Small Fleets Face Fight for Survival
Small Fleets Profiled
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Along a 200-mile stretch of toll road in Oklahoma, all three scenarios are played out in a way that illustrates the problems and the opportunities for small trucking companies today and the different roads they take to the future.
Susan Atherton, president of Lake City Express in Grove, is out to prove that small fleets can flourish in the shadow of larger competitors, although not without some help.
Lake City was established by J.B. Hunt Transport Services in 1996 and spun off last year to Atherton and two partners — Virgil Coffee of TVC Pro-Driver Inc. of Oklahoma City and John Christner, president of John Christner Trucking of Sapulpa.
In Tulsa, LinkAmerica Corp. is rounding up small fleet owners who favor strength in numbers. President Roger Collins thinks he can help small firms succeed by taking over many of the duties that doom a small business owner — financial management, safety assistance and marketing — and letting local managers do what they do best — hire drivers and run the operations.
At the other end of the spectrum are Terry L. Moore and Daryl Bischoff. Moore is the owner of T.L. Moore Trucking in El Reno, and Bischoff is the owner of D&D Cartage in Norman.
Both men are fed up with the trials and tribulations of trucking. Moore says the industry is not doing enough to get rid of bad drivers. Bischoff will soon turn over his business to his 24-year-old son, George.
ver the past 21 years, Terry Moore has seen plenty of good and bad things happen to trucking. High on the bad list is the fact that freight rates have either dropped or stayed the same during that period, bringing enormous financial pressure on carriers.
While his business has remained profitable, Moore has been forced to reduce his fleet over the past three years from about 24 trucks to eight. The staff has shrunk from 30 to seven, four people in the office and three mechanics.
“The net profit is so small, it’s not worth being in business,” Moore said.
More than money, though, Moore is worried about what he sees as a significant decline in the quality and quantity of truck drivers.
He questions the practice of putting behind the wheel someone with no more than eight weeks of training — much of which occurs in a classroom and not on the road.
His insurance carrier requires a minimum of two years’ experience. He refuses to hire drivers with bad driving records, leaving him with little choice but to downsize his fleet.
Moore said he knows of more than one driver who failed a drug test at his firm and was still able to land a job at another trucking company, calling into question the effectiveness of drug and alcohol screening methods imposed on the industry over the past decade.
Moore said he is not opposed to regulation of truck safety, but he thinks enforcement is sometimes misguided.
On hours of service, for example, Moore said the government can hold him responsible for log book violations that he can’t control.
“I can schedule a trip, but I can’t make the driver leave on time. I can fire drivers [who violate hours of service], but how many times can I do that?” he asked. “Driver hours are not the problem. It’s what the driver does with his time off that leaves him tired behind the wheel, and I cannot control that.”
Moore is also critical of the equipment leasing practices of some large fleets. Many company drivers fail to meet the requirements of lease-purchase plans and are forced to return the tractor to the company, which then repeats the process with other drivers.
“Essentially, these fleets are not in the trucking business,” Moore said. “They are in the equipment leasing business, therefore they do not have to be concerned with freight rates.”
Moore said his experience with the Internal Revenue Service and highway safety enforcement personnel suggests that some government agencies are more interested in revenue than they are in safety. He said he has been audited nearly every year but three since 1977. None of the audits uncovered wrongdoing.
He pointed to a recent incident in Missouri where roadside inspectors were finding bogus defects on trucks and funneling the repair work to a company owned in part by the inspectors.
“I don’t have high-powered attorneys to fight for me,” Moore said. “You don’t have to be wrong. You have to prove your innocence.”
Moore said he has always wanted to be in trucking and still loves it.
Ultimately, he thinks the solution to getting better drivers and improving profits is fewer trucks. This, he said, would tip the supply-demand scale in favor of trucking companies.
Moore followed in the footsteps of his father, who retired after driving a truck for nearly 30 years. He drove for 11 years before starting his own company.
He hauls fresh produce from California’s Central Valley to markets mostly in eastern Canada. In 1992, he moved from Riverside, Calif., to Oklahoma to take advantage of its central location, which he figured would help in recruiting and retaining drivers.
aryl Bischoff, the D&D Cartage owner, shares many of Moore’s concerns about drivers and has his own worries about the future of trucking.
