Seven Oaks




Tom B. Kretsinger, Jr.

Thank you Chairman Kretsinger for joining us for our third “Chat” exclusively in Truckload Authority.

 

Let’s get right down to business. In our first “Chat,” you stated that a significant industry challenge is “the things the government does to us.” How effective do you think the trucking industry as a whole is at beating back government’s attempts to impose more rules, regulations and barriers to growth?

 

I think the results on the whole are pretty good but it is somewhat mixed. On the one hand, I believe our industry organizations have a good dialogue with the FMCSA and work together where they can. The industry certainly is very active in the halls of Congress as well. It’s so divided, it’s so partisan, that it’s very hard to have anything [done]. What also happens is the president has said, I think sometimes unconstitutionally, that if Congress won’t give him what he wants then he’ll do what he wants without Congress. And the way that they do that is through the federal agencies. If you look at the sheer volume of regulations that are being proposed it’s somewhat overwhelming. There’s something like a new regulation being proposed every two and a half hours around the clock. So that’s what we’re up against. It’s not only the FMCSA, but it’s also the Department of Labor, the EPA, the EEOC and a host of other alphabet soups of agencies. I think the challenges we have is when special interests that are aligned with the administration get involved, such as the unions and trial lawyers. We’ve seen that in the recent disappointing Hours of Service. But there’s a lot of times those players are not involved and we can do quite well. Where we are lacking I think sometimes is unity in the industry. We have a lot of people who sit on the sidelines and then they complain about this or that, but they don’t join, they don’t get involved, they don’t help us be as strong and united as an industry as we could be. If we were more united I think you’d see our impact be much stronger.

 

A recently released report from ATRI revealed that the new Hours of Service rule modifications were, as expected, decreasing carrier efficiency, reducing driver pay, costing the carrier more in hiring new drivers to make up for the decreased productivity, and a host of other negative outcomes. Do you think there is a chance in the near term to have these rules revised and in the long-term, what are the keys to successfully navigating the changes?

 

I don’t know if they’ll be revised or not. There are efforts in Congress to have Congress overturn them, but as divisive, as partisan as Congress is, I think that’s maybe a long shot. I think we’re starting to see once you got past the slow part of July and August that there is a hit on productivity. They have taken time away, they have taken flexibility away. We’re starting to hear more and more each day of drivers complaining about varying situations. You have to stop, look and listen and take those things very seriously. The things that happen on the road which create non-driving time I believe are and will become increasingly under scrutiny. Things such as excessive wait times, multiple stops, nighttime driving and other things like that. And probably what will happen is carriers will tend to steer away from those types of business to keep the drivers happy because sometimes in economic cycles, customers are No. 1 and other times drivers are No. 1. Right now, drivers are No. 1. That issue and what takes care of them will trump all other issues.

 

Is the driver shortage the greatest danger to the growth and prosperity of the industry right now?

 

Yes. The No. 1 danger that I think is getting extremely serious is this driver shortage. I drive around town in Kansas City and I look at all the empty trucks that are sitting on the lots and I can tell you there are more than enough of them that if they were filled could make a good size truck line.

 

What does every trucking executive need to know and understand about the changing dynamics in the driver market?

 

It’s as hard as I’ve ever seen it. And I believe it’s getting worse and I don’t see a whole lot of light at the end of that tunnel. It does seem the tenured, really good drivers in our company are staying. There’s the bottom 30 percent that just churn at an alarming rate. And they’re not as good as what we’re traditionally used to. It’s getting worse. I think this is one of those things where everyone is talking today about what do we do differently and then you wake up tomorrow and do it again.

 

So what must we do?

 

Well, not the entire solution, but the big solution, is that they’re underpaid. I was with one of the largest companies in the United States recently who has a fleet of 6,000 trucks and they’re all company drivers. They have a 5 percent turnover. They have the best drivers, their drivers make about $80,000 a year. I’ve heard similar stories from other private carriers. For some reason, these shippers are willing to be more than generous with the drivers they hire, but they won’t pay carriers the amount of money they need to keep a good driver pool. And by doing that in the long run, what they’re really doing is destroying their own capacity, which at some point in the future they will desperately need.

