If you've attended a logistics and transportation event in the past 20 years, the chances are good that you've met Mike Regan—or have at least heard his confident voice booming from the back of a crowded conference room.
He's the guy who likes to stir the pot; as an advocate for shippers, he's known for putting government officials on the spot and making carrier executives squirm in their leather chairs. As a public speaker and educator, Regan's no-nonsense style challenges shippers to reinvent themselves and become more engaged in public-policy debates. And as CEO of TranzAct Technologies, he's devoted to helping shippers use technology and common sense to reduce their freight costs.
His straightforward questions, insatiable appetite for information, and unwavering commitment to shippers' education are slowly but surely earning him "industry legend" status.
For his steadfast passion for the logistics and transportation industry, the National Industrial Transportation League (NITL) and Logistics Management (LM) have chosen to present Mike Regan with the 2005 McCullough Award. This honor, which recognizes an individual for achievement and leadership in the transportation industry, is co-sponsored by NITL and LM. The award is named after John T. McCullough, a former chief editor of Distribution magazine, a predecessor of this publication. The award will be presented on November 14 at NITL's Annual Meeting in Anaheim, Calif.
"Mike Regan is one of the strongest voices for the logistics and transportation industry," says NITL President John Ficker. "He is a strong supporter of NITL and also functions as the chairman of the American Society of Transportation and Logistics (AST&L), where he consistently stresses the importance of being active in transportation and logistics associations to further professional development."
I recently spent time with Regan to learn more about the origins of his voracious hunger for knowledge and to see if I could learn the secret of what drives this tireless engine of advocacy.
LOGISTICS MANAGEMENT:
When did you first step into the transportation and logistics game?
MICHAEL REGAN:
When I graduated from the University of Illinois in 1976 I went to work for the Union Pacific Corp. I was an internal auditor where I basically walked around and stabbed the wounded after the war. I passed my CPA exam the same year. I lasted there for a year and then went to work for Price Waterhouse where I was involved in the audit of transportation companies.
What pushed you into the entrepreneurial role?
After my time at Price Waterhouse I went to work at Bank of America on their fright payment system. In 1983 I was offered a chance to go to work for Irving Trust, a bank that that actually no longer exits. Irving was going to double my salary, pay me a bonus of 25 percent of my salary if I hit numbers I knew I could hit in my sleep, and they were going to give me a company car and a parking spot downtown Chicago.
I was all set to take the job, and I had talked to everyone about it except for my Dad, who was something of entrepreneur extraordinaire. So, I called Dad the morning I was on my way to accept the job. He said, ‘Look, if you want to take that job I’ll be happy for you, but would you like to know what I’m thinking? If you take that job,’ he said, ‘you’ll be out on the street in three to five years looking for another job. You will not be happy until you start and run something. I know you, you’re my son, and it’s in your genes.
And you took Dad’s advice…
Of course. I went home and completely surprised my wife who thought I was on my way to New York to Irving’s headquarters to accept this great job. We had a child, another one on the way, and here I am turning down a great job offer—what’s wrong with this picture? She was floored. But I learned latter that Irving Trust was going out of business and the guy who was going to hire me had left a week later. So I always considered that as divine intervention.
When did TranzAct emerge?
Right about that time I was approached by Don Kehoe, who was a subcontractor for the Bank of America doing pre-audit. Don said he would like to start a freight payment company. That was right about the time that Bank of America had a consulting group go through their freight payment product and determined it wasn’t such a great product. The consultants said there was no market for it and that the bank should get out of the business. But Don and I knew we could do something better.
So, we started TranzAct and incorporated it on Dec.18, 1983, and our first day of business was Feb 1, 1984. Don brought me in went in as an Executive Vice President and I took significantly less than I was making at the Bank of America, which was about 25 percent of what I was going to be making at Irving Trust. But my wife was supportive of me and my father just smiled. We were featured in a Fortune magazine article in 1992, and the irony of it is that the article came out the week my Dad died. He never saw the article.