 George Bischoff (left) has begun to take on more of the business responsibilities his father, Daryl at D&D Cartage in Norman (TT File Photo). |
“My biggest problem is companies paying on time,” he said. “Before deregulation, shippers had to pay carriers in 7 to 10 days. Now they pay in 90 to 120 days.”
Bischoff said he won’t haul for Wal-Mart stores anymore because of delays in payment and other pressures placed on vendors by the discount retail giant, based in Bentonville, Ark.
“It’s always a headache getting unloaded,” he said. “They treat their own drivers like royalty, but hauling from them is the pits.” However, Bischoff said “it’s the least lucrative freight in the business. That’s why they are always hunting for trucks.”
Like Moore, Bischoff attributes many of the problems besetting small fleets to the lack of good drivers.
Younger people, especially, are ill-prepared for the rigors and responsibilities of driving a truck, Bischoff said.
“When they come to you, they’re broke. They expect you to feed them, clothe them. They use the truck as a personal taxicab because 90% don’t have a car,” he said. “I won’t hire anyone under 40.”
Bischoff said the average age of his drivers is over 50. The oldest is 73. One of his best drivers is a 41-year-old mother of nine. He steers clear of boyfriend-girlfriend teams because of the problems they can present.
When he drove a truck, Bischoff said he “went where I was told.” Now he finds many drivers refusing loads to the East Coast. “They want all gravy and none of the work,” he said.
The regulatory climate today is a reaction to the “renegade” image of truckers as portrayed in movies and on television in the 1970s and ’80s, Bischoff said.
“We shot ourselves in the foot,” he said. “They used to regulate the trucking companies. Now, the government regulates the drivers.”
Bischoff said he would like to put more “teeth” in regulations, especially provisions requiring prompt payment to carriers.
Now in poor health and admittedly “too hot-tempered,” Bischoff has begun to shift responsibilities to his son.
“George loves it,” he said. “When you are 24, things look a lot different than when you’re 50 and have to pay for everything.”
oger Collins wants to help small fleet owners do what they do best — run trucks — while he takes care of everything else.
Under the LinkAmerica umbrella, Collins offers a way for fleet owners overwhelmed by the demands of business and finance to stay — perhaps even prosper — in the trucking business without giving up or selling out.
“We take over the back office so they can concentrate on the part that really makes money,” he said.
LinkAmerica was formed in 1996 to serve as a holding company for a network of locally operated trucking companies. The company was brainchild of three men: Collins; Anthony D. Allen, the chief financial officer; and James E. Rushing, former president of Dalworth Trucking Co.
The group consists of:
In addition to these fleets, LinkAmerica operates a logistics company and a safety consulting organization.
Each fleet has a president who is responsible for hiring drivers, sales and meeting needs of customers. LinkAmerica takes care of billing and payroll, negotiates discounts with suppliers and provides safety and management oversight.
“Small fleets, even if they are safety conscious, can’t afford to do everything properly,” Collins said. “They need a mentor.”
Collins said LinkAmerica has saved 20% on tires because of bulk discounts. Telecommunications costs have been cut in half over the past year by consolidating wireless telephone, paging and long-distance services with AT&T.
Each company is linked through a computer network with a corporate office that provides a weekly profit and loss statement to keep managers apprised of their performance.
“We hold each president accountable,” Collins said.
The local fleets generally do not interchange equipment, but LinkAmerica’s in-house logistics group can help reposition equipment that is out of its region.
LinkAmerica can also market the services of its fleets to national accounts.
“There’s lots of pressure from national accounts to go to core carriers,” Collins said. “We see it more and more. If I was a small fleet serving a national account, I’d be concerned because you have the potential to lose that customer.”
LinkAmerica is targeting regional trucking companies with revenue between $7 million and $30 million.
Sellers will be paid, in part, with “tracking” stock in LinkAmerica, with the value of the stock based on the continued performance of the acquired company. The tracking stock will be converted into common stock in LinkAmerica upon completion of an initial public offering.
Collins said there is no urgency for a stock offering because LinkAmerica has no venture capital behind it. He said the company’s goal is to raise consolidated revenue to $200 million within three years and $500 million within five years.
s start-ups go, Lake City Express had a lot going for it. Susan Atherton worked for almost 10 years in operations research and ran several specialized fleets for North American Van Lines before joining J.B. Hunt in 1992. She was in China in 1995 to explore the business potential for J.B. Hunt when she was tapped to run a new small fleet.
Launched in January 1996, the company, known as LXI, operates about 140 tractors and 330 trailers, and generates about $16 million in annual revenue.
