Jeff McCaig, chairman and chief executive officer of Trimac Transportation, took up the reins as chairman of National Tank Truck Carriers Inc during one of the most trying times faced by the association and the tank truck industry. McCaig met the challenge head-on.
The United States was mired in the worst economic downturn since the Great Depression of the 1930s. Unemployment was climbing toward 10%, and consumer spending plummeted like a rock. Deficit spending by the federal government was at historic levels. It was a tough year.
Retail stores were closing across the country, and industrial facilities were running at a fraction of normal capacity. Like other businesses, many tank truck carriers were hurting and were trimming operations just to survive. Even industry associations, like National Tank Truck Carriers, needed to do some belt-tightening. These were the issues McCaig faced when he took office as NTTC chairman in May 2009.
However, growing up in Canada's trucking industry provided McCaig with a solid foundation, and he has spent decades building Trimac Transportation into one of the leading tank truck carriers in North America. Many of those years were spent in western Canada, particularly Trimac's home base of Calgary, Alberta. From age 16, he had summer jobs in the Trimac dispatch office. He also worked in a truck manufacturing plant one summer.
After graduating from high school in 1969, McCaig attended Harvard for his undergraduate studies. That was followed by law school in Toronto. Following graduation in 1976, he moved back to Calgary and practiced law until 1980.
McCaig returned to the family company in 1983 when his father, J R “Bud” McCaig, became ill. By then, Trimac had grown into a diversified publicly-traded corporation. In addition to trucking, the company had interests in oil and gas drilling, vehicle leasing and maintenance, and waste management.
“I went back to school for a year at Stanford University to get a business degree,” he says. “I joined Trimac full time in 1985 in Dallas and Midland (Texas) in Trimac's drilling division. I moved back to Calgary in 1987 and then to Houston in 2003.”
McCaig became Trimac's president when his father retired in 1992, and he launched a de-diversification process for the company. “I felt that the world had changed, and we needed to be a more focused company,” he says. “We sold the drilling division in 1997 and the vehicle leasing division in 1999. We made our largest trucking acquisition — DSI Transports — in 2000.”
Why did McCaig focus on trucking? “I felt that trucking was our core business,” he says. “We had been in it the longest, and I believed we had a sustainable competitive advantage. We could grow across North America, and create greater shareholder value.”
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Even in the wake of this latest recession, McCaig remains confident that the decision to focus on trucking — particularly the tank truck sector — was the right one. “There is no question that this is a tough business today, but we have been able to grow and we are still one of the largest bulk trucking companies in North America,” he says. “Certainly this is a very competitive business. However, I don't think we could have been North American in scope with some of the other businesses we owned previously. We would have seen even more severe economic cycles with some of those businesses as compared to trucking.”
During a recent interview with Bulk Transporter, McCaig discussed the impact of the recession on tank trucking and the current state of the industry. He also reviewed the recession's impact on NTTC.
BT: How would you describe the state of the tank truck industry today?
McCaig: It's a very competitive business. We are always going to face a dynamic where we are a smaller and more fragmented industry than most of our customer industries. We're always going to be small in relation to our customers.
I believe we will see more tank truck industry consolidation, but it will be slow. In my view, there are not huge economies of scale that come from getting bigger in this industry compared to other sectors. Small carriers can be as competitive as larger operators. Some of the strongest competitors are the small fleets that can really focus on a single customer or single location.
Mid-size carriers sometimes face a squeeze because they start to experience some of the big-carrier costs without the economies of scale associated with purchasing, risk management, and employee benefits.
The demographics continue to work in favor of consolidation. For instance my family has run Trimac for three generations, and the third generation is reaching retirement age. I am the only family member of my generation to be actively involved in the business, and at this point there are no fourth-generation family members that have entered the business. Trimac has a professional management now, and it probably will continue to be managed that way going forward. We're not a family business in the traditional sense anymore.
BT: Is the recession over for the tank truck industry?
