Satisfaction has a price

Trading big trucks for a tow boat requires moving to a different flow

Saturday, February 10, 2007

Ted Carr, 55, gave up trucking in 2003 to buy his own marine towing and salvage business....In addition to running the risk of abandoning an established career and starting a new business, Carr has had to adapt and sometimes sacrifice. [emphasis mine] He moved from Newberg to Sauvie Island to be near waterways. He has to be ready to respond 24 hours a day every day. He doesn't have as much time to go fishing. "That's probably the one thing I don't like," he said. "I can't take off and go fishing at the coast the way I used to."

Perks: "I enjoy helping people. There's a lot of satisfaction to taking someone's ruined day and making it better for them." Drawbacks: It's hard for Carr to take a vacation for more than a day or two because he is on call year-round. Pay: About $50,000 a year....What he charges: Vessel owners, who have prepaid an annual fee to a national service (similar to, but not affiliated with, AAA for cars), pay nothing for each tow. Others pay $165 an hour. Background: After graduating from high school in Long Beach, Calif., he held a number of jobs, including factory and gas-station work. Carr started driving a truck at age 21 and spent more than 30 years doing so. Family: Married to Nona, who helps in the business; three children.

Personally, I don't know Ted Carr. But I post this to illustrate a point: what is it about this industry that requires a man to give up his time off for fishing and vacations? Owning a towing business should be an enjoyable profession, not an exile to the dock...

North Lake Tahoe Bonanza - News

Climbing onto my Soapbox:

The Washoe County Sheriff's Office's search & rescue team has a few new toys: a sidescan sonar and an ROV, the sonar costing $40,000 and the ROV costing $32,000. This story raised so many issues and questions that I can only mention the glaring ones. (viewing the article may require you to register an email address)

First of all, the source of the money that purchased these items. The story mentions that the sheriff's office sold some old pieces of equipment and received donations from charities to fund the purchase of the sonar, and boasted that the system was purchased "without spending any taxpayer money." So, it wasn't taxpayers that donated to the charities in the first place? And I suppose that the "old equipment" wasn't originally paid for by taxpayers? And when the sheriff sells "old equipment", doesn't that money belong to the taxpayers?

Why was this even mentioned in the article? Is the sheriff's office just a little too anxious to preempt charges of spending the taxpayers money without cause?

The ROV was paid for with Homeland Security funds. Oh well then, at least the source of that total waste of money wasn't local taxpayers, but the taxpayers of the whole country.

OK, I'm off my soapbox. I'm better now....

So, here is another thing I see in this story: a new income source for towers. Rob Butler spoke about his new ROV in Clearwater this past January. This kind of super-specialized equipment has some potential for higher returns than a towboat if you are in the right market. Any large shipping port with a regular traffic of cargo ships, barges and warships will certainly need the services of ROVs for inspections. Sidescan sonar is an excellent technology for locating stuff on the bottom, but perhaps not as in demand or as versitile as an ROV.

ROV work is a natural extension of towing & salvage: you already have the means to transport an ROV with a small, well equipped boat operated by a licensed captain. You probably have space to store an ROV, and the maintanence skills to keep it running. I wonder what a used one goes for?

Tow Trucks

Last month I put up a post about ambulance rates. Now comes the other side of the coin: tow trucks. Comparing tow trucks and towboats from a business standpoint becomes rather complicated, because the list of differences is at least as long as the list of similarities. (Perhaps even more so than comparing ambulances.) So, one needs to make a very narrow comparison, rather than a broad one, to derive meaning from the exercise.

To begin, tow trucks are rated in categories dependant on the truck's capacity to handle different loads. While you may be free to tow a 50' sportfisher with an 18' plywood skiff and 40hp outboard bolted on the transom (been there - done that), tow trucks are not. Tow trucks are usually categorized into three basic classes: light, medium, and heavy - sort of like the three ACAPT classes of Utility, Coastal and Offshore. Unlike our industry, the mature and deeply regulated tow truck industry long ago recognized that different kinds of equipment should be charged out at vastly differing rates. So, to make some comparisons, we need to know what kind of tow truck we are talking about. Most of the towboat fleet is ACAPT Cosatal, which means the boat is capable of towing a disabled vessel in the 50' range. If you examine the tow truck classes, a Coastal towboat would be roughly comparable a the capabilities of a standard duty flatbed tow truck; ie. it can move 2-3 times it's own gross weight. The truck pictured above is what I'm talking about. see the ad here "2002 FORD F650, Tow Truck, Black, 2002 Ford F650 XLT, 7 spd, CAT 3126 210hp, 150k Miles, Century 20'2" Steel Carrier, 3 Toolboxes, Rem Rails, $32,000"

Say the seller accepts $30k. Ok, you've got thirty large tied up in a piece of towing equipment, powered with a 210hp CAT diesel. Now, we gotta make some money with the thing. Not cash flow, but profit.