What was the mission of TranzAct when you launched and how has that mission changed in the past 20 years?
I could give you a fancy explanation, but I won’t. From day one, we set out to help customers reduce their freight costs. That’s what we’re in business to do. Over the past 20 years what’s changed is not so much the mission of the business but the tools and technology we use to fulfill that mission.
Who makes a good customer?
We say that we’re not for everyone; we’re just for “you.” The “you” in that statement is the person who’s motivated to save money and do a great job for their company. I’m sad to say that that doesn’t include everybody out there. A lot of folks in this business are RIP—or retired in place—and are failing to inform their companies of the transportation issues their facing.
When you meet with shippers who are not RIP, what state are you finding their logistics operations?
I can say that we’re seeing a heightened sense of awareness about the importance of logistics, transportation, and supply chain issues. If you take a look at your (LM’s) Masters of Logistics Survey, freight expenses as a percentage of cost of goods sold went from 2.6 percent to 3 percent. My numbers came in and said that that is a 14-15 percent increase in costs. We see no sign that the forces that have been responsible for those increases are going to stop in 2006.
So, you’re looking at double digit increases in ’04, ’05, and ’06, and you’re seeing that happen in an environment where transportation and logistics staffs have been pared to the bone and many of the functions that were done in-house have been outsourced to third parties. Today, when we see logistics professionals come out to market, they’re looking for options. They saying, ‘Help me understand what I can do differently in order to manage my costs more effectively.’
But you’re saying that takes a pretty special person to come to that realization…
Right. There are many people out there who are blissfully ignorant. I wish there was a way to put this diplomatically, but there are people out there who are playing a waiting game. They come to work and are putting in their time and hoping that they don’t get replaced or their job doesn’t get eliminated. In reality, many people in logistics positions simply don’t have the skills to plan ahead.
The state they’re operating in is a state of fear. And if you deal with people who are operating in a state of fear you’ll notice that that fear rapidly morphs into denial. If you’re a logistics professional operating in today’s environment and you’re not concerned with the security of your job, I have to wonder if you’re not missing something.
Let’s turn our attention to the realities fueling these fears. We have a recovering economy and, at the same time, we have record-high fuel, driver shortages, demand that’s outstripped capacity, port congestion, increase import/export activity, costly and time consuming security regulation, etc. From your unique perch in the market, how do you put today’s logistics environment into perspective?
I describe this environment as “organized chaos.” In an environment where organized chaos reigns, one of the things that you must realized is that seemingly small events can have a disproportionately large impact. The variables that shippers can control are diminishing. You have more variables today that shippers can’t control and those are going to affect their budgets as well as their supply chains.
Katrina and Rita were catastrophic events, but in the grand scheme of things, hurricanes happen. These things may be surprising; but what we call a surprise really isn’t a surprise if you go back and look at the information that was out there at any given time. For example, 9/11 wasn’t a surprise. We knew before 9/11 that the probability that we would be attacked with planes flying into buildings was out there.
How does this relate to today’s logistics realities? What can we predict knowing what we know about today’s realities?
I think it’s reasonable to predict that you’re going to see further consolidation in the LTL industry. I think it’s reasonable to predict that UPS is going to be making additional acquisitions to compete with FedEx. I think you’re going to see continued consolidation in the TL sector if for no other reason than trucking companies going out of business.
Give me an example of an issue coming down the pike that shippers may or may not be aware of given the information that exists today.
For example: Is it reasonable to predict that within the next five to 10 years you will see metropolitan areas impose delivery restrictions when you take product into and out of some of those cities?
It’s happening in London today…
Correct. So, is it reasonable to assume this is going to happen in the U.S.? If that occurs, that is a variable the shippers can’t control but they need to respond to. Now, as you start to increase the number of variables that shippers can’t control, how do you manage in an environment of uncertainty?
How do you manage in an era of such uncertainty?
