Girteka CEO: Digitisation a must for profitability, competitiveness and balancing the effects of the Mobility Package
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In this exclusive interview for Trans.INFO, the CEO of Europe’s largest road transport operator explains how the company survived the lockdown, how it is preparing for the arrival of the Mobility Package, and why respect for drivers and a nearly religious approach to fuel economy is fundamental to the company’s profitability.
Szymon Knychalski: Let me start with a question that cannot be omitted. How did Girteka survive lockdown time?
Edvardas Liachovičius: March was particularly difficult for us when we received the first news from Italy. Already then, with our employees and customers in mind, we made some difficult decisions concerning our further operation. Our number one goal was to preserve all jobs, so as not to force our employees to look for work somewhere else in this difficult period.
Goal number two was not to disappoint our customers. Although we had many different ideas, such as not going to Italy, we decided that we had to keep all our tractors running, and we have more than 7,000 of them. And we managed to do so throughout this difficult phase. It was not an easy decision, because within a short period of time we had to change the whole way we organise our transport.
For example: first, cargo to Italy disappeared from the market and, at the same time, demand for cargo exports from that country increased. Customers wanted to export as many goods as possible, expecting the situation to get worse. It was a tremendous effort for our planners and we were obviously forced to increase empty runs. Vehicles travelled quite often empty to Italy from France and Poland. It was a difficult time, but we kept our jobs and fulfilled our obligations to our clients.
Will any of the changes you made during that time affect your long-term strategy or will it change your behaviour in the future?
Not really. In view of the priorities I have just mentioned, we decided in March to limit development, to reduce investment this year, but we will achieve our goals after six months, maybe a year later.
Here I would also like to explain why Girteka is a special company. How it differs from others in the market. We specialise in refrigerated transport and reefers constitute 80% of our semi-trailers. And we have a saying in the company that “people have the habit of eating three times a day”…
… and that hasn’t really changed during the pandemic…
Actually during the pandemic they eat perhaps even more often. So the recession has affected us to a limited extent. Similarly, when the industry was hit by a major crisis in 2008-2009, the situation in the refrigeration market was not so bad. The cold store industry is not easy. It requires more investment, it provides less profit. It requires closer relations with customers, as there are relatively fewer contracting parties in this business. However, it is also more stable and resistant to recession.
So how will 2020 end for Girteka?
In the refrigeration business, the last and first quarter are crucial for the entire year. So it is actually difficult to answer this question at this point. I am today hopeful that we can close this year without red figures. We will have some small growth and positive profitability. In this situation, it will be a real success.
Photo credit @ Girteka
Especially considering that many companies, mainly from the West, indicate that their results for 2020 may be poor. They blame Eastern companies for spoiling the market. This has become particularly evident during the pandemic.
Since we work in the transport industry, let me use this comparison: “we are never dazzled by our own headlights” – it means that everyone sees things from their own point of view. International transport is a large, interconnected market. It has been like this but we will see what happens next, because after the Mobility Package, that is probably going to change. So ultimately, it is the level of competitiveness of the company and the quality of management that decides. Our customers, drivers, employees, freight forwarders seem to consciously choose who best suits their expectations. This is how the free market works. The free market, as well as democracy, is difficult, but nothing better has been invented so far. That is the best thing that leads us to be better than we were yesterday.
How do you view the current market situation? All the data indicate a drastic shortage of transport space and an increase in rates.
Our observations show that even a small (5-10%) imbalance between the loads and the vehicles available results in large changes in market rates. We are also seeing certain cycles in European transport. For example, in 2016, 2017, perhaps even 2018, there was an increase in rates and a shortage of transport. In 2019, we had a radically different situation. There were more tractors than loads. In any such crisis, when rates go down, transport companies cut back on their operations, regroup, change markets, so there is again a transport shortage and rates rise. It is difficult to say on what scale it will happen this year, but it always does.
There is no denying that rates have fallen sharply during the pandemic. At the same time, fuel prices have fallen, so this has allowed us to remain profitable. We are now in a moment of growth and I suspect that November and December will be successful in the refrigeration industry. I cannot comment on the tarpaulin sector.
And what about after the New Year?
After the New Year the rates in the refrigeration industry will, in my opinion, remain high until Easter. In Q2 and Q3, they may remain at the level we have today, with a possible adjustment depending on the oil price.
Let’s return to the Mobility Package, because this will be the most important factor shaping the market in the next two to five years. We still have Brexit on the way, the effects of which on some markets and industries may be comparable to the pandemic… Will Girteka be affected by Brexit in any way?