McCaig: That's hard to say. We've certainly noticed a pick-up in our volumes. At Trimac, we are above our budgeted revenue each week. Whether we are seeing a temporary replenishment of inventories or are seeing a sustainable return to growth remains to be seen in my view.
BT: What impact did the Obama Administration economic stimulus programs have on the tank truck industry?
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McCaig: Very little, if any, impact in my view. We saw two things. An industry analysis showed that just $27 billion (out of $750 billion) was spent on infrastructure projects and other programs that would impact tank truck carriers. Any money that was spent last year on those types of projects probably already was planned prior to the stimulus program. Maybe we will see some stimulus spending that impacts us this year, but we'll have to wait and see.
BT: What do the order boards for transportation look like going forward?
McCaig: They are good. We have every reason to believe that the economic improvement will continue. However, our customers can turn off the tap on a dime when they need to. We still don't have a clear picture of whether we are benefiting from a shift in transport mode or are seeing real growth.
Rail has experienced some capacity issues that shifted some cargo to tank truck carriers. Rail may also have experienced some service issues. In addition, extremely cold winter weather and iced up rivers diverted some loads from barges.
BT: Was 2009 all bad or were there some positive aspects?
McCaig: It certainly was a challenging year. It was one of the most difficult years I've experienced in my 26- to 27-year trucking career.
If I were looking for a silver lining, I think it did sort out some of the players. The ones that survived are stronger. It forced us to address our costs. We will be better for it when the freight volumes come back — and they will return.
BT: How optimistic are you about the future?
McCaig: I see a positive future in the sense that customers will still need the transport services that we offer. The products we haul are essential to the North American economy. In addition, we serve a wide range of customers across diversified industry sectors. There is definitely a good future for the tank truck industry.
However, a number of factors will impact the overall size and scope of the tank truck industry in coming years: Cost of fuel, cap-and-trade programs, and such.
BT: What will it take to get the tank truck industry running at full speed again?
McCaig: I think some positive steps have already occurred. The recession and credit crunch took away much of the over capacity. The industry is reasonably well sized now for the amount of freight being shipped.
Excess tank truck capacity was taken out of the industry to a large degree. Most of the reduction came from manpower leaving the industry; and to a lesser degree rolling stock was taken out of service. Some of the equipment was parked. Some of the equipment is gone permanently.
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When looking at the rolling stock, we need to differentiate between tractors and tank trailers. We've seen significant reduction in tank trailers, which typically are more technically sophisticated and expensive than a dry van. It may not be cost effective to bring some of the parked equipment back into service.
BT: How much of the tank truck industry is idle at this point?
McCaig: I don't know exactly, but I believe it is less than most people think. Two aspects to consider: rolling stock and available drivers. I think pressure has been taken off the manpower side. Manpower levels probably are at 75% of what they were before the recession.
BT: How much did tank truck freight decline during 2009?
McCaig: It is hard to say for sure but it is probably close to 25%. True revenue decline might have been masked by fuel surcharges at some carriers.
BT: Where do freight rates stand today for tank truck carriers?
McCaig: We certainly faced a lot of pressure on rates in 2009. I think some of our more sophisticated shippers are starting to understand that pricing — especially when it is at rock bottom — is not the issue. The real issue is capacity. The focus is coming off rates, and they are asking if we can service their demands.
BT: How would you characterize the economic outlook for 2010?
McCaig: I think the future looks positive. I tend to believe that our financial regulators will be careful to withdraw the extra money that was injected into the US economy as a stimulus, and they will do that at a measured pace. The US economy will get back on a growth track. I believe we will avoid a double-dip recession.
BT: What key issues are facing the tank truck industry today?
McCaig: Manpower tops the list. The driver shortages we experienced before the credit crunch will come back pretty quickly. To be successful in our business, we'll have to be able to manage in an environment where there is a shortage of manpower, specifically truck drivers.
Fuel probably is next on the list of major challenges. Cost and volatility are key factors. The greenhouse-gases and cap-and-trade factors will have a big impact on the price of fuel, which is our largest, or second-largest, cost.
