Gas prices and it's affect on corps

[KeithHall]

With the rise of gas prices nationwide, will touring be cut down for corps? Will DCI have to go to a two two week tour like the old days?

[pags]

A part of it will depend on how the corps budget for fuel (i.e. do they account for potential increases in fuel, and, if so, how much of an increase) as well as how fast and steep the rise in fuel prices is. If you listen to some of the doomsday economists, then DCI had better not only be prepard to finance $10/gallon gas by the end of the summer, but be prepared to turn over regulation of their organization to China, who will certainly take us over as soon as the dollar is weak enough.

[BL1977]

Corps directors almost need to be fleet maintenance managers to manage transportation costs this summer. Here are some ideas:

1. If you are renting semi-tractors, INSIST that they are equipped with "APU"s, or Auxillary Power Units. This is a small engine that keeps the cab cool during idle time (versus running the engine). APUs use a fraction of the fuel that the engine uses- about 1 cup per hour versus 2 gallons.

If a tractor is running for 60 days, with 10 hours of idle time each day, the tractor with the APU will use about 38 gallons of fuel (at $5 per gallon, $190 total). Without the APU, the tractor idling its engine for 10 hours a day will burn 1200 gallons of fuel ($6,000).

2. If you don't have a National Account for tires, go to the websites of the major tire manufacturers and enroll now. All of them offer Roadside Tire Assistance programs that you can enroll in for free. I'd recommend enrolling with all of them before tour starts. If there are any tire breakdowns during tour, you'll have three accounts already set up, and they will dispatch the service for you. Some of them offer credit card programs that offer 3% rebates on tires, 1% rebates on everything else, including fuel.

Setting up a National Account will control some of the service call charges....

The same holds true for nationwide tire dealers (i.e. GCR, Goodyear, Tire Centers Inc, Pomps, Bauer Built, Strouhal)- arrange for an account with your local store. If you are stranded along the highway, the nearby store will respond if you are an established account within their computer system. However, if you don't have an account, call and ask for a service call, many times they will refuse to service you- too risky in today's world. (This leaves you looking for a local tire guy that may or may not be reputable...)

3. Have a tire serviceman check the condition of your tires now, before tour starts. If you NEED tires, investigate the Tax Exempt programs that are offered by the major tire manufacturers- the programs are offered to non-profit organizations that transport people for non-revenue purposes (= drum corps).

The pricing is VERY competitive (cheaper than what the tire dealer pays). The salesperson at the tire store may not know about the programs; if so, kindly push. Ask him to contact his tire supplier for details... don't feel sorry for the sales guy; he will get a commission for the sale. Just be sure you have your tax-exempt number with you when you go in. Again, all tire manufacturers offer these programs (the programs are considered "S.A.F.E" for Sales Action Federal Exempt, or the other buzz phrase is a "Motor Coach" program).

4. New tires versus worn tires. If you don't have to change your tires, DON'T. Make sure the tread is evenly worn across the face of the tire; in a dual position, check that the tread depths are matched across the assembly. A worn tire (10/32") IS more efficient than a brand new (30/32") tire.

5. Highway tires versus drive tires. Using steer tires on a drive axle WILL save fuel! Considering that there shouldn't be snow this summer, if you have to get new drive tires- consider steer or trailer tires. Some major fleets in the US do this just to save fuel- and again, you are only going 12,000 miles over 3 months- which is considerably less than a professional fleet drives.

If one tractor has brand new drive tires (30/32"), and the other one installs 8 new trailer tires (13/32") on the drive axle, the second tractor will save about 6%. If fuel is $5 per gallon, that's about $600 per tractor/trailer.... which would pay for food on tour for 5 days.

6. Air pressure. Underinflation is the #1 factor that WILL take a tire out of service! Driving around on a tire that is underinflated by 10 psi will cost you 1% in miles per gallon. If you have to err on the side of being over or underinflated, overinflated is better (at the most, by 10 psi).

