on the way to the store or retail outlet. Space was freed and this was equivalent to money which would otherwise have to be invested in a warehousing operation.
If US truckers are concerned about adequate returns on capital their brother railroad operators have even more cause for worry—though a few railroads are quite profitable. The paper of Mr R. C. Grayson, president, St Louis-San Francisco Railway Company, suggested much scope for Beeching-type rationalization.
Mr Grayson said that a 10 per cent improvement in car utilization would add the equivalent of 180,000 freight cars to the national ownership. Last year the average serviceable freight car moved 55 miles per day in line haul service. It spent only 11 per cent of its time in ,trains, loaded or empty. The remainder of its time was consumed mainly in loading and unloading operations or in moving from place to place in terminal areas being classified and assembled into trains, or just standing idle. "No transportation company can afford to have a $15,000 to $20,000 vehicle standing still for almost 90 per cent of the time."
Diversification was discussed in several sessions. Mr George E. Powell, chairman of Yellow Freight System Inc, was adamant that the large number of customers served and the endless variety of products handled provided his trucking business with its own "built-in" diversification.
Mr William N. Ernzen, vice-presiden finance, Burlington Northern Inc, stresse that horizontal integration to provide broa, intermodal distribution services was ix possible for railroads in the US though i Canada it was possible. But verde; integration could provide real financil rewards. "A typical example of this woul be a diversification that makes possible th controlled utilization of the companie physical assets, such as 'forest to plant t market via rail" where all elements are unch common ownership and with the possibilit of more economical operations." Anothe type of diversification held multipl geographic benefits, for example, a -investment in an industrial facility that i itself adds rail revenue but also develops community with satellite services requirin rail service.
Perhaps United States truckers will on day take over the mixed bag of railroaC that spans their country. Som improvements in rail car utilization an co-ordination of services would ensue.