Everybody will be affected, even if they do not go to the United Kingdom. Changes in this market, the common market, will affect the balance of loads and tractors, which I mentioned earlier. However, the Mobility Package is something completely different.
How do you think it will affect the market?
The main objective of the Mobility Package is to improve drivers’ working conditions and to set certain standards that will apply to all market participants. This is in fact something that we support. Drivers are the driving force behind our business. However, once implemented, this idea starts to seem a bit awkward. I find it difficult to understand how improving drivers’ working conditions has anything to do with returning tractors to the country of registration every 8 weeks. But these changes will happen, the decision has already been taken.
For some countries they will be significant, for others they will have minimal impact. For countries closer to the centre of Europe, this may even turn out to be beneficial. On the other hand, for peripheral countries situated far from the main transport corridors, such as Lithuania, Latvia, Bulgaria and Romania, this could be a serious problem. This will not be a problem for large companies, which tend to have many international branches.
The Package will be the biggest threat to small businesses and to countries where transport accounts for a large proportion of the domestic product. On average in Europe it is 5-6%, but in Lithuania, for example, it is as much as 13%. The Package will also increase the number of empty runs, so it will affect not only the profitability of companies, but also the environment. It is important to remember about these social consequences of the Package.
Is Girteka taking any specific action to prepare for these changes and to maintain its competitiveness? Especially in the context of such returns to the country of registration?
We have long had tractors registered not only in Lithuania. We also register them in Poland, Germany, Russia, Norway and Denmark. So there will certainly be changes in the balance of registrations between these branches.
The branch that Girteka opened in Poland in 2019 may play a major role in the context of the Mobility Package.
The Package was not the main factor underlying our decision to open a branch in Poland. We simply wanted to be closer to our customers – for 20 years we have had customers for whom we carry a lot of cargo from Poland. The second point is that the larger the country, the better access to skilled workers.
How is this branch doing? How many drivers do you employ?
At the moment we have about 700 tractors in Poland and employ about 1500 people. We expect that at the turn of Q2 and Q3 2021 we will register tractor No 1000 here.
Do you also intend to recruit carriers as subcontractors in Poland?
We have actually been doing this for 15 years. Although we focus mainly on our own fleet, every year we increase the number of partners-subcontractors, especially in Poland. Today, 50% of our freight is delivered by Polish carriers and this percentage is growing every year.
So you will be recruiting mainly drivers?
Yes. We are unlikely to see tractors without drivers quickly. But we are interested not only in drivers. Our branch is already a large company, even for the Polish standard, so we also recruit other employees. I think that, as the largest European carrier with its own fleet, we have a lot to offer our employees.
Exactly. How do you do that? While the market complains about the lack of drivers, you employ 15,000 people and plan to multiply that number. How do you attract and maintain them?
Indeed, we hardly experience such a problem. I think this proves that Girteka is a good place to work. It is not uncommon for whole families of drivers to work for us, for many years. What is more, they recommend further members of their family or friends. Respect for workers is essential. We treat drivers and employees in our office equally, we do not set different standards. So the rotation is relatively low, comparable to that in family businesses.
Being competitive and at the same time providing good jobs is not easy. And the work itself is very difficult. First of all, it involves separation from the family. Second, the line between day and night is blurred. Finally, refrigerated trucks require double-manning. It is difficult to grasp how hard and valuable the work of our drivers is. A person who has never worked in the industry will not understand this.
Photo credit @ Girteka
In other words, you are even more focused on low turnover than on recruitment?
To put it simply, low rotation is a condition for our profitability. High turnover is extremely expensive for the company. The work of drivers with little experience is expensive, especially if we want to maintain high quality service for our customers. Low rotation, i.e. working with experienced drivers, means low fuel consumption and a reduction in various problems they may encounter on the road. So the main aim is not to recruit, but to keep employees so that they can work in Girteka for at least five years. That is our goal.
And yet this year there was quite a lot of media coverage of the drivers’ strike that took place in Girteka…
I think we cannot avoid the fact that the media pay a lot of attention to us, because we are the largest carrier in Europe. There was no strike in Girteka, in 2020 or any other year. What the media presented as a strike was related to the difficult decisions taken in connection with the pandemic. We spoke about this at the beginning of this conversation. Various companies acted differently at the time. We wanted to find the right balance in order to keep all jobs and safeguard our long-term plans. We could not afford to be in the red. We therefore took the difficult decision to temporarily reduce the daily allowances of drivers, but also of our administration. We did not reduce their salaries. This was a short-term measure and we have long since returned to the situation from before the pandemic. And that has enabled us to maintain adequate profitability and all jobs.