If you are on tour, and find a tire significantly below the recommended pressure (20% below is considered "flat")... make the safe decision and immediately REMOVE the tire from service. NEVER let someone add air to a flat tire while it's still on the vehicle- if it explodes, it will hurt someone! A highway tire, inflated to 100 psi, has enough explosive force to launch a 16 pound bowling ball... 3/4 of a mile (or 13 football fields, if that's easier to picture).

7. Pre-trip inspections. Drivers are required to conduct a pre-trip inspection, which includes tire pressure. Make sure that they are checking pressue with a good air gauge (not a tire thumper), and that there are flow-through valve caps installed on ALL wheel positions. The tires that are notorious for failing are the inside duals, because drivers ignore it. Don't let drivers pencil-whip their inspections!

8. Make sure now that your wheel bearings and brakes on the trailers are in good condition- if the wheel is all dirty, chances are there is a blown seal, which means that the assembly will fail (resulting in the wheels detaching from the trailer, or a tire fire)...

Lastly, 55 mph is the most fuel efficient speed. Most large fleets are turning back their engines and going slower just for this reason.

Hope this helps.

Edited June 10, 2008 by BL1977

[sblez]

Corps directors almost need to be fleet maintenance managers to manage transportation costs this summer. Here are some ideas:

1. If you are renting semi-tractors, INSIST that they are equipped with "APU"s, or Auxillary Power Units. This is a small engine that keeps the cab cool during idle time (versus running the engine). APUs use a fraction of the fuel that the engine uses- about 1 cup per hour versus 2 gallons.

If a tractor is running for 60 days, with 10 hours of idle time each day, the tractor with the APU will use about 38 gallons of fuel (at $5 per gallon, $190 total). Without the APU, the tractor idling its engine for 10 hours a day will burn 1200 gallons of fuel ($6,000).

2. If you don't have a National Account for tires, go to the websites of the major tire manufacturers and enroll now. All of them offer Roadside Tire Assistance programs that you can enroll in for free. I'd recommend enrolling with all of them before tour starts. If there are any tire breakdowns during tour, you'll have three accounts already set up, and they will dispatch the service for you. Some of them offer credit card programs that offer 3% rebates on tires, 1% rebates on everything else, including fuel.

Setting up a National Account will control some of the service call charges....

The same holds true for nationwide tire dealers (i.e. GCR, Goodyear, Tire Centers Inc, Pomps, Bauer Built, Strouhal)- arrange for an account with your local store. If you are stranded along the highway, the nearby store will respond if you are an established account within their computer system. However, if you don't have an account, call and ask for a service call, many times they will refuse to service you- too risky in today's world. (This leaves you looking for a local tire guy that may or may not be reputable...)

3. Have a tire serviceman check the condition of your tires now, before tour starts. If you NEED tires, investigate the Tax Exempt programs that are offered by the major tire manufacturers- the programs are offered to non-profit organizations that transport people for non-revenue purposes (= drum corps).

The pricing is VERY competitive (cheaper than what the tire dealer pays). The salesperson at the tire store may not know about the programs; if so, kindly push. Ask him to contact his tire supplier for details... don't feel sorry for the sales guy; he will get a commission for the sale. Just be sure you have your tax-exempt number with you when you go in. Again, all tire manufacturers offer these programs (the programs are considered "S.A.F.E" for Sales Action Federal Exempt, or the other buzz phrase is a "Motor Coach" program).

4. New tires versus worn tires. If you don't have to change your tires, DON'T. Make sure the tread is evenly worn across the face of the tire; in a dual position, check that the tread depths are matched across the assembly. A worn tire (10/32") IS more efficient than a brand new (30/32") tire.

5. Highway tires versus drive tires. Using steer tires on a drive axle WILL save fuel! Considering that there shouldn't be snow this summer, if you have to get new drive tires- consider steer or trailer tires. Some major fleets in the US do this just to save fuel- and again, you are only going 12,000 miles over 3 months- which is considerably less than a professional fleet drives.

If one tractor has brand new drive tires (30/32"), and the other one installs 8 new trailer tires (13/32") on the drive axle, the second tractor will save about 6%. If fuel is $5 per gallon, that's about $600 per tractor/trailer.... which would pay for food on tour for 5 days.

