GROWING up in Enid, Oklahoma, surrounded by the tank truck business, John Groendyke had the opportunity to learn from one of the pioneers in this industry — his father, Harold. Those lessons prepared John to be a leader in this industry, most recently as chairman of National Tank Truck Carriers Inc (NTTC).
After graduating from college with a law degree among other achievements, John went to work in the diverse family business. For the first part of his career, his primary focus was on the farming and ranching side of the operation. His primary involvement with Groendyke Transport Inc was in equipment purchasing.
His focus changed in October 1986 after Harold Groendyke died. John took over as chairman of the tank truck carrier, and became more involved in day-to-day operations. During the 16 years with John at the helm, Groendyke Transport has proven beyond any doubt that it is a premier operation. It is among the Top 10 US tank truck carriers in terms of revenue, and has won an unprecedented six Outstanding Performance Trophies in the NTTC annual Tank Truck Safety Contest.
John has been a leader in promoting industry involvement. In addition to NTTC, Groendyke Transport is active with the state trucking associations in all of the areas where it has operations. The carrier is a long-time participant in the American Chemistry Council's Responsible Care program.
During a recent interview with Modern Bulk Transporter, John discussed a wide range of issues affecting the tank truck industry. Topics included the terrorism events of September 11, 2001, the growing insurance crisis, the lingering effects of the recession, the opening of the US-Mexico border to truck traffic, and the regulatory outlook.
MBT: For the tank truck industry, what was the impact of the terrorist incidents on September 11, 2001?
Groendyke: Certainly, it was a shock to our industry just like it was to everyone else in this nation. It put a spotlight on security. From the security perspective, it has impacted utilization and productivity in some facets of this industry. Revenue has been affected, which means either the driver makes less or the fleet makes less. Something has to be done to replace that lost revenue.
Security is very important, but I've had to tell some customers that they can only have as much security as they can afford. They can take four hours to clear a truck through their security processes or only bring a couple of rigs at a time into the plant for loading. At some point in time, though, somebody's got to pay for it.
MBT: Have the enhanced security requirements brought permanent changes in the way the industry does business?
Groendyke: The whole economy has been affected, and some of the changes are permanent. I don't think we've seen the end of the changes. For instance, personnel identification requirements will continue to evolve. We'll continue to refine chain-of-custody procedures for identification cards, and will continue to incorporate more sophisticated technologies, such as 3D holograms.
Determining valid identifications for driver applicants is a difficult issue. We're going to struggle with that for a long time. We have to do a thorough background check, but all of us have found that we lack the ability to do that due to privacy rules. People have reported that we can't do as effective a background as Canadian officials at border crossings. They can access the FBI (Federal Bureau of Investigation) criminal records, and we can't.
NTTC has been proactive on security issues, working diligently with state and federal agencies to address those concerns.
MBT: Following the September 11 incidents, did you see more or less stability in your workforce?
Groendyke: More. They wanted the security of knowing that they had a job. Trucking does better at holding employees during times of economic uncertainty.
MBT: Looking back at the events of the past year, where does the tank truck industry stand today?
Groendyke: It's in a state of flux. On the chemical side of the business, it still appears that there isn't enough demand and that over capacity still exists. We've talked with a number of chemical customers recently, and they say that their business is about as bad as it's ever been.
Overall, our business is picking up a little bit, but it's still not as good as in the past. We don't have that core everyday activity that pays the fixed overhead every month.
MBT: We hear that the economic softness may continue into 2003. What is your assessment for the economy?
Groendyke: Oh, we're seeing the same thing. A number of chemical shippers, through consolidation or whatnot, have gone out with new bid packages for major segments of chemical freight. We've all seen the Dow/Union Carbide bid package, and we have seen the same thing on the gasoline side of the business. We've seen the Exxon/Mobil request for bids, as well as the ones from Phillips/Chevron and Texaco.
MBT: We've heard at recent meetings that chemical industry consolidation is still in the early stages. What is this likely to mean for tank truck carriers?
Groendyke: All I can say is the consolidations we have seen so far in the gasoline and chemicals business typically have brought new rounds of bidding that have driven down the freight rates. Shippers also have sought to shift more responsibility or work onto the carrier. Sometimes carriers are compensated for the extra work, sometimes they aren't.
MBT: Is this industry too much of a commodity now?
Groendyke: I think some people out there want to make it into a commodity. However, we still see customers who are driven more by quality than price. It's still possible to obtain a reasonable price for our services.
What concerns us is when carriers lose business over a 2% change in the rate. That's scary.
MBT: Will fleets be able to fill the contracts at the low rates that are being discussed?
Groendyke: I don't know. At some point in time, everyone has debt and expenses that must be considered. If business isn't profitable, you just can't bid it below a certain level. You just have to tell those customers that this is what it costs to do business if they want the quality of service, equipment, and people that are currently being provided. If the price isn't acceptable, then the customer will need to find somebody else.
MBT: Can the tank truck industry hold the line on rates?
Groendyke: It has not been able to do so up to this point. However, I think we're at a point right now where everyone in this industry has been faced with the increased cost of insurance.
MBT: Is insurance the main financial issue facing the tank truck industry right now?