One of the things that I’ve been fascinated by, amazed at, and depressed by, is the lack of scenario planning in the supply chain area. I read a book a few years ago called The Fifth Discipline, by Peter M. Senge. He introduced the role of scenario planning and explained how Royal Dutch Shell used scenario planning to manage through the fuel crisis of the 1970s. Now, shippers have to ask themselves if they’ve taken the time, as a company, to engage in any kind of scenario planning associated or organized around threats to their supply chain.
How do you convince shippers to put yet another item on the to-do list?
This summer I got the chance to ask Director Mueller of the FBI a question that basically closed off the meeting as he stormed off the stage. But it’s the same question I got to ask to Admiral James Loy when he was over at the Department of Homeland Security (DHS): Do you feel confident that we’re reasonably secure from terrorist incidents occurring on our soil?
Mueller and Loy both said something that was just stunning. They both said that we need to understand that within those agencies, the FBI and DHS, they don’t talk about “if” there will be a terrorist incident, they talk about “when” it happens. If you have two of the top people in the government talking about “when,” then it would be prudent for you to think about what you would do if it happens at one of the ports you use on a daily basis.
Are you suggesting that security is then the top concern for shippers moving forward?
Fuel, right now, is at the top of everyone’s list. Second would have to be capacity. Shippers are wondering if they’re going to have the capacity for handling all of their imports from China. Will I have rail and truck capacity at rates I can afford? But to me, the real sleeping giant is security. That is going to be the issue to vex shippers well into the future.
In what way? Is it a cost or time?
It’s both. Who knows how many containers are actually inspected? I do know if you have an incident involving a container it will take longer and cost more to provide the level of assurance that we as a country will demand to remain.
We transport hazardous materials, you can’t get around it. If you want to drink water we need chlorine. Right now there’s a driver shortage. If I have a security incident, and if we put licensing restrictions that morph out of a security concern, what does that do to my capacity? If I throw security issues onto the fire when we already have a driver shortage, we impose further shortages due to more intense licensing requirements. Then what? This will usher in yet another issue, more substantial issue revolving around supply chain execution.
Does that then elevate the importance of scenario planning?
It will have to. When I talk to a room of CEOs today I run through a line a questioning: How would your business be affected if I shut down your supply chain for four to six weeks? They tell me it will make a huge impact. Then I ask if they’re engaged in any type of scenario planning or disaster recovery planning and very few hands go up.
They have disaster recovery plans that deal with disruptions with IT. But if a supply chain disaster occurs—an event that could theoretically shut them down or put you out of business—they have no disaster recovery plan in place. I’m not talking about hypothetical to the extreme, I’m talking about stuff for which there’s a reasonable probability of happening.
All of the issues we’re discussing have been mounting over time—and are just getting worse. Yet, we find that some shippers still find themselves managing as if many of these issues don’t exist. What do you prescribe to shippers who are “managing in the dark?”
That’s a question that’s had relevance for the last several years. The thing I wonder about is how many people believe that their education just stopped when they got their diploma? This astounds me. One of the few prescriptions I can offer is to stay informed, stay networked, and be out there.
I know a lot of people in this industry. Let’s say I know 5,000 people and I see these people at NITL, NASSTRAC, and CSCMP events. So there are 5,000 people who attend these educational events, and you can say that’s a pretty good number. But when you look at it in terms of the percentage of people who have responsibility for logistics and freight issues, you’re dealing with single digits.
What forces are keeping shippers away from this continued education?
The reality is that freight is not a sexy issue. Consequently, it has not had a high profile within the corporate entity. You don’t see corporations diving down into the bowels of the organization to try to find the next logistics and transportation superstar.
How much time should a logistics professional put into continued education?
Bud LaLonde [Emeritus Professor of Transportation and Logistics, The Ohio State University] who’s been a mentor to me, said years ago that if you’re not putting in 200 hours on continuing education you will be obsolete in three to five years. I ran into Bud at an event last year and he said, “It’s not 200 hours today, it’s 400 hours.” We have 168 hours in a week; and Bud is saying that if you’re not putting in six to eight weeks a year on continuing education you may be obsolete.