6. Air pressure. Underinflation is the #1 factor that WILL take a tire out of service! Driving around on a tire that is underinflated by 10 psi will cost you 1% in miles per gallon. If you have to err on the side of being over or underinflated, overinflated is better (at the most, by 10 psi).

If you are on tour, and find a tire significantly below the recommended pressure (20% below is considered "flat")... make the safe decision and immediately REMOVE the tire from service. NEVER let someone add air to a flat tire while it's still on the vehicle- if it explodes, it will hurt someone! A highway tire, inflated to 100 psi, has enough explosive force to launch a 16 pound bowling ball... 3/4 of a mile (or 13 football fields, if that's easier to picture).

7. Pre-trip inspections. Drivers are required to conduct a pre-trip inspection, which includes tire pressure. Make sure that they are checking pressue with a good air gauge (not a tire thumper), and that there are flow-through valve caps installed on ALL wheel positions. The tires that are notorious for failing are the inside duals, because drivers ignore it. Don't let drivers pencil-whip their inspections!

8. Make sure now that your wheel bearings and brakes on the trailers are in good condition- if the wheel is all dirty, chances are there is a blown seal, which means that the assembly will fail (resulting in the wheels detaching from the trailer, or a tire fire)...

Lastly, 55 mph is the most fuel efficient speed. Most large fleets are turning back their engines and going slower just for this reason.

Hope this helps.

Wow, great information. Pretty sure even the most experienced directors and tour managers could learn a lot from this. Thanks very much for sharing your insight!

[MuddySpikes]

Maybe the members could be tagged for a fuel surcharge.

[silvertrombone]

Gas prices will make it harder to choke down breakfast cereal b/c of the powdered milk. Cheaper, and all. But seriously, food budgets will take a little bit of a hit. I sure hope everyone is budgeting and preparing for this. If I were Phantom, I would have already nixed the west coast swing. California is sweet and all, but 7,000 miles for 7 shows just isn't worth it. Stay in the midwest and get in a few extra shows.

Corporate finance 101 for music majors...more revenue minus lowered expenses equals best strategy for a group fighting off the lingering effects of debt...especially when considering the present economic conditions in question.

Here's the opportunity for midwest corps...do 30 shows in basically your backyard with a quick trip to Texas and Georgia, then finals in your region. Perfect way to conserve resources, build up a financial base, maybe even generate some excess cash flow to buy a couple of, oh I don't know, McDonald's franchises? You know, non-corps businesses to generate profits to cash flow into the corps to deflect rising petroleum prices.

Hopefully, those corps that remain today will take the run-up in petroleum prices over the last year, especially, to take some actions to shore up their finances and make themselves better capable of continuing like so many of their counterparts who have gone away. Even California can no longer count on the Bingo revenues.

[2000Cadet]

No, gas prices will go down b/c the Democrats "will tax the hell out of" the "BIG OIL" companies. Explain that to me.

Senator "O" will keep promising to end the war until his inauguration, then conveniently reverse that due to developing world conditions and events. You heard it here first.

[/sarcasm]

Gas prices will make it harder to choke down breakfast cereal b/c of the powdered milk. Cheaper, and all. But seriously, food budgets will take a little bit of a hit. I sure hope everyone is budgeting and preparing for this. If I were Phantom, I would have already nixed the west coast swing. California is sweet and all, but 7,000 miles for 7 shows just isn't worth it. Stay in the midwest and get in a few extra shows.

Corporate finance 101 for music majors...more revenue minus lowered expenses equals best strategy for a group fighting off the lingering effects of debt...especially when considering the present economic conditions in question.

Here's the opportunity for midwest corps...do 30 shows in basically your backyard with a quick trip to Texas and Georgia, then finals in your region. Perfect way to conserve resources, build up a financial base, maybe even generate some excess cash flow to buy a couple of, oh I don't know, McDonald's franchises? You know, non-corps businesses to generate profits to cash flow into the corps to deflect rising petroleum prices.

