Don’t blame your competition for a business model you picked!

I have had the pleasure of visiting several Asian carriers in the last few years. We also have many Asian clients at our firm, and I have seen this segment of the industry grow immensely since my wife and I were driving over 30 years ago. Our firm could easily be described as multi-cultural since our employees collectively speak more than 8 languages. The cultural differences of our clients are easily distinguishable and usually highly enjoyable.

Canada is not a ‘melting pot’; it tends to be more of a ‘patch quilt’ of different cultures. There are sometimes entire small cities that are represented by only one or two nationalities. It’s what sets us apart from the United States. The expectation in the US historically is for people to abandon their nationalities and become a US citizen. Canada does not expect that of our citizens, hence the pockets or districts.

When foreign business practices are brought to North America it can become a problem, certainly not insurmountable but an issue nonetheless. The contrary is also an issue. North American business practices being confronted by foreign practices can also cause discomfort. Let me give you a significant example.

Carriers listed on the stock market can often have access to nearly unlimited capital resources. A large conglomerate of carriers owned by a public entity has additional costs that a small/medium-sized carrier does not have (i.e. multiple administrations, overhead from headquarters etc.). Therefore, there can be significant “dis-economies of scale” when this business model is utilized. Carrier conglomerates that have $30-40+ million headquarters with accompanying overhead costs cause a disproportional ‘top heavy’ cost structure. Therefore, in an economic downturn, large carriers/conglomerates’ profits can often be hit the hardest.

Contrarily, I’ve seen carriers operate out of a basement with the wife doing administration and the husband dispatching 25-40 trucks. Operationally, this business model is insanely efficient compared to the ‘North American’ concrete, brass, glass, and marble expectations. The difference is often double-digit contributions to the bottom line.

Similar in nature to these efficiencies is the mindset of human resource management. The Asian business model is hyper-entrepreneurial in nature. Not just from the management of a business but from employees as well. I admire the independent attitude the Asian market has towards government… ‘if we can find a way to remove the government from our lives… we will’.

This leads us to the topic of Incorporated Drivers again. Although my points in the past are well stated (it will be most likely decided by Politics and Courts, not by Press or CRA) the argument of its net effect on the industry is highly debatable. Yet, here is a recent quote by Alain Bedard, CEO of TFI International. “Our Canadian business will shrink, absolutely, because of Driver Inc.” he said. “People will lose jobs — good-paying jobs — at TFI because of Driver Inc.’s unfair competition”.

Alain Bédard, Chairman and CEO of TFI International Inc. as reported by Christopher Reynolds, The Canadian Press, April 26, 2024.

I contend once again that any loss of jobs will have little direct origin in the Incorporated Driver controversy. As my PODCAST described, the competitive advantage described is an illusion at best… non-existent most likely.

First, what RATES are being compared between the two systems? I know drivers who are driving for 35 cents per mile, some for 45 CPM, some 55 CPM and others for even more. Who is being paid what? If conventional drivers get paid 45 CPM and Incorporated Drivers get paid 50 CPM there is ZERO difference competitively. If they both get paid the same rates (which is yet to be determined) the benefit may still be irrelevant. The missing payroll information and relative comparison make the argument indefensible. It’s an argument without data.

At HIGHEST calculation, non-payment of CPP, EI etc. represents 9-10% of payroll (both employer AND employee) and payroll represents only about 35% of freight cost, therefore only <3-3.5% MAXIMUM. We must also remember that CPP and EI are technically NOT TAXES… they are ‘mandatory’ contributory programs. If the driver doesn’t contribute, they don’t benefit. If they want to pay it themselves rather than having their employer pay it, the net result is a voluntary agreement to be paid less. Doesn’t supply and demand determine what an employer pays an employee? Aren’t employee wages a part of the free market system?

Does the ‘North American’ model assume that all drivers are/should receive the same rate of pay? Can industry legislate supply and demand of the free market like that? The Vancouver Port is trying to legislate that all drivers be paid the same rate. Will THAT be the rate every driver/operator will be paid across Canada? This discussion opens a meritocracy ‘can of worms’ that North American Carriers may not wish to open.

Some business models are far too top-heavy to survive competition with an efficient one. If supply and demand is allowed to operate freely, it should/will squeeze out the inefficient businesses. My money is on the ‘Non-North American Models’. They tend to at least appear much more cost-effective and fiscally humble, though admittedly without looking at their statements it’s inconclusive to confirm.

All that said, it’s still my opinion that if people lose jobs, it will most likely be because administrative overhead at a North American Model Carriers was too high to sustain itself during a prolonged industry downturn. The Driver Inc. discussion is a red herring.

About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him at www.makingyourmilescount.com or 1-877-987-9787.