Well, lets open a shop in Ft Worth, TX. According to the chart at left, we would get $135 for the first 30 minutes, then an additional $100/hr charged in 15 minute increments. So, bill your truck for 2 hours, and you earn $135 for the first half hour, then $150 for the remaining 90 minutes = $285. That averages about $143/hr. But what does it cost to operate the equipment?

Well, here is a screen shot from the career opportunity page at the University of Phoenix It's a safe bet that that they are probably presenting the best case scenario. Think you can find a full time, year 'round towboat captain for $25k/year? Good luck. I think it's fair to say that the tow truck driver needs very little training. Most states require a commercial driver's license. Unlike a towboat captain, the tow truck driver certainly doesn't need to document 720 days of field service before being allowed to apply for a CDL. So can we agree that a towboat captain is more highly trained, or at the very least, held to a higher licensing standard, than a tow truck driver? I make that point to imply that the captain deserves a higher salary than a tow truck jockey. As far as I can tell, tow truck driver's are not required to enroll in a random drug testing program.

I don't have the space to get into the insurance costs, but I'm willing to wager that it's less than offshore boat towing. The final point is that a tow truck in a busy metropolitan area will probably be much busier than the average towboat, i.e. more billable hours per year. The one above did 150,000 miles since new in 2002. Figure an average of 30 mph, that's 5000 hours. Figure 85% of those are billable = 4000 profitable hours, times $143/hr (average) Of course, that's if we only figure an hourly fee structure.

The flat rate structure means that you could do 3, or even 4 jobs in a single hour, at $135 each. So in reality, our tow truck could conceivably bill $540 in a single one hour period. Perhaps the real average for this analysis would be about $200/hr. over the life of the truck. $200/hr times 4000 hrs = $800,000 gross. Pay the driver top wages of $25k/yr for 5 years. Say $30k per year for fuel, insurance and maintenance....lets see...thats leaves $525,000 profit in 5 years on a $30,000 investment.

Ok, the $30,000 was for a used truck. But a new one would be about $60,000. That means it would cost $1000/month to amortize that asset over 60 months. Meanwhile, you're profiting $8750/month owning the thing. Try that with your towboat...

A Bear Market?

Think about your local market, and your bottom line, and examine who sets the rates. When someone suggests that "Our customers will never pay that much," how did they reach that conclusion? Is it just because some customers complain about the fees? Perhaps those are the same people who never leave a good tip, or always complain about the price of fuel for their boat toys? Should we always assume that customer's grumbling about prices is an indication that the prices are too high?

Remember the old adage that capitalist forces will adjust market prices to "whatever the market will bear." Not happily pay, but bear, as in carry a burden; endure. The entire nation is engaged in a debate about health care prices, but I don't hear a single hospital or doctor suggest that they will just charge less to make their customers happy. Nor would that solve the crisis. Nobody wants to get towed, and they really don't want to pay for it. That is exactly why the membership networks are able to sell memberships.

When you are faced with a customer who isn't a member, it's probably because the guy doesn't even want to pay that small fee. When he breaks down, he's faced with paying many times the yearly membership price, and now he's angry. You hear the anger and figure, incorrectly, that the anger would be less if the price was less. That would only be true if the price was ZERO.

Setting your prices to avoid the ire of your customers is a terrible business plan. There are so many other ways to please your customers, like showing up on time in a clean, professional looking vessel, with polite, presentable captains who understand that part of the job is being a salesman.

It's still the off season in most of the country. Take some time to examine what influences your rate structure. Focus on ways to increase your profits, not just quite disgruntled sailors.

A Summit Technology Can’t Reach - New York Times

A story in today's New York Times about rescuing mountain climbers caught my eye. There are a few themes here that pertain to our industry. The first is that the readily available technology that promises to aid in search & rescue (like GPS & EPIRBs) creates a false sense of security, and encourages people to push the "rescue me" button rather than figure out how to save themselves:

The technology has made it easier to rely more on search-and-rescue personnel,
and less on skill and knowledge. For example, as cellphones have become common,
well-equipped and trained hikers have used cellphones to call for rescue,
although in hindsight they could have descended on their own.

The implication is that the rescuers may be taking unnecessary risks on behalf of stranded hikers who probably shouldn't be on the mountain to begin with. Sound familiar?

What really caught my eye was this:

"In these cases, the high-tech devices wasted rescuers’ time and cost taxpayers
huge sums of money. (Under Oregon law, climbers can be charged only $500 to
cover rescue costs, yet the local sheriff’s office in the December rescue
attempt reportedly spent more than $5,000 a day for more than a week.) One can
envision a similar effect with locators, which send out a distress call with the
pull of a cord, if they became mandatory. "

Oregon law limits the rescue charges. I assume this means how much money that the government can charge for rescue costs, and that this limit doesn't apply to any private company. As far as I know, there aren't any private mountain climber rescue companies. Is that because the government does it for free? Are hikers more valuable than boaters?

I have so many questions: Why would the state want to limit their own ability to recoup rescue costs? What is to stop the state of Oregon from getting into the marine rescue business with the same dollar limits? Why should hikers be insulated from the costs of their own rescue, and why should non-hiking taxpayers foot the bill?