Hopefully, those corps that remain today will take the run-up in petroleum prices over the last year, especially, to take some actions to shore up their finances and make themselves better capable of continuing like so many of their counterparts who have gone away. Even California can no longer count on the Bingo revenues.

That's probably a great solution for the organization, but thinking about one of the main reasons I joined drum corps....I loved to travel. I'm sure many of the members joined for that reason in addition to performing. But I guess these days, this is the sacrifice they'll have to make, which really sucks. Oh well.

[silvertrombone]

Wow, great information. Pretty sure even the most experienced directors and tour managers could learn a lot from this. Thanks very much for sharing your insight!

I agree with the 'great info' comment. But even better would be for corps (plural) to lose the "own your own fleet" mentality. Not that I know anything about the SOP of an average corps or preferences of a director. But here's finance and accounting 101.

Capital lease vs. operating lease.

Capital lease is pretty standard in an organization that doesn't specialize in a related area but needs the capital asset for whatever it does do. In this case, a drum corps is not in business to engage in logistics (freight shipping) or bus transportation, but needs both services to engage in what it does...touring all over creation for performance tour.

Operating lease is one where you lease the asset from someone else...simplest explanation. They own and operate it, you basically rent it from them. More standard in real estate transactions.

Buy vs. lease. Lease vs. rent/contract.

Buy and capital lease arent' terribly different in one major area of relevance--buyer/lessee (in this case the drum corps) owns and assumes liability for the assets. In other words, when it breaks down in Texas, the owner/lessee takes the hit for repairing/replacing it. Ever heard of that problem?

Renting or contracting for services may cost a little bit more, but when you use the asset 2 months out of the year and you don't specialize in it (meaning logistics and transportation), it is much better to pay a little bit more for using it for 2 months than for it to sit around for 10 months in the sun and snow, waiting for you to need it again, then having to plunk $10,000 into it getting it ready for daily use again. A little bit over the top, but you get the idea.

Now, the boring accounting crap that none of you really care about. When you have these capital assets (meaning, it takes capital to acquire the asset...whether cash or, in the case of corps, financing...debt) on your balance sheet--meaning, you either own them or have them on a capital lease--you just increased both your assets and liabilities. Accounting is based on the simple equation Assets = Liabilities + Equity. The bus is an asset either way. If you own it outright, paid with cash or having paid it off, you carry it in the equity line, meaning you own it. If you have it financed, you owe the bank, which is where the term liability comes from--you are liable to the bank. So it falls in one of those two 'buckets.'

Now, the preference if it is an asset you don't need in carrying out what you specialize in is to remove it from the balance sheet. Remember the Enron term, "off-balance sheet transactions"? Nothing like that. But same principle. Totally legal.

Off-balance sheet transaction means that the transaction takes place off the balance sheet. This is important b/c when the auditors come in to check out your books, in general today, they are looking at the balance sheet, not the income statement. In other words, they don't really care if you make or lose money, but what the balances of everything is. If you have an expense the auditors could, sort of, care less. But if you claim ownership or capital lease on a bus, the auditors, the creditors and the IRS want to know how much they are worth, etc. Lots of people this is relevant to.

A bus rented for the summer is paid for over the summer then it goes away. Say you call Greyhound and contract with them for $25,000 per bus for the summer. You pay your $100,000 to Greyhound then they go away. Bus expense is the debit, cash is the credit, for anyone who cares. The cash entry reduces cash, which is understandable since you are removing the cash from your bank account. Now, cash is an asset, so it appears on the balance sheet, but you have no other entry to be made. Perhaps you have a fuel surcharge that gets assessed, as I have heard with at least one corps, but that involves expense debit and cash credit, same as bus entry mentioned above.

Point is, you don't carry the bus on the balance sheet. Cash comes in, cash goes out. Cash enters the balance sheet, cash leaves the balance sheet. Bus never enters the equation.

Now, assume that old bus breaks down in Texas or the a/c conks out or the axle...whatever can go wrong with an axle goes wrong. Call Greyhound, get another bus. No big deal. No effect on the balance sheet other than cash.

So, what the heck am I going on like Arthur Andersen himself for?

