CEO Ray Kuntz got commitments from a bank and a major driving school network last summer. His staff implemented the novel tuition financing program in just a few months.
In 2004, Duane Christensen retired after 27 years as a firefighter, including about 20 years at McChord Air Force Base in Tacoma, Wash. He could get by on his pension and other resources, but Christensen, who was only in his early 50s, needed something to occupy his time. More importantly, he wanted to earn enough money to put his son, now 9 years old, through college.
While surfing the Web recently for job possibilities, Christensen saw an ad for Western Pacific Truck School, a major truck driver training operation on the West Coast. Christensen had worked with heavy equipment his whole life, and his father had been a truck driver for many years. So he called Western Pacific and expressed an interest in obtaining a commercial driver’s license. But the school’s representative quickly raised a hurdle, Christensen says.
“The guy asked, ‘Do you have $4,800?’ I laughed and said, ‘Well, not on me.’ ”
But rather than send Christensen away – possibly to an entirely different second career – the Western Pacific representative offered an alternative. If Christensen met certain qualifications and standards, he could get a low-interest, two-year loan – regardless of his creditworthiness – and most of the loan ultimately would be repaid by someone else. The catch? He would have to commit upfront to working for Watkins & Shepard Trucking, an LTL and truckload carrier based in Helena and Missoula, Mont.
Christensen took the deal and got his CDL. On Feb. 21, he completed 10 days of secondary training at Watkins & Shepard’s driver training facility in Missoula. His employment had been delayed because he needed to deal with a family member’s health problem. “This company seems to be very family-oriented,” Christensen says. “They just told me, ‘We’ll see you when you get here.’ ”
Christensen vows to be a loyal, longtime employee for Watkins & Shepard. “They’re going to put my son through college.”
Trucking schools turn away thousands of otherwise qualified students each year because they don’t have the money and can’t obtain tuition financing on reasonable terms. So says Gregg Aversa, who heads The Sage Corporation, one of the nation’s largest networks of truck driving schools. And it may well be that because Aversa mentioned this situation to Watkins & Shepard Chief Executive Officer Ray Kuntz almost a year ago, Duane Christensen today is a truck driver. And if others follow Watkins & Shepard’s example, the trucking industry could bring in significant numbers of people who would drive if they could.
Seeing an opportunity
In late 2004, Kuntz, who was and is a vice chairman of the American Trucking Associations, was asked to head up ATA’s efforts on driver recruiting. Ultimately, that effort grew into a joint task force with the Truckload Carriers Association. Kevin Burch, president of Dayton, Ohio-based Jet Express, heads the effort for TCA.
In a task force meeting last spring, Aversa mentioned that Sage almost could double the 4,000 CDL students it trains each year if all qualified applicants could get financing on reasonable terms. That information astounded Kuntz. With all the problems the trucking industry has just to get people to consider driving a truck as a vocation, thousands who wanted to be drivers were being turned away at the front door – the truck driving school – because of lack of financial resources or weak credit histories. “These people are the low-hanging fruit,” he says.
Kuntz understood that banks and other traditional lenders would not help. It’s their job to earn a return on capital and protect against the risk of default. The trucking industry’s need for drivers simply isn’t their problem. But Kuntz did see trucking equipment lenders as a potential ally. After all, if trucking’s long-term growth was constrained by a lack of drivers, it was in an equipment lender’s interest to help.
A few weeks later, J.J. Singh – vice president of financial services for Flying J and chairman and president of Transportation Alliance Bank – happened to be meeting with Kuntz in Montana. Singh mentioned reading about Kuntz’s testimony before a House Veterans Affairs subcommittee regarding making financing under the Montgomery GI Bill useful for commercial driver’s license training. (Just last month, Sens. Conrad Burns of Montana and Mark Pryor of Arkansas introduced legislation to implement what Kuntz recommended at that hearing.)
Kuntz saw an opening and pitched Singh the idea of having the trucking finance community help with CDL training for students who otherwise could not obtain reasonable financing.
Singh promised to consider the idea. Only two hours after that meeting, Singh called Kuntz and committed to help.