 

Let’s shift gears a bit. As you’ve traveled as chairman of TCA this year, what are you finding as the most common mistakes you see truckload carriers making in the midst of this over-regulated environment and what should they do to correct them?

 

Actually there are a lot of them. One mistake some carriers have made is puting off replacing old equipment. I believe that’s a mistake that really hurts because the drivers don’t want to drive that, they don’t want to spend all their time in the shop and maintenance costs at some point exceed the truck payment. I think another mistake that some have made is not going to EOBRs, not establishing a culture of “we do things legal, no kidding.” I think those carriers are going to be under a lot of pressure to change their business models in the short amount of time they might not have the luxury of having. Not paying attention to safety on top of compliance I think is a big mistake for some. The insurance market has been hardening. They’re looking at CSA scores in underwriting insurance and I think some of them are giving some sticker shock on that. Another mistake I think is not being ready for this healthcare debacle we’re currently going through. It takes a lot of time with some experts to prepare and position yourself to deal with that. And even the ones that have [dealt with it] like us, are finding very large increases in costs. So with a business, another mistake is not being involved. Business is becoming very complicated and takes a great deal of sophistication to be successful in it and the ones that sit in their offices and don’t have a network and aren’t continually seeking more education are going to find themselves behind and maybe behind in a way that they can’t catch up with all the complexities we have.

 

The current liability minimum is $750,000. However, Representative Matt Cartwright, D-Pa., has proposed legislation that would lift this minimum to over $4.2 million, which would result in much higher premiums for carriers. Is there any support in trucking, even behind the scenes, to support the lifting of the liability minimum threshold by any amount?

 

There are differing views on this. A lot of carriers who are more sophisticated understand that a verdict can easily be over the minimums. In fact, way over the minimums. And so they buy more insurance than what’s required. We are one of those. For some of these, it’s very tempting to think, “Well gosh, since I do it, everyone ought to do it.” That’s one point of view, kind of a thought that this would level the playing field. The other side of the coin is that 81 percent of the carriers on the road today only carry $1 million. There’s a reason they do that. They’ve made a business decision. They may have fewer assets to protect, and maybe they can’t afford it. The cost of the first $5 million is extremely expensive and there’s a reason for that. The average fatality case will be close to $4 million. An average brain damage case with lifetime care will be around $12 million per person. So, in view of these things, the current limit looks relatively skinny.

On the other hand, I used to sue people in my other career (I’m a reformed attorney as you know). And I can tell you that any amount of insurance will not level the playing field. Lawyers want to make more like anybody else, just like we do. And we look, when we take a case, as to how deep the pockets are of the people we’re going to sue. And the deeper the pockets are, which could be provided by insurance or it could be assets that you have, the more we’re going to want. So the more successful you are, the bigger you are, the reality is, the more you’re going to pay regardless of what everyone else does. So I think the other side of this coin is that if everyone was mandated to have $5 million, plaintiffs’  lawyers would collect more money. And if lawyers collect more money, somebody is going to pay for that. And I think the answer would probably be all of us. A lot will sit there and say it’s a fool’s bargain to try to make a deal with someone who innately wants to sue you for as much money as they can get.

 

Speaking of tort reform, as an experienced lawyer in this area, describe what tort reform is needed to better safeguard the trucking industry from lucrative payouts and burdensome settlements.

 

It’s a long list of things. One thing that immediately comes to mind is joint and civil liability. It wasn’t too long ago that if there were two defendants, say my company and the driver, or my company compared to the plaintiff, if I am 1 percent at fault, I can be held liable for 100 percent of the verdict if my co-defendants couldn’t pay. Why would they want to go after truck lines? Two reasons, one if you collide with a truck, it’s a horrible thing with a lot of damages and the other thing is we are carrying more insurance. The average car is carrying what, $25,000 to $50,000? We’re carrying $1 million on up.