Let me ask you a question of logic. If you can make a million dollars with $100,000 investment, or if you can make a million dollars with $1 million investment, which would you prefer? It's a simple question of leverage. Finance term. Means just like it sounds like. Physics term, actually.

Think cantilever--hence the term leverage. You want to move 1,000 lbs so you put a 2x4 under a block near the weight and exert force near the middle of the 2x4. It doesn't budge. So you move to the end of the lever and try again. It lifts easily.

Edit: Had to reverse my example...sorry.

Same concept. You want to make $1 million. You first try it with $1 in assets, including percussion and brass instruments, buses, trucks, semi's, and a whole bunch of electronics equipment. You earn a million in profits, then figure out you can accomplish the same with less assets. So you unload all the capital assets you can and make the same money. Bad example b/c the numbers don't line up, but it sure was fun making the reference to the electronics equipment! Leverage in finance is using less to accomplish the same or more. $100k making $1 million versus $1 million making $1 million. The idea is that if you can use $100k to make a million, you can use $1 million to make $10 million. You see why I gripe about standard operating procedures in drum corps?

The idea is operating your business with as little on the balance sheet as necessary. Generalization...I'm sure others can provide other examples. My purpose in having a little finance and accounting lecture is to shed just a little bit on the crap that I learned in grad school and the corporate world that, had the DC universe known over the last 40 years, might have rendered the activity in a better finanacial condition and kept a few more corps around and in good financial shape.

Music history is interesting, but the thing is, every non-profit has an accountant...not too much demand for musicians for music's sake with the Big 4 (accounting firm reference) or Fortune 500.

Edited June 11, 2008 by silvertrombone

[BL1977]

Thanks for the kudos, Splez.

Silver~ I think I followed most of what you said... I think...

I do know that many large companies don't specialize in transportation.... which is why Penske, Ryder, Blue Lines Transport, Laidlaw, Greyhound all exist.

Within the last six weeks, "profitable" less-than-load fleets have simply closed shop. Turned trucks back to the manufacturer's dealer because they can't pay for them. Jevic in NJ left 1500 people unemployed with one announcement on their website. If a professional fleet cannot make it, how can a non-profit agency make it? I hope my comments will help everyone conserve.

Did you know that there are fleets that specialize in leasing kitchen trailers? Perhaps drum corps could rent them for a couple of months.... maybe that should be the future strategy? In that way, corps can use their assets to invest in items they should have, like you suggest. The food trailer that I volunteer in was manufactured in (need a drum roll, sblez!) 1978. Yep, it's older than the kids on the field. It has definitely aged out.... yet the drum corps cannot afford to purchase a new trailer, (and then if they get one... who will transform it into a kitchen? ).

Where is Extreme Makeovers when you need them?!?!

Edited June 11, 2008 by BL1977

[silvertrombone]

Thanks for the kudos, Splez.

Silver~ I think I followed most of what you said... I think...

I do know that many large companies don't specialize in transportation.... which is why Penske, Ryder, Blue Lines Transport, Laidlaw, Greyhound all exist.

Within the last six weeks, "profitable" less-than-load fleets have simply closed shop. Turned trucks back to the manufacturer's dealer because they can't pay for them. Jevic in NJ left 1500 people unemployed with one announcement on their website. If a professional fleet cannot make it, how can a non-profit agency make it? I hope my comments will help everyone conserve.

Did you know that there are fleets that specialize in leasing kitchen trailers? Perhaps drum corps could rent them for a couple of months.... maybe that should be the future strategy? In that way, corps can use their assets to invest in items they should have, like you suggest. The food trailer that I volunteer in was manufactured in (need a drum roll, sblez!) 1978. Yep, it's older than the kids on the field. It has definitely aged out.... yet the drum corps cannot afford to purchase a new trailer, (and then if they get one... who will transform it into a kitchen? ).

Where is Extreme Makeovers when you need them?!?!

Hey, a smart one! I'm impressed...as much with keeping up as the fact that you applied it so quick. Good call on the food trailers...stay tuned. And take it one step further.