Top 50 Trucking Companies: Strongest get smarter

Emerging from the three-year freight recession that slashed freight capacity and rates, the nation’s top trucking companies view themselves as innovators, collaborators, technology leaders, and operational experts—not just as survivors of the Great Recession.

They also say that they’ve had to be part psychologist to retain drivers, part soothsayer to try and predict the future cost of fuel, and part accountant to keen eye on ever-rising costs wherever possible.
Trucking insiders add that although all trucking companies basically use the same equipment over the same highways with the same pool of drivers, the Top 50 manage to differentiate themselves on many levels. According to John Larkin, longtime trucking analyst for Stifel Nicolaus, it starts at the top.

“When management intensity is high the organization pays attention to the details,” says Larkin. “Management at the Top 50 is thinking 3 years to 5 years down the road to make sure that changes in the market and the industry don’t leave the company up a creek without a paddle,” he says.

Logistics Management’s (LM) annual listing of the nation’s top trucking companies, compiled by leading trucking analyst firm SJ Consulting, runs the gamut of size and scope. There are units the likes of UPS Freight and FedEx Freight that are subsidiaries of multibillion corporations; and then there are family-owned companies such as New England Motor Freight, a unit of the Shevell Group overseen by founder, Myron Shevell, a man with six decades of trucking experience.

But what all of these top operators have in common is operational excellence. Here’s a look at what’s making the Top 50 run like clockwork, and what shippers can expect from the best in class.

Common denominators
All trucking companies basically utilize the same trucks with the same population of drivers and run the same routes. Yet, there are key differentiators that set the best players apart from the rest. The nation’s leading trucking executives recently opened up to LM to explain what they do best.

Herb Schmidt, president of Con-way Truckload, says one common denominator among the Top 50 carriers is certainly their commitment to safety, among other basics. “It’s the ABCs of doing things right,” says Schmidt. “That encompasses compliance, having top-notch equipment, hiring the best people, all of that.”

Trucking analysts comb all aspects of a carrier’s operation and they say they see certain values, an operational culture of excellence, and other expertise that sets the best apart from the rest. “They all have great information technology systems because you can’t manage intensively without the information to make high quality decisions,” says Larkin.

And if you dig a little deeper you also find that all of the Top 50 have a culture that accepts and positively reacts to management intensity. To this point, Larkin adds that the best trucking companies offer “customer communication that is a two-way street in the spirit of collaboration, not the old take-or-leave-it approach under the regulated mindset of the industry prior to deregulation in 1980.”

Today’s trucking leaders say they have to be part crystal ball reader, part operational genius, and part sales person extraordinaire to survive in an industry where even in the best of the times, the industry operates on razor-thin profit margins.

“We’re always thinking ahead, trying to predict the future,” says Steve O’Kane, president of A. Duie Pyle, a leading regional LTL company. “We have been correct often enough to remain not only viable, but healthy, debt-free, and profitable.”

Then, there are the operational nuts and bolts—the blocking and tackling—that all the top carriers share. This allows their asset utilization to be high through elimination of empty miles. They also run fleets that are relatively new and highly fuel efficient, allowing their asset life cycle costs to remain relatively low, according to Larkin. “And to fill the cabs of that equipment, they all offer top-notch driver recruiting, training, and retention programs,” he adds.

And to top it off, the Top 50 have been able to keep their financial houses in order as well. This fact is especially important now, as the industry appears to be entering a period of tightening capacity and rising freight demand. At the same time, shippers with tight just-in-time inventory replenishment cycles simply can’t afford to be without carriers with sufficient financial staying power, analysts say.

“Pricing is reflective of the service provided,” adds Larkin. “Their balance sheets are not overly leveraged.”

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Staying alive to thrive
The fourth quarter of 2008 was generally considered the depth of the freight recession. Even top LTL companies such as Con-way Freight and FedEx Freight suffered their first quarterly losses in company history.

According to Larkin, most of LM’s top 50 companies took four steps to remain in business and stay viable: they rooted out all excess cost; avoided “only-price-matters” customers; downsized the operation to fit the “new normal” demand; and slowed capital expenditure programs.

Some LTL carriers’ profits were hurt during the downturn as they ratcheted up their discounting in an attempt to take advantage of YRC Worldwide’s financial woes. During the depth of the recession, there was a concerted effort by some LTL carriers to “go for the kill” regarding YRC Freight. YRC lost in excess of $2.6 billion in the past five years, more than any trucking company in history, but it’s still rolling along.

Like YRC, A. Duie Pyle was born in the 1930s but has remained steadily profitable even in tough times, according to O’Kane, its president. “In Pyle’s 87-year history, the moves taken to remain viable have been countless,” says O’Kane. “Our business and the environment in which we operate both change rapidly, so knowing how to navigate through those changes and making good predictions of what our company needs to do in the future is more of a process than a few landmark decisions.” 

Others agree that the tortoise wins this race, not the hare. “While a number of companies played pricing games with shippers to gain volume, UPS Freight’s success was based upon building market share each year for the past six years,” says Paul Hoelting, UPS Freight’s senior vice president for sales. “It’s success based on a consistent approach based on value.”

