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Expedite Freight Industry Review

By Jeff Jensen
Posted Jan 4th 2002 9:00AM

road_issues783a.jpgThere's no question, 2001 was a difficult year for the freight transportation industry.  Even before September 11, the picture for trucking and expediting was a depressing one, even more so than during the last major turndown in 1990-91.

Industry analysts at the American Trucking Associations' annual meeting in Nashville, Tenn., in October painted a depressing picture of 2002. Their forecasts included more bankruptcies and mergers, low freight volumes, cuts in driver pay, tighter credit, higher insurance rates, and lagging sales of new and used trucks. About the only good news was that diesel fuel prices will probably dip lower.

Martin Labbe, president of Martin Labbe Associates of Ormond Beach, Fla., said the economy "Is in uncharted waters, and we don't know where the bottom is." Consumer confidence is dropping, unemployment is rising and manufacturing is slowing down. It all adds up to less freight.

Trucking companies, especially small and medium-sized ones, will continue to fail in large numbers, said Donald Broughton, a transportation analyst with the investment firm A.G. Edwards & Co in St. Louis.

Broughton predicted more than 4,200 companies will shut down this year. "That number would be even higher if the creditors knew what to do with the trucks," he said.

Despite the bad news, Broughton said we could see some recovery in the general economy before summer 2002. But the bottom line, all three agreed, is gloomy trending toward grim for some time to come.

Now, what about expediting?

The just-in-time freight business did not suffer the major shakeouts suffered by conventional trucking. None of the major carriers in this business even approached the point of shutting down compared to the thousands of bankruptcies and closures in full-size trucking.

To the contrary, most of the expedited carriers contacted reported growth through last year, although not on a level with their predictions of around a year ago.

If it's true, as some experts say, that last March marked the beginning of our current recession, then the economic downswing had sufficient time to settle in before the events of September 11, and it's effects for the remainder of 2001.

It's possibly a statement of the expediting carriers' financial stability that has helped them weather this latest economic storm, particularly in an industry that is so closely tied to the sudden twists and turns of production and inventory.

That statement could also indicate just how essential this expediting industry has become to many areas of North American business, and how it will continue to survive, if not necessarily prosper, even when conventional truckload transportation is threatened.

The following observations and input from our expediting industry interviewees paint an interesting picture of the challenges offered by 2001 and what this new year has in store for the industry.

REPORTS FROM THE CARRIERS

Ed Conaway
President and CEO
Con-Way NOW

Con-Way NOW's 2001 results were far less than our high expectations but considering the downturn in manufacturing, a recession that began in March and the 9/11 disaster, our year was reasonably successful.

Con-Way NOW offers ground and air expedited service, along with dedicated truckload, in the United States and Canada. We are also involved in a joint venture with Con-Way LTL, named Con-Way Full Load, that began on January 2, 2002 and is already a tremendous success.

Our revenue and shipment growth started slowly in 2001 but began to hit stride in June and we were enjoying significant growth in August as compared to August of 2000. Then 9/11 hit and our growth stalled and September and October were down months. We began to see growth again in November and December finished well above December of 2000.

Jon Gushen
Director of Recruiting
CTX, Inc.

The last three quarters of 2001 were a steady decline, but we anticipate the second half of 2002 will be very busy; automotive shipments will come on fighting strong. The owner/operators who have survived this downturn will be the quality owner/operators who know how to budget themselves and who don't job hop from company to company.

We made several technology jumps last year by installing a GPS system instead of a satellite tracking system which will put us head and shoulders over the competition. Our customers can now go to our site and track their freight online.

Jeff Curry
VP of Business Development
Express-1, Inc.

Last year was, in a unique way, a difficult year. We were still able to show increased business levels, although not quite as much as in the past.

We are experiencing a reduction in the players in the business, however we are confident in our ability to remain standing once these difficult times are over.

What's also encouraging is that we are still growing our business, and we have the opportunity to expand, especially in our Internet and e-commerce business shipments.

Regardless of economic projections for 2002, we're not hanging our hats on any time specific turnaround during this year. We've just been certified by the Department of Defense and our anticipated government-related shipments will be a new experience for us.

Regarding our recruiting efforts, we're looking primarily for straight trucks at the present time. Our new e-commerce business has been growing so rapidly that we welcome owner/operator applications from anywhere in US.

Mary Howard
Recruiting Manager
Nations Express

Our contractors who ran hard last year report that they did reasonably well, in spite of a soft expediting market. Our company is hopefully optimistic about 2002, but we're working very hard to expand in other expediting areas.

Mark Crawford
Chief Operating Officer
Tri-State Expedited Service, Inc.

Continued slowdown of the economy and the events of 9/11 combined to make 2001 a challenging year for most industries. Expediters were fortunate to be an industry that was of such vital assistance in the wake of those events.

Our strength continues to be the diversity of our customer base which was vital to weathering the economic climate and provided consistency in business levels for the year.

In November, 2001, Tri-State introduced Worldwide Air Charter Service to give customers more expediting options. We look forward to offering more services and added value to our expediting product in 2002. Positioned for the economy's upswing, we anticipate a year of continued progress.