Then there is safety. We haul large and heavy cargoes, some of which are dangerous or hazardous. We run long distances, often in congested areas on infrastructure that needs investment. We absolutely have to operate in a way that meets the highest standards of safety. Those that can't meet those standards will have serious problems going forward.
BT: How is the uncertainly over hours-of-service regulations affecting tank truck carriers?
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McCaig: Carriers are nervous. The industry can adjust to whatever the rules are as long as the rules are clear and enforced. If government imposes lower hours of service on the trucking industry and those rules are fairly and uniformly enforced and drivers would make less money than before, then the rates will rise, and that will allow us to continue to attract people with professional driving skills who are in short supply. Uncertainty means rates can't adjust, and that exacerbates the driver shortage.
BT: What will be the economic ramifications of revised hours-of-service regulations that shorten driving hours with regard to driver pay and fleet productivity?
McCaig: The short answer is that the cost of shipping goods will have to go up if the market works as one would expect. Truck driving is one of the few jobs in a modern industrial economy that is still basically done on a piece rate. Pay is sometime hourly, but more often it is based on mileage or a percentage of revenue. If you reduce the number of hours or miles a person can drive, you've reduced his pay.
BT: Going forward, what is the outlook for the North American Free Trade Agreement (NAFTA) with regard to the trucking industry?
McCaig: I think NAFTA makes so much sense that ultimately it will prevail and we will have a relatively integrated economy in North America. We'll see more integration of the Canadian, US, and Mexican economies because it just makes sense and everyone in these three countries will be so much better off.
BT: What are your thoughts on the discussion we hear today about fair trade versus free trade?
McCaig: You have to be careful what they mean by the term “fair trade.” In some cases, it is code for protectionist trade. In others, they really do mean fair trade.
BT: Where do things stand on the US Customs and Border Protection rules relating to empty cargo tanks that cross into the United States from Canada and Mexico?
McCaig: It's not being enforced right now. We believe customs officials understand that they do have to exempt some amount of residue in the trailers. Beyond that, this is an unreasonable requirement that won't do anything to prevent a terrorist incident.
BT: From your North American perspective, where do we need to go with sizes and weights?
McCaig: That is an area where the United States does need to take some forward steps. The US has some of the best highway infrastructure in the world, and it is under-utilized when more productive vehicles (in terms of sizes and weights) are not allowed. The other two countries in North America do allow larger sizes and weights. The United States really is penalizing the productivity of the trucking industry. Larger sizes and weights are more efficient economically, more efficient environmentally, and more efficient in terms of energy use.
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I was pleased to see that the Tommy Hodges report on climate change included a recommendation for more productive vehicles. That has become the official policy of the American Trucking Associations. At last summer's board meeting, NTTC moved from negative to neutral on the issue.
BT: Where do we stand with the union-sponsored card-check initiative?
McCaig: I don't think card-check is dead. I think it will come back in one form or another. However, it will be hard for the unions to move card-check up the priority list with so many other high-profile competing issues. I don't think the unions will let up on the issue.
BT: How would card-check impact the tank truck industry?
McCaig: It would introduce an element of unfairness to the labor relationship in our industry. However, I think the more progressive companies in our industry will learn to live with that kind of legislation and regulation that puts them at a greater disadvantage in terms of communicating with their employees.
BT: How would card-check impact smaller carriers?
McCaig: I think smaller carriers have the advantage of being very close to their drivers, and I think they would be in as good a position as any fleet to fight off the card-check impact.
The bigger companies, like Trimac, would have to become much more vigilant. Carriers in the middle would face the greatest competitive disadvantage. They are big enough that it's hard to maintain strong personal relationships with each of their drivers, but they lack the kinds of programs that would protect them from a union organizer saying “I can give you better than what you are currently getting from your employer.”
BT: What is the outlook for owner-operator drivers?
