VERY LITERALLY, Lance Hillman grew up in the tank truck industry, and he has been an active participant in the industry throughout a career that spans more than 30 years. Over the past year, he served as chairman of National Tank Truck Carriers Inc (NTTC). It was a year that included an amicable parting of the ways for NTTC and the American Trucking Associations.
Hillman's career in the tank truck industry began while he was still in junior high school. Paul F Hillman, his father and one of the founders of Fort Edward Express Co Inc and a pioneer in the tank truck industry, paid Lance on a piece rate to wash tractors and trailers at the carrier's Fort Edward, New York, headquarters.
Lance bought out his father and uncles' interest in the corporations two years ago and now presides over the regional tank truck carrier as president and CEO. During his career, he was an assistant terminal manager at a couple of the fleet's New York facilities. That was followed by stints as maintenance director and treasurer.
During a recent interview with Modern Bulk Transporter, Hillman discussed a wide range of issues affecting NTTC and the tank truck industry as a whole. Topics included the growing realization that carriers must obtain meaningful rate increases if they are to remain viable and a look into the future at what impact carriers may expect to find from the softening economy.
MBT: How would you describe the state of the tank truck industry going into 2001?
Hillman: I think it is financially very fragile, and I believe a lot of carriers are reaching the end of their financial rope. The financial returns to this business haven't been great. In fact, when considering all the risks involved, they have been poor.
Carriers have done a phenomenal amount of reengineering at their companies to maximize efficiency, and our customers have benefited from it accordingly. I think that's just about coming to an end. There is only so much fat that one can take out of a system before it breaks down.
This industry has become very efficient since deregulation. We've done it on our own, but now we need rate increases to remain viable.
MBT: How much of a rate increase is needed?
Hillman: It would vary among carriers depending on how their financials are set. I honestly believe that if deregulation hadn't occurred, rates would be double or triple what they are today. I think you're looking at anywhere from 7% to 15% rate increases to pay for increased government regulation, insurance rates, health and worker comp costs, driver and mechanic pay, and fuel.
If a carrier isn't financially secure in an industry where capital costs are high, the cost of money will limit growth and/or replacement of equipment. Fleets also need to pay all employees more. In order to attract new, young talent in a nonglamorous industry, at least by today's standards, better compensation packages will be necessary. The only way to do all of this is to charge the customer more.
Rates are going up. At Fort Edward Express, we've seen some success. It's necessary for the continued survival of this industry. Companies that can't get a decent return will exit this industry. A look at the troubled airline industry of today may give us a glimpse of the future for ground transportation.
MBT: What's going to happen with the economy this year, and how will that affect the tank truck industry?
Hillman: We do face the possibility of a recession, but I believe we'll see a little growth this year. We just had eight years of a fantastic economy. The economy is cooling off a bit. We need to use up or consume what we have built to lower inventories and create demand. It seems everyone has a new car, truck, washer-dryer, stove, and so on. It will take time for these big-ticket goods to wear out. Consumer confidence, or the lack thereof, will rule the day. Different parts of the country will be hurt to different degrees.
MBT: How long do you think the slowdown will last?
Hillman: It will depend on several variables, such as interest rates, consumer confidence, and even various global events. If the rest of the world slides into recession, we could be dragged down farther.
MBT: Are we likely to see an increase in mergers and acquisitions this year?
Hillman: I don't believe we will.
MBT: Are there too many tank truck carriers?
Hillman: No. There may be too many trying to be everything to everyone. I think they'll need to change. In the future, we will see a lot of niche players and some regional players, with a few national carriers.
We see that service is becoming more and more important. Service period. Customers are willing to pay a good, reasonable price, but they expect service levels to be met.
MBT: Why is there still a good place for the small- and medium-sized carriers?
Hillman: They can react faster to customer demands than the larger carriers. The bureaucracy alone weighs down the larger fleets. Decisions are made faster, and smaller fleets can work closer with a customer, especially if the customer has special regional requirements.
MBT: Does the smaller carrier have the same ability to raise the necessary capital to buy the equipment needed to meet special customer requirements?
MBT: What are the major issues that will confront this industry during 2001?
Hillman: There is definitely an insurance crisis. The cost of liability insurance for this industry is skyrocketing, and a majority of tank truck carriers are now feeling the impact as they renew.
Other CEOs have called me saying they can't believe the quotes that they are getting. They are seeing rates double or triple those of last year. Carriers have had to raise their own rates just to cover the higher costs of insurance; hence, the insurance surcharge.
I don't think there will be any problem in obtaining insurance. The challenge will be paying for it. The only effective way to raise the necessary capital is with higher rates if we have reached maximum efficiency.
A number of factors have brought higher insurance premiums. The insurance industry has had some poor years as juries have made large awards in lawsuits involving trucking companies, interest rates are falling, and who knows what the stock market will do.
MBT: What's likely to happen with fuel prices?
Hillman: Who knows where it's going to go? That's a big question mark. Prices are going to bounce. Carriers are applying fuel surcharges, and they are holding. It's the classic case of supply and demand mixed together with world politics, religion, environment, and money.
MBT: Will Congress pass the fuel surcharge legislation that was proposed last year?
Hillman: I don't believe they will except for government traffic. I really don't think we need it. I hate to see government get involved with something we should do on our own. Let the free market dictate the action.
MBT: Fleets continue to report that they can't find enough experienced truck drivers. What is the solution?
Hillman: In order to get more drivers, we're going to have to pay higher compensation. Right now, we're stealing drivers from each other. That won't change until wages and benefits increase sufficiently and the image of the truck driver improves to the extent where the industry will draw young men and women into its fold.
MBT: Is hours-of-service reform dead now that we've had a change of administrations in Washington DC?
