Carriers Focus on Business Fundamentals to Get Through Hard Times
By Eric Miller, Staff Reporter
This story appears in the Feb. 11 print edition of Transport Topics.
If there is a silver lining in the current freight recession, it might be that the challenging economic environment is forcing carriers to focus more closely on business fundamentals to keep the bottom line healthy.
Trucking companies say their dogged efforts to cope with the soft freight market, rising industry operating costs and declining freight rates, actually will help them emerge stronger when the economy again picks up steam.
The quest for increasing corporate efficiency, finding new revenue streams and a general back-to-the-basics approach are becoming commonplace throughout the trucking industry.
“Carriers are finding ways to cut costs, find efficiencies and do more with less,” said David Hershey, executive director of American Trucking Associations’ National Accounting and Finance Council.
Because many in the trucking industry are struggling to survive, the NAFC has titled its March 22-24 conference in Phoenix “Managing in Turbulent Business Conditions.”
Some think things are tougher than ever.
“In some respects, it’s worse than 2000,” Timothy Almack, an Indianapolis-based industry CPA with about 80 trucking clients, told Transport Topics. “It seems like there’s even more pressure on rates, and fuel’s real high.
“I have a couple of carriers having some issues,” Almack added. “I think we’re going to see some bankruptcies real soon.”
“There are a lot of guys going out of business,” said Paul Will, chief financial officer of Celadon Group Inc., Indianapolis. “I think that this next quarter, there’s going to be a lot of failures.”
But those who are succeeding are taxing their imaginations and applying elbow grease to discover ways to seek out new revenue streams and implement cost controls that they hope don’t cut the meat out of their operations.
For instance, truckload carrier USA Truck Inc., Van Buren, Ark., has been focusing on driver turnover, which the company said has improved by nearly 45% over the past year. That retention of drivers, in turn, has contributed significantly to fewer tractors without drivers and has translated into more miles per tractor per week, the company said. Combined with slower fleet growth, the driver turnover reductions have cut the company’s driver recruiting costs by 27%.
Likewise, truckload carrier Celadon said the weakened freight market and increased industrywide capacity have forced the carrier to take on additional lower-rated broker freight to help the bottom line.
One way Con-way Freight, Ann Arbor, Mich., is attempting to improve its efficiency is through restructuring its three regional companies into one centralized operation.
Covenant Transportation Group, Chattanooga, Tenn., had to sell its corporate aircraft last year to reduce continual operating costs.
With some economic analysts predicting a continued soft freight market through 2008, trucking’s perfect storm hasn’t yet passed. First, there is the weak economy in general, and an even weaker housing market specifically. The 2006 truck-buying frenzy has created industry overcapacity, sending shipping rates into a downward spiral. Diesel prices have reached record levels, making it a balancing act to recover from spikes through fuel surcharges.
Adding to carriers’ grief is the fact that the fourth quarter “peak shipping season” never really happened. Although December freight tonnage was up 1.4%, the U.S. Commerce Department said retail sales dropped 0.4% in December, and 2007 retail sales were the lowest in five years.
USA Truck said the current freight environment “continues as one of the most challenging that we have ever seen.”
Times are tough, even for trucking firms that have consistently turned up exceptional financial numbers in recent years. The challenging freight environment is forcing carriers to sell off equipment, start up or ramp up logistics operations, bid on less-profitable brokerage freight, extend credit lines to look for acquisition opportunities to increase their customer bases, and even turn over business to factoring companies to boost cash flow.
“We’re tending to see larger trucking companies than our clients in the past,” said Dean Tetirick, vice president of factoring company Apex Capital, Fort Worth. “Fuel prices have created cash flow difficulties for them.”
“Prior to the increased fuel prices they were able to handle things, or maybe had a bank line of credit,” Tetirick said, “but, for one reason or another, they’ve lost that, or maybe it’s insufficient.”
With more and more carriers picking up freight on the load boards, they’re increasing their risk for fraud, he said.
“What they can’t afford is a loss,” Tetirick said. “They can’t afford to haul a load for free, which happens if they chose the wrong person to haul for. So a big part of coping is making sure that you haul for the right debtors.”
How tough are the times?
“Small carriers are disappearing so fast that it’s tough to keep track of the failures,” Jonathan Russell, Celadon’s executive vice president, said at a Jan. 24 earnings conference.
“Our fleets don’t pick up the phone and tell us they’re going out of business,” he said. “We pick up the phone, and the number’s disconnected or we get a returned check.”