So I think one good reform would be we shouldn’t have to pay in any instance, any more percentage of the damages than what our percentage of fault is and a lot of states are far from that. The next one is punitive damages. Punitive damages aren’t your actual damages at all. What they are is an amount to punish and deter the defendant from quote, “malicious behavior.” So how do you figure out how much is enough? It’s just up to the jury. So if not capped it allows plaintiffs’ lawyers to make these emotional non-fact based arguments such as holding up a bloody shirt with an exhibit sticker to try to enflame a jury into these unknowable amounts of money.

Another one would include non-economic damages, some reasonable cap on those. Economic damages are those things you can put on a chalk board and add them up. How much were the plaintiff’s medical bills? How long was he off-work and lost his job? What will his medical needs be in the future? But then there’s that intangible thing, pain and suffering, emotional distress, all of these things that you can’t quantify. And some of those may be real, but again, it allows an attorney to do the same thing as they would with punitive damages. Create the possibility of these unreasonable runaway verdicts. There’s the collateral source rule which says if a person’s medical insurance pays all the medical bills, you can’t tell that to the jury. So in that sense, they get to collect these twice. What does that mean in light of Obamacare, where supposedly everyone is supposed to have insurance? The rule is based on the premise that you shouldn’t be penalized because you were smart enough to buy health insurance. Now, you don’t have a choice. So are you really smart enough if everyone has it? So those are just a few things; it probably needs to be done on a state-by-state level. The ATA Insurance Task Force has been working diligently for several years on this and people would be helping themselves actually if they’d donate to those folks to help them in their efforts.

 

Let’s talk health care reform. What are your general thoughts on the predictable Obamacare mess to this point?

 

They don’t know what they’re doing. This is in line with a couple of other things where they try to buy votes by telling a bunch of others we’ll give you something that doesn’t cost anything, I’m such a good caring guy you should vote for me. I’ve found, and I’m getting to be one of the older people around now, that nothing in life is free. Generally when somebody is trying to sell you something for nothing, you can pretty much figure out it’s a con game. Here you had this audacious attempt by some fairly arrogant people to take over 20 percent of the nation’s economy. It’s quite apparent today that the king has no clothes. Politicians are not insurance people. A lot of their appointees’ main qualification was they supported them in the election. So, now we have probably the largest political fiasco that I can remember in history. Policies are being cancelled, people can’t sign up for new insurance; if they do they have to pay a whole lot more. Companies are getting incredible increases and what does that mean? They can’t grow, they lay off people. They charge more, which goes to the consumer. There’s no good scenario in any event. So this will play out, and I think the damage is done. I think the house is on fire and you’ve got a bunch of people running around with little buckets.

 

With millions in the individual market already losing their health insurance coverage because of the law, do you foresee a similar outcome occurring to millions with employer-based coverage once the one-year delay of the employer mandate expires next year?

 

Yes. It’s unaffordable, contrary to its name. That’s the problem. You’re putting more sick people into the pool and healthy people are leaving the pool and that’s a recipe for disaster. We got a 20 percent increase. I don’t feel lucky. I think I am lucky. I think a lot of people are seeing things like 50 percent increases or more. And we’re in a business where the margins are so slim, if you make 10 cents on the dollar you are somewhat of a genius. Customers frequently challenge us to be more efficient, the rates haven’t really gone up, but the cost has. So this is incurring on top of a small-margin business that’s already experiencing a squeeze in the profit margin. Something will have to give.

 

So what is the best way for executives to go about getting the most accurate information and making the wisest decisions about healthcare coverage for his or her employees moving forward?

