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January 08 77 The era of petroleum refiners delivering their own products to retail gas stations and other related outlets is on its way out. Today virtually all major oil companies have decided to focus on their refinery and convenience store operations and have outsourced the transportation of gasoline, diesel and jet fuel to regional short-haulers such as Penn Tank Lines, based in Chester Springs, PA. Penn is a family owned business begun in 1974 by Jack McSherry, who relied entirely on independently contracted drivers (ICs) for the first 20 years of operation, hiring the occasional salaried employee driver only when he couldn’t find enough ICs. Today Penn has about 400 trucks on the road, roughly two thirds of which are driven by ICs, hauling for major retail gas outlets, with customers such as Amerada Hess, Sam’s Club and the Circle K corporation. In 1995 McSherry sold Penn to Cleveland, Ohiobased BMI Transportation and headed up its petroleum transportation operations, but a year later BMI was struggling financially, about to go bankrupt, and offered to sell McSherry back his company, as well as BMI’s southern US operations. So Penn quadrupled in size overnight, going from a regional hauler to covering a considerable territory east of the Mississippi River, including part of the eastern seaboard. The key element was to establish reliability as quickly as possible, and McSherry was confident that ICs could handle it. “My dad’s always been a strong proponent of independent contractors,” says CFO Steve McSherry. “For some reason the transport industry has tended to look at ICs as a rogue element. Some companies see it as an image issue, which we’ve never had a problem with. Our drivers wear a uniform and present themselves in a professional manner, so the model has worked very well for us.” The IC owns his tractor and Penn owns the tanktrailer. The company provides him with “a one-stop receivable. “We pay him and conduct all the back office administrative aspects of the relationship, from accounting to insurance, holding a driver to the same scrutiny as hazardous material regulation training, with a big emphasis on safety.” The drivers control their hours and inform the company when they’re available, but Penn won’t allow them to moonlight for other companies, so they’re exclusively contracted to Penn and tend to be readily available, says McSherry. “Since most of our business is 24/7, the ideal for us is to have ICs that double-shift their trucks (with a co-driver), and run 24/7. Overall we find ICs to be responsible businessmen who can ebb and flow with the highs and lows of the market cycle, so when we get really busy they can rise to the occasion, and when things get slower they’re more amenable to having shortened hours, whereas the company driver needs that consistent paycheck.” Inventory control is managed by Penn. “The era of our retail customers calling us when they needed fuel, is over. We offered them a plan so they don’t need to maintain an infrastructure.” Penn monitors its customers’ underground tank volumes, typically from a maximum of 80 percent to a minimum of 20 percent. That flexibility allows Penn room to maneuver, and to manage its fleet much more efficiently than taking calls for orders. For example, it enables the company to deliver several times daily, if required, to a customer’s busiest locations. “We’ve taken that part of the supply chain out of our customers’ hands and we manage it for them. It’s a win-win situation, it lowers their overhead and we manage our resources appropriately.” With workers’ compensation claims and healthcare costs increasing, a number of transportation companies are beginning to look at ICs, and some are expanding their IC base. Meanwhile, says McSherry, Penn already has an infrastructure in place that its competitors can’t keep up with—“Or they’re still on the learning curve. They may offer an additional per-mile or percentage rate, their drivers might get paid twice monthly, but for us it’s direct deposit weekly. We have a broad base of purchasing programs that we allow ICs to use, including a fuel network they can tap into. We’ve had ICs leave and come back, admitting the grass wasn’t greener on the other PennTankLines “We’ve taken that part of the supply chain out of our customers’ hands and we manage it for them. It’s a win-win situation, it lowers their overhead and we manage our resources appropriately”

78 January 08 side, because our package is second to none. We may even assist a driver in fi nancing a new truck, if he’s a qualifi ed candidate. The turnover rate in the industry is crazy, but our IC turnover is low, few drivers leave on their own accord.” Safety is a serious consideration when hauling fuel products, and Penn makes an ongoing effort to make certain that all of its drivers are not only safetyqualifi ed, but constantly aware of and updated on the latest government regulations. Senior managers make fi eld trips to terminals to personally speak with drivers, highlighting safety concerns and regulations. “During the past year, for example, we’ve presented our drivers with ‘declarations of safety’ that spell out our concerns and congratulate them on a continuous job well done, along with a handshake.” Penn is in the early stages of integrating a new technology platform by TMW, a leading developer of trucking software. “It’s an across the board, fully supported transportation software platform. They’re in the process of rolling out a fuel module and we’ve been involved as alpha testers to help them develop it, and we think from a technology standpoint it will give our dispatchers and the people who use our dispatch system the tools necessary to make the right decisions.” Penn is also looking to continue to diversify with more non-hazardous material business. It recently acquired a former affi liate, Genesis Transportation, a dedicated contract, fl atbed non-hazardous material transporter. “We know these guys well, they did their own operations and owned their assets. We provided the back offi ce solutions and insurance, and we had a small percentage of the arrangement.” Ultimately, Penn is always looking for better ways to recruit and retain drivers with the skill-set to do the job, and the mindset of safety and responsibility that it values. PennTankLines