Accepting the challenge
Kuntz immediately recognized two things. First, his idea needed a real-world proof of concept – not just a theoretical program to sit on a shelf until some trucking company happened to notice it. Second, Watkins & Shepard would make a great guinea pig.
Although Watkins & Shepard isn’t huge, neither is it small. The company has a large presence in the Pacific Northwest, but its 650 power units serve 23 widely distributed terminals – from Los Angeles to New York, Michigan to Mississippi. Since the 1980s, the carrier has run its own truck driving school at its Missoula facility and currently provides basic CDL training under a four-week program to as many as nine drivers a month. Watkins & Shepard also conducts secondary training under a 10-day program for individuals who are new CDL holders or who have little experience in trucking.
Onsite training allows Watkins & Shepard to control the quality of instruction and allows management to get to know recruits before they hit the road. It also offers veteran drivers the opportunity to interact with students and pass on – discretely, of course – concerns that students might be voicing. “Our drivers are a great resource for what’s happening,” says Mark Dodge, manager of driver training. Dodge himself was a student driver at Watkins & Shepard almost 15 years ago. He had been working as a teacher. “My wife told me I needed to make more money,” Dodge says. And Dodge isn’t alone. His boss, Macon Turner, driver operations director, also got his CDL through the carrier’s training program about 15 years ago.
“One thing we do differently than most carriers that train drivers is use a core group of driver trainers who aren’t also driving for a living,” Kuntz says. “These guys are professional driver trainers.” At some carriers, the secondary training program for new drivers becomes simply an opportunity for the driver who is doing double duty to obtain a second logbook, he says.
With the ability to put up to 18 drivers through secondary training each month, Watkins & Shepard devotes much of its recruiting effort toward new CDL holders coming out of truck driving schools. So in addition to advertising in newspapers and magazines, the carrier’s recruiters typically spent considerable time and money visiting driving schools.
“The picture you are seeing is that we are hanging our hat on new blood,” Kuntz says. The carrier would prefer not to hire drivers with years of bad habits. Because Watkins & Shepard relies on new blood, it depends heavily on high-quality instruction. So the carrier is selective about the third-party schools it recruits from. Curt Weidner, director of recruiting, surveys schools on their training methods and procedures to ensure CDL drivers receive adequate primary instruction. For example, many schools don’t require drivers to train using loaded trailers, and that’s a red flag, Dodge says.
The schools operated by Sage Corporation traditionally are among Watkins & Shepard’s richest sources of new drivers. And because Sage’s president basically started it all with his comments about financing, Kuntz directed Weidner to work with TAB and Sage to design a program that would ensure that a student who lacked access to funding could pay for truck driving school if he committed to working for Watkins & Shepard.
Hitting the street
During the summer of 2005, Weidner worked with staff at TAB and Sage to hammer out the details of a program that would benefit all parties. Students wanted financing. Sage wanted to be able to train more students. Watkins & Shepard wanted to lower its recruiting costs. And TAB wanted to reach out to new customers while limiting its risk.
The program was implemented in October at Sage schools in key areas for Watkins & Shepard – Montana, Idaho, Utah and North Carolina. If an applicant can’t obtain tuition under reasonable terms, Sage personnel determines whether he is a likely match with Watkins & Shepard based on where the person lives, how often he wants to be home, what kind of equipment he prefers to operate and so on.
If a match is found, Sage offers financing under a two-year, low-interest loan – assuming that Watkins & Shepard extends employment. If the student accepts the conditional offer, Watkins & Shepard conducts all the necessary driver qualification checks and confirms that the driver is a good fit. If everything checks out, the student signs loan documents with TAB and makes a $250 down payment – just enough to ensure the student is serious. Watkins & Shepard co-signs the loan, so TAB’s approval is automatic and creditworthiness is irrelevant.