 

If you haven’t done it already which you should have, the thing you have to do is have a really good insurance professional. You can’t understand this law. Your general counsel cannot understand it. There are 100,000 pages of regulations. How long would it take you to read that, even assuming you can understand it? So there are people in the business, large insurance agencies that have trucking matter experts that understand this. The thing about it is that it’s changing every day. So it’s more than a full-time job for an office full of people to keep up with that. And that’s who you need to advise you not just on the law but what strategies and chess moves you ought to be making to come out of this the best you can. I do think one thing is a given: Employee health, whether it’s drivers or office people, is not some care bear, nice fluffy thing anymore. It’s a business necessity, you have to do it. It will save you money. And people are figuring that out. But, trucking needs to figure that out because a lot of our drivers have health insurance. Another problem many companies have is the health insurance that they were selling to drivers wasn’t a full-blown traditional insurance policy as we know it. And some of the things are not compliant and so for those people, the shock and awe is going to be so much bigger.

 

So let’s bring readers up to date on the inaugural Wreaths Across America Gala and some other TCA initiatives that have taken place since we last spoke in the summer.

 

This is the fun stuff! We had our first inaugural gala for Wreaths Across America which is a TCA-supported organization which delivers two things – it delivers honor and respect to our fallen veterans and it delivers a good and positive image for our industry. TCA took this on last year. The program was started with Barry Pottle and some friends in Bangor, Maine. If you know Barry, he’s a big-hearted caring, charitable, hard-working guy. He grew this thing from the trucking side to a point that was just too big for him and TCA took it over. The information on the program is easy to find at truckloadofrespect.com. But we started off with a fundraiser black-tie gala in Washington, D.C., and I went not knowing what to expect and I’ll tell you what, it’s one of the best things I’ve ever gone to. It was very well attended, you had Gold Star mothers, you had veterans, you had generals, you had admirals, you had privates, you had truckers and supporters of truckers all in this big-time thing. We had a presentation that showed the history of the program and all of what we do. It’s actually very emotionally compelling if you haven’t seen it and Lindsay Lawler, our Highway Angel spokesman, was there and she sang for us and then Lonestar, a popular country band, performed live. It raised $160,000 for the program. Dec. 14 is National Wreaths Across America Day and there are several things people can do to be a part of this whether they are a member of TCA or not. One is something as simple as buy a wreath, go online to truckloadofrespect.com, buy a wreath, buy several and we will ensure that that’s delivered to the grave of a fallen soldier.

Another thing you can do is volunteer to haul a truckload of wreaths. We haul wreaths from Maine to more than 800 military cemeteries throughout the United States and you can be a part of that convoy. They also always need dispatchers. It’s a great program, it’s growing, it’s going to continue to grow every year. One of the things that’s happening right now is the nation’s Christmas tree is being transported by truck from Washington state to the capital. There are stops along the way sponsored by TCA and again, this is another way of showing the people in this country that truckers care and are patriotic and good men and women.

 

Now, tell us about the gala in March of 2014 to support the scholarship program.

 

The scholarship program is another big success story. Not too long ago, the scholarship consisted of about $400,000 and about 16 scholarships. Last year, the scholarship program had money of about $1.5 million and we were able to give scholarships to 72 young men and women interested in the trucking industry. It’s such a great program, it’s growing. We’d like everyone to be a part of that both from a standpoint of helping them increase their endowment and letting their employees know there are scholarships available and they can apply for this.

 

When we chat again your one-year term as chairman will be coming to a close. What are you most focused on in the last few months of your chairmanship?

 

Well, we’ve done a lot of good things this year. As of late, I’ve been focused on the events that are currently in action, being primarily Wreaths Across America. Then after the holidays, it’ll be pretty close to when I am done and what we’re focused on is making sure there’s a good hand-off and a good transition to the next chairman, who is Shepard Dunn and keeping the chairman after that, Keith Tuttle, in the loop. I did a lot of work actually before I was chairman on continuity and direction and our officers are onboard with that. We’re trying to make it a type of organization where it’s going to be good and grow and improve and do great things regardless of whose chairman. And I think we’re well on the way to that.