“Small fleets don’t go bankrupt; they fade away,” said Stephen Russell, Celadon’s chief executive officer and Jonathan’s father. “The legal fees prohibit that approach and basically, the lenders take the trucks back.”
Even though it continued to be one of the industry’s strongest performers, Knight Transportation, Phoenix, was off its historical mark during the fourth quarter of 2007.
Knight has made consistent gains for the past 32 quarters, said Celadon’s Will, also chairman of NAFC. But the company lost 30% during the fourth quarter of 2007, compared with the 2006 quarter. Knight’s profit fell to $13.8 million, or 16 cents a share, from $18.9 million, or 23 cents a year ago.
“The fourth quarter presented a continuation of what has been the most difficult operating environment in several years for the execution of our business model, based on leading growth and profitability,” Kevin Knight, Knight’s chairman and chief executive officer, said in a Jan. 23 statement.
As a result, Knight took a hard look at its fleet size and reduced its tractor count by about 100 units during the 2007 fourth quarter, the company said.
Like many other carriers, Knight also expanded its brokerage business. “Over the near term, we expect revenue growth, if any, to come primarily from our Knight Brokerage business,” Knight said. “We have, however, ramped up our efforts to identify acquisitions or other investment opportunities that may offer a strategic advantage.”
Arkansas Best Corp., Fort Smith, Ark., too has taken on a higher-than-normal percentage of spot-priced truckload shipments, Robert Davidson, chief executive officer of Arkansas Best Freight, said in a Jan. 25 statement. Yet, Davidson said, the carrier remains confident that its regional freight model will allow it to “gain market traction.”
“The rate of revenue growth in regional lanes is substantially outpacing that of ABF’s traditional business,” Davidson said. “We are encouraged by the success we are having, especially in our next-day markets. ABF’s initial success confirms the validity of our low-risk strategy of organic expansion in the growing regional market.”
Will said many companies, including his, are slowing down their truck speeds to cut fuel costs. Beginning Dec. 1, Celadon governed its trucks at 66 miles per hour and reduces the speed to 63 mph if a driver idles his truck more than 40% of the time.
Each mile-per-hour reduction over 50 mph saves one-tenth of a gallon of diesel, Will said.
“So if you drop the road speed by three miles per hour, it brings the savings to three-tenths of a gallon,” Will said. “That can save a company $300 a month per truck.”
Will said that medical costs for employees are rising 12% to 18% a year, which is particularly difficult for an industry with low profit margins.
To save medical costs and help employees, Celadon has set up an employee in-house clinic, complete with a nurse practitioner, on-call doctor and nutritionist, Will said. The clinic helps avoid a trip to the doctor for a minor ailment or drug prescription, saving money for both the employee and company.
The company also is asking employees to do health-risk assessments for themselves. “We’re trying to communicate that we want you to be healthy,” he said.
Like other carriers, Will said Celadon also has been investing in auxiliary power units to cut fuel costs and installing trailer-tracking units to better manage its trailer pools.
Almack said he’s seeing companies attempt to stretch their equipment maintenance to save on operating costs. “For example, they’re starting to look at whether they can extend their oil drains,” he said.
Carriers also are buying more software to help them locate where they can get the best price on fuel.
“Just the price of fuel at one truck stop could make a difference from another one 30 miles away,” Almack said.
Trucking firms are also spending more time analyzing trucking lanes, seeking balanced lanes and dropping less profitable routes.
“You can’t afford to have hardly any deadheads right now,” Almack said. “I think people are directing sales efforts to reduce empty miles.”
Almack said the smaller carriers are having the greatest difficulty wrestling with revenues and costs.
“They just don’t have the purchasing power and can’t demand as much from shippers as the bigger guys can,” he said.
Almack said that the smaller trucking firms struggle a lot more with fuel price increases, some staying a week or more behind in paying the bills.
“They never catch up,” he said. “It can put them in a bind very quickly.”
Kevin Burch, president of Jet Express Inc., Dayton, Ohio, said that when one of his company’s customers went on strike some time ago, Jet Express took a fresh look at every penny it was spending — from how often the office gets cleaned to how much coffee employees are drinking, to whether they could get a better cost for fuel from a new supplier.
At the time, Jet Express developed a checklist of ways to save money. It dusted it off recently and took another look at it when the latest freight crisis hit, he said.
“We had a staff meeting a couple of months ago, and we were talking about that very subject,” Burch said. “As a result of that negativity, we became a stronger company.