Once CDL training is complete, the driver undergoes Watkins & Shepard’s 10-day secondary training program. Loan payments of about $185 a month begin about a month after this training is complete. But under a longstanding tuition reimbursement program the carrier has used to help with the cost of its own school, Watkins & Shepard covers $100 a month. So as long as the driver remains at Watkins & Shepard for the full two years, he only has to pay about $85 a month for his CDL training. Drivers who leave still are obliged to pay TAB the full $185 a month for the remainder of the loan term. If they default, it’s then up to Watkins & Shepard to collect. Kuntz points out that the trucking company has an experienced collections department and that it won’t just immediately write off drivers who ignore their financial obligations.
Kuntz knows that Watkins & Shepard will end up covering the loans of a few drivers – so far, two are 30 days or more behind in payments – but he is convinced the program still will be a good investment on balance. For example, he already has slashed thousands of dollars a month out of the budget for recruiting ads and travel. In essence, the tuition loan program and deputized driver school personnel act as frontline recruiters for the carrier.
Watkins & Shepard is expanding the program to other schools. For example, Sage didn’t have the West Coast presence the carrier needed, so Western Pacific and a couple of others were added recently. Other schools have expressed interest, but nothing final has been established, Weidner says.
As of late last month, 139 students had applied for the tuition loan program at third-party schools, although for various reasons many have not met the carrier’s standards. Watkins & Shepard has approved 56 of those applications and some remain under review. At this point, 20 have been hired since October. That may not sound like very many, but as Dodge puts it, “That’s 20 folks we never would have seen.” The carrier also is offering the TAB financing arrangement to students at its own schools as needed, and 16 drivers have completed Watkins & Shepard’s program under the plan.
By adding more schools, “we’re continuing to tweak the flame,” Weidner says, adding that the operation can handle only so many new drivers anyway.
Kuntz is quick to point out that he is not the reason the tuition loan program is successful. He gives the credit to the recruiting team led by Weidner, the safety and training department led by Turner and the staff of the truck driving school led by Dodge. “It may have been my idea, but these are the guys who make it happen.”
That’s similar to how Watkins & Shepard came to spearhead the creation of a risk retention group that’s fully owned by its trucking company owners. Kuntz became familiar with captives and risk retention groups through his involvement in the ATA Insurance Task Force and tasked Ken Crippen, Watkins & Shepard’s outside general counsel, with exploring and implementing a solution. Launched in September 2002, the American Trucking and Transportation Insurance Co., a Risk Retention Group now has five carrier members representing 2,800 trucks.
Kuntz has other ideas for his team to implement in the near future, and many revolve around the skyrocketing costs of health care and workers’ compensation. Watkins & Shepard is rolling out a wellness program to train drivers, as Kuntz puts it, “how to eat, live and keep from getting sick.” He’s also considering how, especially with an aging work force, to be smarter about preventive care. For example, a heart attack will cost $100,000 or more in health care, he notes. But if you catch the problem early, you may be able to install a stint for $35,000 to $40,000 and avoid the heart attack.
“The money we spend will come back to us on the back end,” Kuntz says. In so many ways – from health care to driver training to safety to liability insurance – that’s a core philosophy at Watkins & Shepard.
Why Watkins & Shepard?
Any one of the carriers Commercial Carrier Journal recognized as an Innovator in 2005 could be the Innovator of the Year, but only one can be chosen. Despite the strong lineup, one trucking operation stood out for most of our editors.
One aspect of Watkins & Shepard Trucking’s efforts that appealed to CCJ editors was the universal applicability. “The idea wasn’t one that was specific to Watkins & Shepard, but rather an innovation that other carriers could use and apply to their own recruiting and staffing situations,” says CCJ Managing Editor Dean Smallwood. Indeed, CEO Ray Kuntz launched the program in part as a demonstration project for the rest of the trucking industry.
And Watkins & Shepard’s boldness in taking the idea from vague concept to full implementation in about six months got the attention of Aaron Huff, CCJ’s technology editor. “At nearly every trade show or conference, executives talk about driver recruiting and retention. You seldom hear people speak of taking risks by bringing new drivers into the profession.”
Perhaps the most compelling case for Watkins & Shepard’s selection comes from Linda Longton, vice president-editorial for Randall-Reilly Publishing, CCJ’s parent company.