Chuck Hammel, president of Pitt Ohio, a top Northeast regional carrier, says that his company has made “plenty” of innovations since its inception in 1979. “Early on we pioneered next-day service when all of the competition was 2 days to 3 days,” says Hammel. 

“We were an early adopter of using the internet to conduct business, an early adopter of using on-board computing, the first LTL company to introduce mobile apps for smart phones, and the first company to knit together eight private companies to serve all of North America seamlessly (through its Reliance Network),” says Hammel. “In other words, we kept on the cutting edge of changes in the marketplace.”

The current challenges
Today, according to analyst Larkin and carrier executives, there are three major issues that affect all the top trucking companies and their levels of profitability:
1. Fuel: The industry is poised to spend a record $170 billion this year on diesel fuel, which has stubbornly remained at the $4-a-gallon level and is threatening to hit $5.
2. Regulations: The new CSA regulations (Compliance, Safety, Accountability) as well as tweaks to the hours-of-service regulations threatens to drive up costs—even on the best-run companies.
3. Drivers: They are already in scant supply due to demographics (one in six truck drivers are 55 or older) and tighter scrutiny. Those companies with sufficient drivers are already being forced to pay more to retain them.

When it comes to fuel, Larkin advises carriers to deal with a national vendor, such as Pilot, to buy fuel at the cheapest possible price. Carriers should also implement all aerodynamic devices, including tractor aerodynamic package, mud flaps, side shirts, tail-cones. He adds that carriers should optimize to the most fuel efficient/low fuel cost route and implement a dynamic fuel optimization program.

“An efficient network and investing in technology improves productivity, which in turn lowers fuel consumption,” says UPS Freight’s Hoelting.
“We continuously study the fuel price environment,” says Pyle’s O’Kane. “We hold up to 500,000 gallons in inventory, buying and stockpiling on price weakness, drawing down inventories when prices spike. Additionally, we purchase future contracts, trying to predict price highs and lows.”

The industry agrees that drivers ought to be trained to be fuel efficient. The American Trucking Associations (ATA) is on record as favoring speed limiters on new trucks, preventing them from exceeding 65 mph to 68 mph in order to save fuel.

All carriers utilize a sliding fuel surcharge, but not all shippers are paying the fuel surcharge, preferring to cap it at a certain level when diesel spikes. Increasingly carriers are requesting those carriers pay more to compensate. As Pitt Ohio’s Hammel says: “We’re addressing customers that have less than standard fuel surcharges and are bringing those customers onto the full scale.”

As for the Obama administration’s push for greater truck safety, Larkin is advising carriers to wait until rules are published to comply—and be sure what the rules will be.
“There is no reason to be on the bleeding edge trying to be a hero anticipating rules coming down the pipeline, especially if the rules stymie productivity,” Larkin says, referring to the still-unpublished final rule on hours of service.

Capacity and rates?
Capacity is slowly declining, carrier executives and analysts say. Lifecycle equipment ownership costs keep rising due to material price inflation, environmental rules, rising health care costs (at both manufacturers and carriers), safety, and fuel efficiency regulations. Fuel has steadily been increasing in cost, while driver pay and benefits will most certainly continue to rise.

Analyst Larkin says shippers could be facing what he calls “the mother of all capacity shortages.” As demand continues to recover, Larkin says that there could be a capacity shortfall that would allow yields to rebound to rates not seen since the middle of the last decade.

All this adds up to bad news for shippers. Rates could rise 3 percent to 4 percent in less-than-truckload (LTL), perhaps even higher in truckload (TL), and perhaps even higher on certain lanes where capacity is tightest, analysts and shippers say.

Industry leaders say flatly that price increases are inevitable in 2012, and beyond.

“Undoubtedly, increased regulations in the industry, including CSA, will drive up costs with those carriers ill-equipped to find efficiencies,” says UPS’s Hoelting. “Those increased costs will be passed on to customers.”

“As the driver shortage becomes more severe, and it will, driver pay must increase,” predicts A Duie Pyle’s O’Kane. “As an industry, we’re going to need to increase pay to attract the number of drivers we need for the future.”

Pitt Ohio’s Hammel says that he’s “certain” that rates will go up in the near term. “However, rates can only go so high before a shipper starts to look at adding their own company trucks or look at dedicated trucking,” he warns. Once some large shippers switch away from common carrier to private or dedicated carriage, Hammel says, that will free up capacity for the rest of the market.

TL shippers could be in for even higher rates due to their longer lengths of haul and higher percentage cost of diesel. Cass Logistics, which pays around $17 billion in freight bills annually, says its TL pricing index rose 8.6 percent last year and could be in for a similar rise this year. TransCore, another bill payment services company, says that its TL contract rates rose 6.5 percent last year while spot rates rose 7.4 percent.

All this bodes well for carriers who have survived the worst economic downturn in 70 years. As Con-way Truckload’s Schmidt says: “Market forces have dictated the survival of the fittest. The ship rises for those who have weathered the storm.”

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