“I think we’re all guilty of getting soft in certain areas,” he said.
This story appears in the Feb. 11 print edition of Transport Topics.
If there is a silver lining in the current freight recession, it might be that the challenging economic environment is forcing carriers to focus more closely on business fundamentals to keep the bottom line healthy.
Trucking companies say their dogged efforts to cope with the soft freight market, rising industry operating costs and declining freight rates, actually will help them emerge stronger when the economy again picks up steam.
The quest for increasing corporate efficiency, finding new revenue streams and a general back-to-the-basics approach are becoming commonplace throughout the trucking industry.
“Carriers are finding ways to cut costs, find efficiencies and do more with less,” said David Hershey, executive director of American Trucking Associations’ National Accounting and Finance Council.
Because many in the trucking industry are struggling to survive, the NAFC has titled its March 22-24 conference in Phoenix “Managing in Turbulent Business Conditions.”
Some think things are tougher than ever.
“In some respects, it’s worse than 2000,” Timothy Almack, an Indianapolis-based industry CPA with about 80 trucking clients, told Transport Topics. “It seems like there’s even more pressure on rates, and fuel’s real high.
“I have a couple of carriers having some issues,” Almack added. “I think we’re going to see some bankruptcies real soon.”
“There are a lot of guys going out of business,” said Paul Will, chief financial officer of Celadon Group Inc., Indianapolis. “I think that this next quarter, there’s going to be a lot of failures.”
But those who are succeeding are taxing their imaginations and applying elbow grease to discover ways to seek out new revenue streams and implement cost controls that they hope don’t cut the meat out of their operations.
For instance, truckload carrier USA Truck Inc., Van Buren, Ark., has been focusing on driver turnover, which the company said has improved by nearly 45% over the past year. That retention of drivers, in turn, has contributed significantly to fewer tractors without drivers and has translated into more miles per tractor per week, the company said. Combined with slower fleet growth, the driver turnover reductions have cut the company’s driver recruiting costs by 27%.
Likewise, truckload carrier Celadon said the weakened freight market and increased industrywide capacity have forced the carrier to take on additional lower-rated broker freight to help the bottom line.
One way Con-way Freight, Ann Arbor, Mich., is attempting to improve its efficiency is through restructuring its three regional companies into one centralized operation.
Covenant Transportation Group, Chattanooga, Tenn., had to sell its corporate aircraft last year to reduce continual operating costs.
With some economic analysts predicting a continued soft freight market through 2008, trucking’s perfect storm hasn’t yet passed. First, there is the weak economy in general, and an even weaker housing market specifically. The 2006 truck-buying frenzy has created industry overcapacity, sending shipping rates into a downward spiral. Diesel prices have reached record levels, making it a balancing act to recover from spikes through fuel surcharges.
Adding to carriers’ grief is the fact that the fourth quarter “peak shipping season” never really happened. Although December freight tonnage was up 1.4%, the U.S. Commerce Department said retail sales dropped 0.4% in December, and 2007 retail sales were the lowest in five years.
USA Truck said the current freight environment “continues as one of the most challenging that we have ever seen.”
Times are tough, even for trucking firms that have consistently turned up exceptional financial numbers in recent years. The challenging freight environment is forcing carriers to sell off equipment, start up or ramp up logistics operations, bid on less-profitable brokerage freight, extend credit lines to look for acquisition opportunities to increase their customer bases, and even turn over business to factoring companies to boost cash flow.
“We’re tending to see larger trucking companies than our clients in the past,” said Dean Tetirick, vice president of factoring company Apex Capital, Fort Worth. “Fuel prices have created cash flow difficulties for them.”
“Prior to the increased fuel prices they were able to handle things, or maybe had a bank line of credit,” Tetirick said, “but, for one reason or another, they’ve lost that, or maybe it’s insufficient.”
With more and more carriers picking up freight on the load boards, they’re increasing their risk for fraud, he said.
“What they can’t afford is a loss,” Tetirick said. “They can’t afford to haul a load for free, which happens if they chose the wrong person to haul for. So a big part of coping is making sure that you haul for the right debtors.”
How tough are the times?
“Small carriers are disappearing so fast that it’s tough to keep track of the failures,” Jonathan Russell, Celadon’s executive vice president, said at a Jan. 24 earnings conference.
“Our fleets don’t pick up the phone and tell us they’re going out of business,” he said. “We pick up the phone, and the number’s disconnected or we get a returned check.”
