Time for a customer review

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U.S. and Canadian officials have announced two new dedicated FAST lane locations and a pilot plan to establish commercial pre-screening at the Peace Bridge between Buffalo, N.Y., and Fort Erie, Ontario. The Free and Secure Trade program (FAST), which allows expedited processing for qualified participants, is part of the border accords signed by the United States, Canada and Mexico in 2001.

Truck drivers waited as long as four hours at the Canadian border in October because of a union strike affecting Canada’s border workers. The Canadian Border Service Agency’s guards and inspectors are considered essential employees and legally cannot strike. However, they – like many other government workers – are represented by the Public Service Alliance of Canada, which declared a strike for higher wages across its membership.

Barr-Nunn Transportation has extended its fuel protection guarantee for owner-operators. The current program guarantees 99 cents per fuel gallon through the end of 2004. The new program will guarantee $1.04 per fuel gallon for the first six months in 2005; the guarantee is made up of discounts, fuel surcharges and additional fuel cost reimbursements that ensure fuel costs per gallon do not exceed $1.04.

FFE Transportation Services entered into a strategic alliance with Nobis Logistics, a woman-owned third-party logistics company. FFE said Nobis offers industry expertise and a technological advantage while giving customers the opportunity for more diversity in their supplier community.

In the summer of 2001, I argued that if the price of diesel was destined not to return below $1.10 a gallon, then carriers would be better off if it rose above $2 (“Let’s hear it for $2 diesel,” CCJ, July 2001). I predicted that high fuel prices would drive out of business any carriers that wouldn’t charge a fuel surcharge. And shippers who refused to pay fuel surcharges at $1.30 a gallon would be forced to do so.

The average diesel price now is more than $2 a gallon, and the industry is headed for record profits. True, those profits are driven by a seller’s market. But the current capacity shortage would not have occurred if fuel costs hadn’t forced thousands of owner-operators and carriers to leave the business.

The other big factor in today’s environment, of course, is the driver shortage. While the inability to find drivers is stifling carriers’ opportunities for growth, for now the shortage is preventing the industry from overexpanding. Today’s capacity crunch will not last forever. Freight will shift modes, and more drivers will enter the market in response to higher wage rates. Still, I expect strong profits in trucking to continue for a few years.

But carriers now have a once-in-a-generation opportunity to make major changes in their business strategies. A favorable market is an ideal time to make changes because margins are not so thin that mistakes will lead to disaster. The most important decision any carrier makes is what customers it serves. A solid customer base makes a carrier profitable in good times and in bad. Now is the time to review your account base and weed out customers who don’t fit in your long-range plans. And look beyond your existing base and decide what customers you want to have.

Out with the bad and risky
The first stage in weeding out customers is to identify the ones that are just plain difficult to deal with. They are the ones that promise loads and then cancel them. They don’t get trailers unloaded on time, refuse to pay detention and take more than 45 days to pay. Be prepared to stand firm against those in your sales and operations staff who will resist dropping them.

Next, look at your customers as if you were investing in them, not just serving them. Keep current in news concerning them by subscribing to newspapers and business journals in their hometowns and by developing relationships among their managers and customers. If a customer is publicly traded, read analyst reviews and track stock price. For others, check credit periodically, even if their payments to you are timely. The bottom line is whether or not you believe your customer would be a wise investment. If not, look to upgrade to a healthier customer if the opportunity presents itself. You want to change customers on your terms, not theirs.

Remember also that while a company may be financially healthy overall, the plant you serve may become a candidate for a shutdown. This is true particularly with carriers serving automotive plants. A carrier serving a plant with a poor-selling car shouldn’t be surprised by unscheduled shutdowns for inventory corrections. That’s an example of the need to follow your customers’ industries in business publications.

Replacing customers that are solid today but potentially weak going forward is not without risk. It’s tougher than shedding customers who treat you poorly. But never forget that you tie your fortunes to those of your customers.

In with the better
The final stage in restructuring your customer base is to determine which companies you would like to land as customers in the future. Naturally you want to look for customers with solid growing businesses and track records of success. Also, try to determine what drives their business success: superior products and customer service, or the ability to manage costs. Companies that don’t compete exclusively on price generate a margin level high enough that saving a few dollars on freight does not make a material difference in their profitability. Shy away from companies in low-margin businesses. Reducing freight costs whenever possible will always be a mandate in these companies.

Decide which companies you would like as customers and pursue them. You will be surprised how receptive most companies are to carriers calling these days. With ample freight from current customers, few carriers are calling at even highly desirable shippers. That’s fine if you have always been highly profitable. But if you have struggled in the past to achieve consistent profitability, much of that struggle has to do with the customers you serve.