McCaig: I believe there is still a future for the owner-operator. The concern I have for owner-operators is related to an ongoing series of court cases and federal and state regulations that call into question the nature of the company/owner-operator relationship. If it is no longer treated as a truly independent relationship of one business with another, you begin to lose some of the justification for that arrangement.
This could have a chilling effect on the ability of truck drivers to build their own small businesses as owner-operators. It could diminish the small business sector.
BT: What do you see for cap-and-trade, greenhouse gas restrictions, and the other climate-related regulatory activity?
McCaig: I am one of those that really questions the “facts” related to the global warming claim. However, I can buy into the idea that conservation of our energy resources is still a good thing. We're better off if we can figure out ways to conserve energy. I don't believe, though, that we need to dramatically reduce our standard of living.
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BT: What is the outlook for the wetlines legislation?
McCaig: We believe that we have reached a compromise with the committee in charge of this legislation. It provides time to prepare for the requirements as they apply to new vehicles. We have a reasonable timeframe for retrofits on existing tank trailers. The number of cargoes affected by the legislation was limited to those that pose the most risk.
BT: What will be accomplished with a wetlines ban?
McCaig: The industry position is that it is very difficult, if not impossible, to justify the cost and the safety issues associated with retrofitting tank trailers with wetlines-purging systems. There is no rational cost-benefit analysis.
BT: How will the infighting between Congress and the Department of Transportation impact the tank truck industry?
McCaig: The sense I have is that it has caused the regulators to be very concerned about having any kind of relationship with the industry that they are regulating that could be construed as cozy. From the industry perspective, good communication just makes sense. A more informed regulator writes better regulations.
BT: What are your thoughts on the Comprehensive Safety Analysis 2010 that is being launched this year by the Federal Motor Carrier Safety Administration?
McCaig: It can be beneficial to the tank truck industry. The devil is in the details. If we have good standards that are fairly and uniformly enforced, then it will be good for the industry.
BT: What do you see for the future with regard to alternative fuels and hybrid-powered trucks within the tank truck industry?
McCaig: Alternative fuels and hybrids can be appropriate for the tank truck industry. For instance, Trimac is buying a significant number of LNG (liquefied natural gas)-fueled vehicles. We are doing that at the behest of a customer that produces that fuel.
We were very lucky to be led by the customer in that instance. I think it would be very difficult for our industry to take the lead. If they request it and take some of the risk for the price of the fuel, it will work. We also need support from the government in the form of grants and tax credits to kick-start the use of these technologies.
BT: Did the federal government make the right move in banning texting by commercial vehicle drivers?
McCaig: We are in favor of regulations that prohibit the use of electronic devices in the cab of the truck that could result in distracted driving. There is no question that is the right thing to do.
At Trimac, we've gone farther. We've locked out our Qualcomm (satellite communications) units when the vehicle is in motion.
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BT: What is the state of National Tank Truck Carriers today?
McCaig: I certainly didn't envision going through such a severe recession during my year as chairman. However, we came through it pretty well. There were some significant disappointments. We're looking forward to rebuilding some of the programs that we had to cut back. We want NTTC to become a unified voice of the industry and more relevant to our members.
BT: What will it take to bring back the carrier members that dropped out over the past year?
McCaig: I think just a better economy. They have to get back to making money.
BT: What is it that NTTC does that is critical to the tank truck industry?
McCaig: First of all, it is our point of reference for making sure our industry is as safe as it possibly can be. NTTC is our connection to the regulators that analyze and interpret the rules. It is a terrific resource for the industry on safety and compliance.
Secondly, it is the voice of the industry to our shipper community. There are things the shipper community needs to hear from our industry, and some of those things are better said through the association.
NTTC does many other things, as well. It helps with training our safety and maintenance people. The association creates opportunities for us as an industry to communicate with one another more effectively.
BT: Why does a tank truck carrier need to join the association?
McCaig: Our association does a lot of good things for the tank truck industry as a whole. A tank truck fleet needs to be a part of the industry association because it will be a better trucking company as a result. The company will gain the tools to be safer, more profitable, and better informed. The carrier and its customers will benefit.