“Small fleets don’t go bankrupt; they fade away,” said Stephen Russell, Celadon’s chief executive officer and Jonathan’s father. “The legal fees prohibit that approach and basically, the lenders take the trucks back.”
Even though it continued to be one of the industry’s strongest performers, Knight Transportation, Phoenix, was off its historical mark during the fourth quarter of 2007.
Knight has made consistent gains for the past 32 quarters, said Celadon’s Will, also chairman of NAFC. But the company lost 30% during the fourth quarter of 2007, compared with the 2006 quarter. Knight’s profit fell to $13.8 million, or 16 cents a share, from $18.9 million, or 23 cents a year ago.
“The fourth quarter presented a continuation of what has been the most difficult operating environment in several years for the execution of our business model, based on leading growth and profitability,” Kevin Knight, Knight’s chairman and chief executive officer, said in a Jan. 23 statement.
As a result, Knight took a hard look at its fleet size and reduced its tractor count by about 100 units during the 2007 fourth quarter, the company said.
Like many other carriers, Knight also expanded its brokerage business. “Over the near term, we expect revenue growth, if any, to come primarily from our Knight Brokerage business,” Knight said. “We have, however, ramped up our efforts to identify acquisitions or other investment opportunities that may offer a strategic advantage.”
Arkansas Best Corp., Fort Smith, Ark., too has taken on a higher-than-normal percentage of spot-priced truckload shipments, Robert Davidson, chief executive officer of Arkansas Best Freight, said in a Jan. 25 statement. Yet, Davidson said, the carrier remains confident that its regional freight model will allow it to “gain market traction.”
“The rate of revenue growth in regional lanes is substantially outpacing that of ABF’s traditional business,” Davidson said. “We are encouraged by the success we are having, especially in our next-day markets. ABF’s initial success confirms the validity of our low-risk strategy of organic expansion in the growing regional market.”
Will said many companies, including his, are slowing down their truck speeds to cut fuel costs. Beginning Dec. 1, Celadon governed its trucks at 66 miles per hour and reduces the speed to 63 mph if a driver idles his truck more than 40% of the time.
Each mile-per-hour reduction over 50 mph saves one-tenth of a gallon of diesel, Will said.
“So if you drop the road speed by three miles per hour, it brings the savings to three-tenths of a gallon,” Will said. “That can save a company $300 a month per truck.”
Will said that medical costs for employees are rising 12% to 18% a year, which is particularly difficult for an industry with low profit margins.
To save medical costs and help employees, Celadon has set up an employee in-house clinic, complete with a nurse practitioner, on-call doctor and nutritionist, Will said. The clinic helps avoid a trip to the doctor for a minor ailment or drug prescription, saving money for both the employee and company.
The company also is asking employees to do health-risk assessments for themselves. “We’re trying to communicate that we want you to be healthy,” he said.
Like other carriers, Will said Celadon also has been investing in auxiliary power units to cut fuel costs and installing trailer-tracking units to better manage its trailer pools.
Almack said he’s seeing companies attempt to stretch their equipment maintenance to save on operating costs. “For example, they’re starting to look at whether they can extend their oil drains,” he said.
Carriers also are buying more software to help them locate where they can get the best price on fuel.
“Just the price of fuel at one truck stop could make a difference from another one 30 miles away,” Almack said.
Trucking firms are also spending more time analyzing trucking lanes, seeking balanced lanes and dropping less profitable routes.
“You can’t afford to have hardly any deadheads right now,” Almack said. “I think people are directing sales efforts to reduce empty miles.”
Almack said the smaller carriers are having the greatest difficulty wrestling with revenues and costs.
“They just don’t have the purchasing power and can’t demand as much from shippers as the bigger guys can,” he said.
Almack said that the smaller trucking firms struggle a lot more with fuel price increases, some staying a week or more behind in paying the bills.
“They never catch up,” he said. “It can put them in a bind very quickly.”
Kevin Burch, president of Jet Express Inc., Dayton, Ohio, said that when one of his company’s customers went on strike some time ago, Jet Express took a fresh look at every penny it was spending — from how often the office gets cleaned to how much coffee employees are drinking, to whether they could get a better cost for fuel from a new supplier.
At the time, Jet Express developed a checklist of ways to save money. It dusted it off recently and took another look at it when the latest freight crisis hit, he said.
“We had a staff meeting a couple of months ago, and we were talking about that very subject,” Burch said. “As a result of that negativity, we became a stronger company.
“I think we’re all guilty of getting soft in certain areas,” he said.