“All carriers complain about the driver shortage, but most just keep using the same timeworn, ineffective methods to try and solve the problem,” Longton says. “By making it possible for people to pursue a career in trucking who have the desire, but not the financial means, Watkins & Shepard has identified and capitalized on a completely new source of drivers. The industry gets more drivers, and those new drivers get the chance for a fresh start. With its innovative approach, Watkins & Shepard sets a template for others in the industry to follow.”
Indeed, late last month, the American Trucking Associations and Truckload Carriers Association endorsed a company driver tuition finance concept “modeled after a financing program successfully piloted by Ray Kuntz,” according to the groups’ news release. “We’re leaving no stone unturned in our efforts to find new drivers, and this program allows us to reach out to those who want to become drivers but who without some sort of assistance might not be able to enter the profession,” says ATA President Bill Graves.
A captivating enterprise
Watkins & Shepard spearheads carrier-owned risk retention group
Watkins & Shepard Trucking’s tuition loan financing program isn’t the first initiative Ray Kuntz conceived due to his involvement in the American Trucking Associations. In 2001, Kuntz was involved with ATA’s Insurance Task Force. Fred Burns, president of Burns Motor Freight and chairman of the task force, mentioned that a friend of his in West Virginia worked with an attorney in Missoula, Mont., who specialized in working with captive insurance companies. As it turns out, Kuntz had met the attorney through civic organizations.
Kuntz quickly began studying captives, risk retention groups and other alternatives to traditional insurance. In February 2002, he brought together 16 carriers at a meeting in Seattle to discuss the formation of a risk retention group. In September of that year, two of the 16 carriers – Watkins & Shepard and Combined Transport of Central Point, Ore. – formed American Trucking and Transportation Insurance Co., a Risk Retention Group, or ATTIC, RRG. Ken Crippen, Watkins & Shepard’s outside general counsel, serves as chief executive officer of the Missoula-based insurance company.
ATTIC, RRG is owned by its trucking company members, allowing them to retain their annual insurance surplus. In essence, insurance becomes a profit center for the trucking companies. It’s a unique model for a risk retention group and offers greater upside opportunity than the broker-based captives that dominate the market, Crippen says.
Since its formation, ATTIC, RRG has grown conservatively, adding one trucking company owner each year in 2003 through 2005. In addition to Watkins & Shepard and Combined Transport, current shareholders include KC Transportation Inc., Carleton, Mich.; T.S. Expediting Services, Millbury, Ohio; and Trans-System, Spokane, Wash. Trans-System, which operates about 900 power units, is the most recent to join and brings the scope of ATTIC, RRG’s portfolio to more than 2,800 trucks.
ATTIC, RRG’s members have seen steady decreases in their insurance premiums since 2002 while seeing the surplus increase every year, Crippen says. The company plans further growth but is selective. Ideal members are midsize trucking companies with large deductible programs, a commitment to safety controls and excellent historical loss performance, he says.
ABOUT THE AWARD
CCJ launched the Innovator of the Year award in 2004 to recognize carriers for trying new things and succeeding. By soliciting nominations and investigating leads, CCJ’s editors recognize Innovators throughout the year and select one for special recognition as Innovator of the Year. Innovators considered for the current award were those recognized in the magazine in 2005.
Innovation in any aspect of the operation is eligible for recognition. To qualify, the carrier or private fleet must operate at least 10 power units in Classes 3-8 and maintain a satisfactory safety rating, if rated. Selection of Innovators for recognition is at the sole discretion of CCJ ‘s editors.
This year’s award was announced and presented at the CCJ Innovators Summit, a networking event for previously recognized Innovators that was held Feb. 1-2 at the Hawk’s Cay Resort in the Florida Keys. Representatives of innovative trucking operations shared best practices and updated one another on the results of their initiatives.
CCJ ‘s Innovator of the Year program is sponsored by PeopleNet and Freightliner. For more information on the program, links to previously recognized Innovators or a copy of the nomination form, visit www.ccjmagazine.com and click on the Innovators tab in the upper right corner. Or contact Avery Vise, editorial director, at 800-633-5953, firstname.lastname@example.org.