Groendyke: I think that is the big issue we see out there now. We can't afford to accept those increases without passing them along as rate increases, insurance surcharges, or some other form. We have to be able to recapture some of that money.
When you have a tractor, trailer, driver, and staff to support them, that equipment has to bring in “X” dollars a day. It doesn't make any difference whether you figure it by the hour, by the mile, by the pound, or by the gallon. At the end of the day, it's got to generate so many dollars.
MBT: Are the majority of tank truck carriers meeting that objective today?
Groendyke: A lot of them, including my company, are struggling with that. In addition to insurance, equipment is an issue. The collapse in the used truck market has adversely affected carriers. The new Environmental Protection Agency emission rules on engines that take effect in October 2002 will create further challenges for the fleets.
MBT: So, you think fleets will accelerate new tractor purchases as a result of the new EPA rules?
Groendyke: I think so. We're concerned that trucks built with the new engines will cost an additional $3,500 to $5,000. We're buying trucks now that we would have purchased in 2003 under our normal cycle.
MBT: What sort of concerns do you have about the performance and reliability of the new engines?
Groendyke: From what I have heard, a number of the manufacturers have had to raise the engine temperature to meet the new emission requirements. This will mean shortened oil change intervals. Component wear may be higher, and the engines may not last as long. We know we're going to lose some fuel efficiency, but we don't know how much. I've heard projections as high as 6% to 7% lost fuel efficiency.
The truck spec we're buying now is as good as we've ever owned. The quality is high. We get 750,000-mile warranties using synthetic gear lubes in transmissions and drive axles. In most cases, we've got a 500,000-mile warranty on the engines, and they are very good.
Eventually, we'll have to buy the new tractors. We can't be in this business with worn out equipment. A major segment of our business has been hard-to-handle, longhaul movements of hazardous chemicals. We can't afford to take chances.
MBT: What sort of insurance rate increases are carriers experiencing this year?
Groendyke: We're seeing a lot of fleets that are facing rates that have doubled or tripled. The increases aren't related to accident history or loss record. Cost isn't the only problem. Fleets are having difficulties even finding insurance.
MBT: Will some tank truck fleets be unable to find insurance?
Groendyke: That is a possibility. Excess coverage is another issue. Fleets that had $50 million to $60 million in excess coverage are having trouble placing even $15 million today. I hope the shortages don't bring about a lot of uninsured carriers.
MBT: Do tank truck carriers need $50 million to $60 million in coverage?
Groendyke: It depends on where you operate and what you haul. Twenty-plus years ago, one of our affiliated carriers had an accident on the 610 loop in Houston (Texas). It ended up being a $23- to $24-million loss, with eight people killed and 580 claims. I would say that loss today would have cost us $100 million to $150 million. It's not hard to have a $500,000- to $1-million environmental cleanup for a gasoline spill.
MBT: Has terrorism been excluded from the fleet policies?
Groendyke: In a number of cases, yes.
MBT: How was the tank truck industry as a whole affected by the Matlack shutdown last year? Groendyke: We saw the Matlack demise as a slow process over time. Everyone knew that they were downsizing and losing market share. Speaking for Groendyke Transport, we didn't see a dramatic impact.
MBT: Why is it that we seem to be seeing fewer tank truck carriers exiting the business right now than we have seen in some of the more recent years?
Groendyke: When you look at the residual value in the equipment and you look at the appetite for the market, you could just about line up the equipment, have a fire sale, and quit. Most people can't afford to do that as an exit strategy. For some fleets, equipment debt and liability are greater than equity.
We have heard that some of the aggressive bidding for business in the last 12 months isn't profitable, but at least it provides cash flow to meet debt. Sooner or later a company following that strategy won't be able to do the things needed to stay in business, such as replace equipment.
At NTTC, we're always concerned about ensuring a level playing field through environmental regulations, weight limits, and other issues. If everyone is buying insurance and paying taxes, then we're all competing on the same basis. A carrier can't compete if others are operating outside the legal requirements. It's not possible to overcome that hurdle. We want everybody to operate with the same hours of service, the same weight limits, and so on. Today, there are carriers running with little or no insurance, or they are insured with someone who doesn't have any more money than they do.
MBT: What do you anticipate for a wetlines regulation?
Groendyke: A wetlines regulation probably will become a reality. I would prefer to see one that applies to new equipment, rather than retrofitted on existing equipment. We've been fortunate to have input. We've been able to explain that the cost of retrofitting older equipment would throw the industry into an economic tailspin.
MBT: Should the wetlines regulation be a negotiated rulemaking, as was done with shutdown systems on MC331 tanks?
Groendyke: I hope they would because it seems we get a better rule overall. It's like the security issues in which Cliff (Harvison) and John (Conley) (at National Tank Truck Carriers) have gotten involved. Some of the agencies were nice enough to point out that our representatives brought up points they hadn't thought of. The people I know in this business want to operate safe equipment that doesn't endanger other people, society, or the environment.
MBT: What do you anticipate with regard to hours-of-service reform?
