It’s a concept that is hard to wrap your head around. But Jonathan Rosenthal’s idea is just the sort of thing to send it all topsy-turvy. Barb Maynard, spokeswoman for the Teamsters Union/Port Division, says she felt like slapping her face to make sure she wasn’t dreaming. Last September, Maynard joined Teamsters Union members in protesting the practices of Total Transportation Services (TTS), a non-union owner/operator harbor trucking company that it claimed fired drivers for union-related activities. Maynard told a City of Los Angeles pension fund that the fund had an “investment risk” because the trucking company is a repeat violator of labor relations laws. Maynard was quoted as accusing Total Transportation Services of “repeatedly harassing, threatening, intimidating and now, firing drivers as retaliation for attempting to form their union.” TTS, owned by Los Angeles-based Saybrook Capital LLC, had resisted efforts to reclassify its owner/operator drivers as employees and opposed unionization. That was Then… On May 4th, Saybrook Capital’s co-managing partner, Jonathan Rosenthal, joined Los Angeles Mayor Eric Garcetti and Teamsters Union leaders in announcing that Saybrook Capital had started a “sister” company to TTS, Eco Flow Transportation, which would be 100% employee-based and would not oppose Teamsters unionization. At the press conference, Rosenthal said this is “ground zero for change in truck drayage. Who would have thought we would be here a year ago?” In an interview, Rosenthal told AJOT “as congestion has gotten worse, an owner/operator driver may be averaging one and a half loads per day and that’s not enough to feed your family. So eventually the driver drops out and the company has high turnover and high costs replacing that driver with a new driver. You might be looking at delays to enter the Port of 2-3 hours. How can a driver getting paid by the load absorb that waiting time? When you’re waiting in line your truck engine is often running, generating pollution and wasting gas.” In fact, Rosenthal has been here before. In 2003, he was hired as part of the financial team that restructured United Airlines when it went into bankruptcy. He worked with the pilots, flight attendants and maintenance staff to restructure their contracts. The big problem, he says, was too many airlines and so mergers were necessary, “The merger of United with Continental Airlines was on our radar screen during the re-organization. Before consolidation, nearly every legacy carrier went through bankruptcy.” He’s also had a hand in sorting out other corporate challenges such as Pacific Gas and Electric and Kmart. Rosenthal said that legal and liability factors were also key concerns. As for legal concerns, “Several years ago the best lawyers on the planet were convinced that, if properly structured in accordance with the current law, trucking companies could contract with independent owner/operators and not worry that they might later be determined to be an “employer”- subject to all the costs of being an employer. It has been nearly impossible to predict how the courts will determine who is or is not an employee. It is exceedingly difficult for a company to make investments in new equipment, contract with drivers, upgrade technology, build modern facilities and work to meet growing customer demands without having a reasonable level of certainty that an unexpected liability won’t bite you in the butt years down the road. This uncertainty has led us to conclude that for us, the best and most predictable path is to build an employee drayage company. That doesn’t mean we’re right. It just means that we’ve assessed the risks, considered the added benefits of a more stable and better trained employee workforce, and decided that we would take that path. Others may be successful staying the course.” The political winds have changed, “The National Labor Relations Board (NLRB) and the California Division of Labor Standards Enforcement (CLSE) are challenging the traditional notion of the owner/operator company. Companies are starting to see challenges by drivers claiming they were actually employees and not owner/operators, despite contracts to the contrary. These challenges are being sustained by the courts and by DLSE.” Liability is a big issue. “The liability comes when you lose a misclassification claim. It’s not just about you having to pay an owner/operator wages for the hours worked, but you can also be required to reimburse the driver for leasing fees, gasoline, maintenance and vacation pay. That can add up to a big number.” Rosenthal concluded that, “given recent court decisions and the current political climate, we’ve concluded that it will be very difficult to operate an owner/operator model with any scale. You must have scale to obtain efficiencies and service the growing demands of the cargo owners.” The situation needs a new approach to harbor trucking. “The big story here is that the Ports of Long Beach and Los Angeles were not running efficiently in part because of the fragmented nature of the drayage industry, 560 companies employing 12,000 drivers—until today nearly all are owner/operators. This was the system that picked up and delivered containers to the Ports. It’s the Wild West.” This situation was an outgrowth of deregulation in trucking dating back to the 1980s, “Deregulation of the trucking business began in the 1980s. It eliminated the barriers to entry and made it much easier to start a trucking company. You bought an old truck, parked it in your driveway, did the maintenance on your own, and had your wife do the books. Voila, you were in business. But does that foster Port efficiency, or just lower prices in the short term and an unstable workforce, one guy undercutting the next?” Opportunity? So, Rosenthal saw an opportunity to make a new employee-based trucking company profitable and competitive against existing owner/operator trucking companies. The answer, he says, is larger trucking companies, “Larger trucking companies are able to aggregate customer containers into dedicated stacks, allowing more rapid “peel off” – what is sometimes referred to as “free flow”. With free flow stacks (at container terminals), truckers can focus on picking up a stack of containers belonging to one shipper and significantly reduce how long it takes to move a container from the port and on to its destination. The drivers’ wait time can be cut in half or more.” The success of this strategy can be seen in the airline industry, “Look at how consolidation has helped the airline industry. Airlines are finally profitable. Customers are flying at record levels with low prices. Airplanes are full. The system is highly efficient and has adjusted to deregulation, but it was painful. Before consolidation, nearly every legacy carrier went through bankruptcy.” Then the Ports of Long Beach and Los Angeles adopted the clean truck programs that placed additional burdens on drivers and trucking companies, “Since 2008, both Ports mandated a clean truck program that required replacing your old, more polluting truck with a new, lower emission truck. Since then, new 2015 trucks are even less polluting and more fuel-efficient.” This places a greater burden on the driver because: • To buy the new truck you need credit quality. • To maintain a post 2008 truck you need $500-$600 per month. • The newer trucks have less maintenance but you need to afford the new truck or find a way to lease the new truck from the trucking company.” The results of “congestion, cleaner trucks, higher acquisition costs and ultimately lower turn-around times is that companies and drivers were leaving the industry, and those that remained were now passing on the true drayage costs to their customers. Part of the congestion problem was a severe driver shortage, which still exists today. Let’s face it. If you can’t feed your family because you can only do 1 or 2 trips a day, you’re going to take up another occupation.” Rosenthal and Saybrook Capital designed a new employee-based company, Eco Flow Transportation, using new trucks and with plans to hire as many as 1,000 drivers that can be profitable against existing smaller owner/operator companies lacking sufficient economies of scale. The benefits are: • New trucks are lower polluting and more fuel efficient. • New trucks have lower maintenance costs. • Turn-over is reduced. As an employee you have good wages and benefits that accrue as you put in more time with your employer. • Employers can offer more training and can attract the best drivers from a safety and productivity perspective. • The company utilizes the most sophisticated technology so that the customer can track their cargo and have more visibility into when their cargo will arrive.” Cost Versus Value All these factors add costs, Rosenthal admits, but also add value to the customer and reduce inefficiencies, “When a company like Eco Flow hires 500 or even 1,000 drivers to drive these new trucks it reduces these inefficiencies and adds value for your customers. However, the drayage cost may go up. Drivers may decide to organize and may choose to be represented by unions like the Teamsters or others. But we think overall, the Port ecosystem and all of its stakeholders will be better off. The LA/Long Beach Port will become known worldwide as an efficient and predictable gateway to U.S. consumers.”