But in today’s climate, is that a reasonable request?
It blows me away when people look at me and tell me that they don’t have time. I nod my head, and then I tell them we all have the same amount of time. It’s not about time, it’s a matter of priorities.
I talk to people who can tell me about the latest TV episodes, they can manage to find time to plan their vacations down to the smallest details, but when you talk to them about investing in their career through industry associations you get the deer-in-the-headlights look. Unless you’re working for a rare and exceptional company, you need to invest in yourself because your company isn’t going to invest in you.
One of the biggest issues—and maybe one of least covered by industry publications—is the fact that many executives in the C-Suite remain unaware of the impact today’s environment is making on their logistics budgets. What can shippers do to make their work more visible up the ladder?
You now have people in the C-Suite who want to engage in a dialogue. I know that to be true. I’ve lost track of the number of CEOs and Presidents who have called me or stopped me at industry meetings and asked me what’s going on in the freight area. I do know that the number over the past 10 months has exceeded the calls from the past 10 years.
Now how do shippers become engaged in that dialogue? First objective is to speak a language they understand. Second objective is to express it in terms that affect their business. For example, if you have issues of delivery times slowing down production, if you have issues with sourcing in China, you have to express it in those terms so that your CEO understands.
You’re suggesting shippers need to overhaul their entire approach to supply chain execution in order to prepare for the future?
Yes. We’re looking at a substantive change in the way companies must execute their supply chain capabilities. This runs contrary to who I am, I like to be optimistic; but right now I ask this question: You operate your business based on the expectation that the carriers are going to be able get it there quicker and cheaper. Is that a realistic assumption looking out 24 – 36 months? If I base my business plan on those realizations, then what does it tell you? It tells you that you’re in denial.
What role will surcharges play in a shippers planning scheme moving forward?
This whole topic fascinates me. I spoke with one of the large carriers and I asked why don’t you just start incorporating higher fuel costs in your base rate and take down your fuel surcharges? They answer was, “We like surcharges. I can get two to three percent increases in my surcharges whereas I have to fight to get half a percent increase in my rates.”
If that’s the case, and carriers are addicted to surcharges, I say that the era of cheap transportation is coming to close. You see security surcharges now, you see congestion surcharges, you see fuel surcharges, you see them coming for additional insurance. If you have a security incident you a mechanism through which additional carrier cost can be passed through to shippers. In an era where capacity is limited, shippers have to look at alternatives in order to mitigate the impact of those surcharges.
You mention that this is the end of cheap transportation. Well, what’s the logistics landscape going to look like five to 10 years from now?
Let me be humble enough to say I don’t know. But as I look at things, there are some realities that I think will come into existence five to 10 years out. First of all, information and data is going to be as important as the goods you’re shipping and it will be important in helping you understand your options.
The problem I see going on today is that companies are using a distribution network and a supply chain process that is relevant for a business model that passed out of existence five to ten years ago. With that thought in mind: How do I upgrade my distribution network and how do I change my supply chain process to reflect the business realities that I’m experiencing on a day to day basis and am likely to experience in the future.
When I heard Lee Scott (CEO) of Wal-Mart speak a few months ago he said the retailer is looking at reducing its supply chain from days into hours. If that’s the case, and if cheaper and faster is going to be more difficult to do, then it’s hard to believe that’s possible. But we need to understand what all of our options and alternatives look like for we say it’s impossible.
Companies will have to upgrade their distribution networks and supply chain process to reflect business reality that I live in 12-24-36 months out. That’s not just where I locate my DCs, that’s taking a look at changes my carrier base. Today, I have UPS that has Overnite under its belt, and is likely to have additional LTL resources under its belt. That means I now have options that I didn’t have a year ago. I know how the DPW/Excel acquisition. It’s changes like that that may present an opportunity for my business.
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