Groendyke: I think we will see regulatory action on hours of service. Changes need to be based on science, though. We need enough flexibility to accommodate the differences in every fleet operation. We must make sure that we don't end up with something that hurts productivity. In the past, we heard of proposals that would have required trucks to be parked from midnight until six in the morning. That would create more problems than it cures, because there aren't enough truck stops or rest areas to handle all of the trucks.
Routing of hazardous materials is another area where we've heard some unrealistic proposals. Sometimes, local emergency responders want to detour equipment around a community on dirt roads and unsafe highways. They would be better off restricting access on the main roads at high-traffic times of the day, such as 7 am to 9 am and from four to seven in the afternoon. At other times, it's better to run the trucks right through town on the four-lane divided highway. If an incident does happen, we're all better off if it's easily accessible for the emergency responders.
MBT: How should DOT and RSPA define their responsibilities with regard to hazmat transportation?
Groendyke: We need to keep OSHA out of the cab of the truck. We need to be able to deal with one agency for all issues relating to hazmat shipments. For the most part, DOT and the trucking industry have worked very well together in addressing those issues. We don't need multiple agencies all trying to assert control over what takes place in the truck.
MBT: What do you think the impact will be when the US-Mexico border is opened to cross truck traffic in June?
Groendyke: I hope it does open up, because there is a lot of bureaucracy and red tape and a lot of lost motion that affects utilization and productivity. It will take time for any real changes to occur. We may begin to make deliveries to customers in border cities, such as Matamoros and Nuevo Laredo. I don't think we'll begin running to the interior anytime soon.
US carriers already have some excellent relationships with Mexican carriers. Groendyke Transport has had Mexican partnerships for 40 years, first with Guillermo Berriochoa and Transportes Inter-Mex and now with the Hicks family and TransLesa. They have excellent equipment and well-trained drivers.
There are good and bad carriers on both sides of the border. I want them all to be in compliance with safety and CDL requirements. There is a lot of junky equipment shuttling trailers at the border.
MBT: Will the quality level of carriers on both sides of the border be raised by the safety discussion that has occurred? Will we see better safety enforcement?
Groendyke: I would hope so. I hope we haven't created arbitrary rules that serve as a bar to reasonable entry. We've seen that on both sides. Fleets have a lot of hoops to jump through right now.
MBT: Some opponents of opening the US-Mexico border have said that this just gives US carriers access to a driver force that will work for less money. Is there any justification to that claim?
Groendyke: I don't know if that would be the case. The Mexican fleets that we have worked with employ some of the best drivers, and they are paid above average. Truck driving is an attractive job in Mexico. Fleets along the US-Mexico border report driver turnover in the 10% range. I'd love to have low turnover like that.
MBT: What does the future hold for the family-owned tank truck carrier?
Groendyke: These companies must determine who and what they are. If they are a niche player, they have to be giving high-quality service at a competitive price. In chemicals especially, they must have a reload strategy to maximize the efficiency of their equipment. If they don't do that, they are not going to be a long-time player. We've seen a lot of bids in the last 18 months that we couldn't work with. A lot of other companies were in the same position because they didn't have the appropriate operating scheme.
You've got to be 75% to 80% loaded to make those bids work. You have to keep the drivers busy and the equipment moving.
MBT: With all of the challenges facing the tank truck industry today, how will it attract new people in the future?
Groendyke: If you don't have a rate of return that will support that, you struggle and suffer. We have to be able to attract younger drivers and managers. It's hard to find younger managers with experience in bulk. Many of our younger managers have been developed within our own system. It takes time and money to do that.
MBT: What does it take for a tank truck carrier to survive these days?
Groendyke: It's like any other small business. You've got to be able to distinguish your services or you have to be able to provide a service that is of value to somebody. If it becomes a commodity with price as the sole factor, you're probably not going to be a long-term player.
MBT: Is it possible to be just purely a tank truck carrier today?
Groendyke: That's hard to do. We're doing preloading in the gasoline business. We're doing storage and inventory management. Some tank truck carriers are getting deeper into storage terminal operations. At Groendyke Transport, we're getting more involved with rail transloading. It's what our customers want.
MBT: What is it that NTTC offers to the tank truck industry?
Groendyke: The association is strictly focused on bulk tank issues. Cliff (Harvison), John (Conley), and the rest of the staff have done an excellent job of keeping the industry focused on those issues and making sure they get addressed in government. The association supports that small niche segment of the trucking industry, which is bulk, with regard to tank inspections, tank manufacturing, and all of the different things we do with safety, maintenance, and training.
MBT: Will NTTC revisit its relationship with the American Trucking Associations?
Groendyke: It is being revisited. We strongly support the idea that all NTTC members should also be part of ATA. They do an excellent job on national lobbying issues, and they cover a lot of areas in which we have mutual interests.
Still, we have concerns about making ATA membership a prerequisite for joining NTTC. It doesn't do any of us any good if we run off 50% of the NTTC membership. We both lose.
We have no animosity toward ATA. We want to be able to support them on issues that affect both groups.
At the same time, NTTC brings us value because of our expertise on issues relating to the tank trailer. Every tractor is basically the same from one part of the trucking industry to another. The tank is the real difference. It's what distinguishes us from other trucking companies.