Opinion: It’s Time to Reinvent Transportation
By Douglas Clark
Chief Executive Officer
AmeriQuest Transportation Services
This Opinion piece appears in the Aug. 4 print edition of Transport Topics. Click here to subscribe today.
The consolidation trend in the truck transportation industry has been in progress for several years but, over the past five years, has accelerated rapidly. Of the 50 leading carriers that existed in 1980 — the year trucking was deregulated — only five remain in business. It’s becoming increasingly difficult for independent firms to compete against ever-larger conglomerates.
If you can’t beat them, what can you do? Do you join them, go out of business or take a page out of their playbook and reinvent your business model? The decision can be difficult.
Many trucking company owners today started their businesses in the 1960s and 1970s and now are nearing or entering retirement. As with any family-run business, succession planning can be tricky. The obvious heirs often choose a totally different career path. The founder may have no other choice than to look for an outside buyer who can compensate him for the fruits of his labor. To someone on the threshold of retirement, that’s a far more attractive scenario than weathering yet another downturn in the economy.
But in the past five years, a new kind of buyer with a slightly different agenda has emerged in the trucking industry — special-acquisition buyers. The more traditional buyers — i.e., other trucking companies — are finding themselves in competition with this new breed of company, which has no history or interest in the trucking business and buys up independent businesses solely with the goal of selling off the assets piece-by-piece.
With relatively easy access to funds, special-acquisition companies, combined with the traditional business forces that push mergers, have created the consolidation frenzy we’ve witnessed in the last few years.
Unfortunately, it’s easy to see why independents may choose to sell whenever and to whomever they can, judging from the trucking industry’s bleak statistics. The latest research figures from Avondale Partners, Nashville, Tenn., show that 935 trucking companies filed for bankruptcy in the first quarter of 2008 — the highest failure rate since the economic slump of the early 2000s, said Donald Broughton, Avondale’s managing director and senior transportation analyst. He estimated that more than 42,000 longhaul trucks — about 2% of the nation’s fleet — were idled during the first quarter of the year.
There’s no denying that it’s become extremely challenging for independent operators today — challenging, but not impossible. To remain competitive and independent, middle-market and small business owners must specialize in a particular niche and look to outside partners to deliver the other expertise and economies of scale customers are demanding and the majors are providing.
When you think about it, the reasons for consolidation today aren’t much different from 25 years ago. Midsize and smaller companies always should be able to differentiate their offerings by pointing to their exceptional customer service. Trucking company customers still are willing to pay a premium for personal service.
On the other hand, to compete head-to-head with the major carriers and be successful, independents must match the efficiencies and talent the larger companies offer. The way to do that is with robust marketing and sales capabilities.
Winning and maintaining business depend on good service and competitive pricing, but sales and marketing are critical to keeping customers and prospects informed of the value a company provides. Why is Apples-and-Oranges Trucking a superior choice over Oranges-and-Apples Trucking? Always sell the value, not the price, and be ready with:
• Good people — Make sure your team is knowledgeable, reliable and dependable enough to augment the company’s physical assets. Having specialists onboard to match customer needs will help you to close the sale and keep the business.
• Leading-edge technology — This asset has become increasingly more important in the past few years, as the industry increasingly relies on the efficiencies technology can provide. Take advantage of proprietary software programs to set your business capabilities apart.
• High volume — It’s essential to command competitive pricing from suppliers. Without good pricing on the supply side, it’s all but impossible to maintain profit margins. Never forget that your customers are looking for value pricing — or they’re looking elsewhere.
Nothing on that list is inexpensive. In fact, the cost of these imperatives is what drives many firms to consolidate, believing they can’t afford such initiatives on their own. But they can afford them, if they spread the expenses over larger revenue bases.
At present, the trucking industry consolidation appears to have reached a plateau. But while the rate has leveled off, there’s no doubt it will continue to rise, pushed primarily by higher energy prices.
With diesel fuel averaging more than $4.60 a gallon in early July — compared with less than $3 a gallon a year earlier, according to the Energy Information Administration — more operators will look to sell their businesses. Whether or not they find buyers is another matter. The available funding that made many of the special-acquisition companies possible has dried up because of the crash of the credit markets, so there aren’t as many potential buyers out there.
Some analysts are predicting a handful of industry bankruptcies this year, but you can avoid becoming a statistic — and even grow — by creating partnerships to help you obtain sales, marketing, technology and personnel advantages.
It’s time to reinvent transportation, and the people most likely to do it are successful, independent entrepreneurs.
The author also is founder and president of AmeriQuest, Cherry Hill, N.J., which provides fleet management services to private fleets and truckload carriers in North America.