What’s more, every driver in Girteka has my phone number. They can also contact me via WhatsApp or Viber. Over this time, I received maybe 2 calls from drivers. I know the situation well, I talk to the drivers every day. This is just as important to me as talking to customers. I really think we made it clear why we are doing this and that the majority of Girteka’s staff understood this.
And we have had other examples in Europe of companies that had to leave tens or hundreds of tractors in parking lots and send drivers home for a month or two. How were those drivers supposed to cope then? They have obligations to their families, to themselves. This never happened in Girteka. Sometimes we make difficult decisions, but we always do it head-on and explain to our staff why we do it.
You mentioned earlier vehicles without drivers. It just occurred to me – you ordered Tesla Semi from Elon Musk – any updates on this? Have they let you know when it would be ready?
Yes, we ordered it in 2017, as the first company in Europe. We paid an advance, but for the time being we do not know the exact date of delivery. We hope that we will finally get it. This step with Tesla was intended to draw more attention to our social responsibility and the need to reduce CO2 emissions. We take this matter very seriously. From 2017 onwards, 100% of our tractors in Europe will probably meet the Euro 6 standard.
First of all, we have a very strong drivers’ academy, which is trying to reduce fuel consumption and therefore CO2 emissions. It is a kind of ‘religion’ for Girteka. We have a special eco-league in which drivers compete with each other and this gives them additional motivation. For several years now we have had a team of more than 40 trainers working with drivers. It is a whole ‘fuel-saving industry’. Obviously this is correlated to our profitability and the number of accidents. All this is measured and taken very seriously.
Photo credit @ Girteka
What does this eco-league look like, is it some kind of gamification?
We have a transparent system. After each journey, it assesses certain aspects of drivers’ driving style, such as how they accelerate, how they brake, etc. It is a kind of game and the best receive prizes, i.e. additional remuneration. And being the best of 15,000 people is also a reason for pride and motivation for the driver.
Are the drivers with the worst results punished somehow? There are voices in the social media that salaries are being cut for excessive fuel consumption.
No penalty system is tolerated in Girteka and I hope this is also true for any serious company in our industry. When it comes to fuel, we have to distinguish between two problems. The first case is when a large amount of fuel has indeed been consumed, above average, but it burned in the engine. This usually correlates with the driver’s low rating. Such a driver must undergo training.
Another case is when this fuel has not been burned in the engine. We do not tolerate such behaviour in Girteka. If the driver does not want to learn or accept our values, we do not continue our cooperation in such cases.
Having achieved Girteka’s previous long-term target of €1 billion in turnover, you have set yourself a new target, and that is digitisation. You want to turn into a digital company. Many companies declare this, but the problem is that little can actually tell what it means to be digital. How do you measure that you are already there?
Even bigger problem is that the market is very fragmented and it is difficult for small companies to invest in digitisation. As far as Girteka is concerned, we take the subject very seriously, we have a dozen or so projects aimed at digitising our business. This high-profile implementation with SAP is only one of them.
We are also investing in a system that matches loads to tractors because managing such a large fleet is not easy and requires a lot of manual work. We can all benefit from this – our customers, us and the environment, because it will clearly improve our profitability and reduce empty runs. All in all, managing such a fleet requires intensive work not only of drivers but also of managers – 24/7 and 365 days a year. So we are working on a digital solution that will improve this, while increasing the comfort of managers and drivers. Another problem we want to solve through digitisation is to reduce the time our tractors wait for loading and unloading.
Digitisation is a necessity for us. It will help us to maintain our profitability and competitiveness, and maybe it will balance the effects of the Mobility Package a little. Digitisation will happen everywhere, it’s a fact. As always, those who are the leaders will benefit most. That is why we are investing very heavily in this.
And the last question – how does the construction of Girteka’s new headquarters, the completion of which you have announced for 2021, go?
Girteka will have a new headquarters (laughter). It is just that the situation with COVID-19, but above all with the change in the way we work, forces us to make some adjustments. At present, only about 40% of our employees work in the office. All our changes to this plan will be presented within approximately six months. It will certainly have a different shape compared to what we presented some time ago, but we are still planning to build a large, fantastic and modern headquarters in Vilnius.
Photo credit @ Girteka