Hillman: We will see hours-of-service reform. It will be more trucker-friendly with a Republican Administration. I only hope that cooler heads prevail and that the rules coming out of Congress truly address the needs of the industry.
MBT: What should we anticipate for rules regarding wetlines on petroleum trailers?
Hillman: I can remember when we didn't have wetlines, and then the EPA (Environmental Protection Agency) came along with the Clean Air Act, which forced us to stop top loading petroleum. We had to add additional piping for bottom loading. We retrofitted and bought new, and it was costly.
At that time, everyone knew that we were creating a potentially more dangerous situation. It was more important to take action to capture the fumes and prevent air emissions, so we were told.
Now, after some spectacular accidents, we've got some pending regulations to do away with wetlines. There are systems out there to fix the problem. It's just additional expense. If it's a new rule, the industry will follow it, and no doubt the customer will pay for it.
MBT: What other federal issues are of concern?
Hillman: The conspicuity tape retrofit deadline of June 1 is fast approaching. Conspicuity tape must be installed on all trailers in the fleet. It's not a bad rule, but it is expensive. On cement tanks, we have to do a lot of prep work just to get the tape to adhere to the tank surface. The long, cold winters of upstate New York prevent us from doing this work outside, which causes additional shop scheduling problems.
MBT: With all of the challenges, what sorts of opportunities still are out there for tank truck carriers?
Hillman: I see lots of opportunities, but tank fleet managers have to think outside the box. It's crucial to maintain strong customer relations. Fleet managers have to visit their customers. It's great to have e-mail and fax machines, but nothing beats face-to-face visits.
We need to know where our customers and their companies are going and what is propelling them. We need to know how we can react to their changes. We're a service industry.
MBT: How have customers changed over the years?
Hillman: The customer today is someone who has little or no transportation experience. He's been put into a traffic manager position as part of a corporate program to give him broad experience. He wants to show that he's on the ball, so one of the first things he does is chop rates.
MBT: How do you work with this new sort of transportation manager?
Hillman: Face-to-face meetings are one of the best ways. We give them a chance to see our business; ride in our trucks. We also bring our mechanics, drivers, and middle managers together to ask what they think we can do to better serve our customers. How can we save the customer money?
MBT: How do you sell customers on the need for fuel surcharges and rate increases to cover driver raises and such?
Hillman: With an existing customer, you show him that you can't continue to provide excellent service at the existing rate. The customer has to be able to answer the question: What's the cost benefit to me to accept this higher rate?
There is a cost to the shipper to change carriers. Where does that cost play into the value that the customer is receiving from his current carrier?
MBT: Why should US tank truck carriers have an interest in international activities?
Hillman: The world's a lot smaller than people think it is. We will be doing more trade with Canada, Mexico, South America, and Europe. Trade barriers don't make sense today. We see stories about South American tank fleet operations in Modern Bulk Transporter, and they are relevant to our industry.
I like to see how people in other places are trying to solve the same sort of problems I face. A lot can be learned by studying other operations. We don't have all of the answers here in the United States.
MBT: Should President Bush end the delay and open the US border to Mexican trucks?
Hillman: From a trade standpoint, I would say yes. We have an open border with Canada, and my fleet has benefited from that. With the bar-code customs system now in place, we go back and forth across the US-Canada border without difficulty.
MBT: Do we need to give more serious consideration to bigger trucks?
Hillman: I think we do. When we look at other countries, they've been very successful at running larger equipment. It's a political situation here.
MBT: What level of compliance are we seeing with regard to the federally mandated cargo tank tests and inspections?
Hillman: Our company has spent a lot of money to set up a program where we test by the rules. However, I hear, see, and know of companies that just put on new decals with the next expiration date. They don't test the way the rules demand. The playing field is far from level.
MBT: What should be done?
Hillman: The only thing that can be done to fix the problem is to have more inspections by DOT or state agencies. We just don't have enough inspectors.
MBT: How do things stand between NTTC and the American Trucking Associations?
Hillman: NTTC has an excellent rapport with ATA. Several years ago, ATA reengineered itself. Things had reached a point where the leadership of the ATA felt changes were needed. They decided that members of the various councils, such as NTTC, had to be full dues-paying ATA members.
Needless to say, that did not go over well with a majority of NTTC members. They did not want to be forced to join ATA just to retain membership in NTTC. We voted to leave the ATA family. However, we have retained a very good working relationship.
I think ATA respects our decision. We still see that they support our stand on many issues. We take the same approach on issues that the ATA is working with. From the kingpin forward, we all work with the same types of equipment. The trailers are the difference.
I believe both parties will get along well. They will go their own separate ways, but it's important to work with ATA on issues of common concern.
MBT: Why does NTTC remain important, and where does it go from here?
Hillman: NTTC is the premier organization in Washington DC for the tank truck industry. Cliff (Harvison), John (Conley), and the rest of the staff are highly respected by all. Senators and Congressmen listen to the organization on issues that affect tank truck carriers.
The association takes on serious issues that could have significant impact on the entire industry. For example, NTTC spent over $700,000 during the past couple of years fighting the EPA's proposed rules for effluent from wash racks. That effort saved everyone in this industry a phenomenal amount of money. Many of those who have benefited from NTTC's efforts aren't even members.
NTTC dues for small carriers are very reasonable. They get an excellent return on investment for their dues dollars. I don't know of any carrier that gets less than the value of their dues back from this organization.
The newsletter we have is excellent. The meetings are great. If you don't come back with at least one good idea, or thought, to justify the cost of the trip, you just weren't paying attention. I've been attending NTTC meetings for at least 30 years, and they are always informative. Compared to other organizations, this is one of the best.