Atherton tried to line up venture capital to support her purchase of LXI, but when that didn’t work out, she turned to Coffee and Christner for help.
Coffee said he invested in LXI because he was “real impressed” with Atherton and “what she wanted to do.” The company was a customer for Coffee’s legal and travel services.
Atherton said she approached Christner because she thought both companies would benefit by sharing information about insurance and equipment purchases, and possibly doing some joint marketing.
Coffee and Christner each own a 24% stake in LXI and are not involved in day-to-day operations. Atherton owns the remaining 52%.
Atherton considers herself a problem-solver, having helped to install the first satellite tracking equipment at North American Van Lines and to set up one of the first network optimization models for the industry’s truckload segment. Now, she is using those expertises in solving one of the basic problem for many small fleets: how to handle growth.
“It’s hard to grow the fleet and the customer base in the right proportion so it is smooth,” said Atherton, who grew up in a small town in Ohio.
LXI addresses the problem by targeting certain kinds of freight — glass, electronics, exhibits and other time-sensitive and high-value products — and certain traffic lanes.
Third-party logistics companies play an important role in finding the right kind of freight.
They give us an opportunity to look at freight we might not see as a small organization,”
Atherton said. “Major shippers will not send bid packages to us because we can’t handle all of it.”
LXI also employs a full-time sales director and uses commissioned sales agents.
“We won’t quote just anything,” said Rob Brown, the sales director. “We’re looking for freight going in a direction that is good for the customer, the drivers and us. We’ve identified lanes we want to participate in.”
Length of haul is an important consideration. Brown tries to avoid taking freight traveling from 650 to 800 miles. He calls them “tweener” trips, which take about two days to complete and are more difficult to handle.
When small fleets start to grow, however, it’s often difficult to say no to freight.
“Sometimes you have to take freight you don’t really want to get the kind of freight you do want,” Brown said. “But it doesn’t make sense if you end up not performing and the customer becomes dissatisfied.”
Pricing is another problem for small fleets.
Atherton said she prefers activity-based costing in which rates are set based on services rendered. However, she has been unable to develop a program for LXI because of the lack of information.
Instead, small fleets must balance costs and market price, she said.
“You can’t solicit business purely based on costs, but you have to understand what effect different things have on costs,” Atherton said. “Time is a big component. Some shippers require an inordinate amount of time (to handle freight). Different shippers have different profiles.”
Big companies often have better pricing information at their disposal, but “cultural” issues may get in the way of execution, Atherton said.
“They may not be any more efficient than the little guy,” she said. “After all, the pressure to move 500 trucks is a lot greater than two trucks.”
To keep up with its expanding business, Atherton said fleet owners must invest heavily in their driver force. LXI uses owner-operators exclusively.
“Health care is a major problem,” she said. “It’s an area where we are struggling. It’s hard to find coverage that I feel people deserve and can afford.”
In addition to offering legal and travel services, LXI offers a package of benefits to independent contractors, including access to cable television and telephone hookups at truck stops; health and damage insurance; pension accounts; and discounts on tires, fuel and trucks.
The company requires drivers have a minimum of three years of experience and insists on strict safety compliance. Atherton said she will terminate leases over bad driving records or rude manners with shippers.
“We’ve gone three years without any serious accidents,” Atherton said. “I’m proud of that. It reflects on the quality of our drivers.”
As the company grows, Atherton said she is counting on technology to keep costs under control.
he company already uses satellite tracking, voice mail and electronic data interchange. It is now setting up an Internet site.
“The Web is important for driver recruiting and communications,” Atherton said. “Customers are also posting freight on the Web.”
The company is also looking into document imaging, which would greatly reduce the amount of paperwork by putting papers like bills of lading into an electronic format.
“You won’t make this business profitable by using fewer pencils, or by using a different kind of copy paper. Utilization is the key. We have to reduce empty miles and increase productivity,” Atherton said.
“I’m optimistic. Trucking services are an integral part of American life. I don’t see that changing,” she said. “I’ve had my own share of good fortune. I also think you make your own opportunities. You have to make things happen. Part of the reason I love trucking is that challenge.”
How big does Atherton want to get?
“Drivers ask me that a lot,” she said. “It’s hard to answer. You have to balance the needs of contractors and customers. When you get so big that you can’t do that, that’s the point where you need to quit. The key is whether you recognize that.”