Steve Ouellette
Fleet Manager
Thompson Emergency Freight Systems

This year, business has actually started a little slower. It's a wait and see situation, and with our relationship to the auto industry, we'll have to see how they fare.

I believe that we'll maintain our market share, with an upswing in business levels, possibly around the third quarter.

Chris Morey
Operations Manager
Try Hours, Inc.

I think we broke about even last year and maintained our market share. I believe that even with this year's slow start, we are still holding our own. In talking to our top 25 accounts, they are forecasting an increase in expedited shipments around late February or early March.

Scott McCahan
Senior Manager of Safety and
Contractor Relations
FedEx Custom Critical

We don't really know yet what the rest of 2002 holds. We're still looking at the indicators and evaluating the information about this economy. It's really no secret that business levels have decreased, but we're hoping for a better 2002.

The expediting industry should however, be among the first to experience a recovery considering that inventory levels in manufacturing and production have decreased and the unique service that we offer will be even more essential.

Spencer Squire
President
AllState Express, Inc.

Last year, the business levels were down for everyone, but for us at least it remained consistent.

This year is starting off fairly well; the rumors and projections seem to indicate that expediting will bounce back this year.

As a matter of fact, we are recruiting straight trucks at the present time. In the near future we'll possibly be adding some tractors. Region isn't really an issue, we'll consider owner/operators from anywhere in the country.


Bob Senz
Fleet Manager
PantherII, Inc.

We are looking for economic upswing; surprisingly, we have had the busiest January in our company's history. Usually January is the worst month for driver retention, but not this year.

We're excited that we been able to help our contractors because of our diversification. Our 4th quarter was a good one, we believe that the economic recovery has already hit.

We are actively recruiting straight trucks in all of our areas of operations. We're also trying to keep our tractor fleet running and profitable through utilization of our back haul program.

Ben Reuille
President and CEO
Diamond Delivery Service

Last year was a struggle, but 2002 is looking better, and I look for good things to happen, particularly in the third and fourth quarter. I'm expecting that turnaround, but it is a wait and see situation.

Diamond Delivery Service is fortunate in that we've landed a couple of new accounts which we will begin serving in the near future.

We are currently recruiting and adding straight trucks and tractor-trailers in Ohio, Indiana, Michigan, Kentucky and Tennessee.


REPORTS FROM FLEET OWNERS AND OPERATORS

Bob Worthington
B unit
Panther II

During the past year I downsized from 3 trucks to 1 truck and also changed companies. While doing this was painful, I did learn a lot, and changed some of my views on where the future is in expediting.

I no longer believe that only the giants will be around in the future. The companies that survive will have to take a long hard look at exactly what the relationship is between the contractor and the company.

They represent two vital parts needed to present an appealing product to the customer. As a contractor, I "hire" a company to find me freight for my truck. Once the company has located a shipment, they "hire" me to transport it. The businesses that survive will be the ones who realize that one cannot thrive without the help of the other party involved.

The company I am with now seems to be doing a good job holding up their end of the deal. My mission is to move the freight, and keep the customers happy.

Rich Moore
D unit
FedEx Custom Critical

Last year, until September 11, we were down around 15%. After that, we ran non-stop in October and ended up with the best single month ever in fifteen years. Lots of military shipments and coast to coast freight.

November and December were down.

I think 2002 is going to be OK, after another 3 to 4 months. Because of the just-in-time nature of inventory these days, expediting will always have a place. In my own experience, team operations are really the way to go; the co-driver probably increased the truck revenue by 60-65% due to availability.

Ed Housworth
Fleet Owner
Housworth Trucking and Leasing

The year 2001 was disappointing. Less freight at lower prices with higher maintenance costs put a strain on many of our owner/operators. During this time some of our teams continued to perform as well as ever but those that did not accept all loads and took too much time did not prosper well. Motivation, patience and time in service was more essential than ever.

The year 2002 is showing promise of great improvement. We have been very pleased with the performance of our teams in January. Quite a large number of owner/operators got out of the business in 2001 and this has caused those remaining to get a larger share.

The latest information shows a decrease in inventory is happening and this is causing and increased demand for expedited freight even when the economy has not fully recovered from the recession.

We are quite optimistic for the year 2002.

George McDonald
C unit
FedEx Custom Critical

I made it through 2001, but just by a hair. I'm doing things differently now; I've found a second company to work with when FedEx Custom Critical is slow to keep the money coming in.

I think this is going to be a repeat of 1995 in a way; there are too many trucks in the expediting company's fleets, and only the strong are going to make it through.

I think people should find a second company to trip lease with on the side that will pay them well and to help them make it through the storm.


Patricia Smythia
Fleet Owner
Freedom Xpress, LLC

At the mid-year point of last year I was projecting a 10-20% decrease in revenue and after September 11 with the severe economic conditions, I was concerned.

The good news is that we actually finished the year with a 10.5% increase over 2000. I attribute these increases to the wonderful teams that I had for most of 2001, and the current company that we are leased to (Panther II). We switched companies mid-year of 2000, so I am not comparing apples to apples for both years.

However, I am optimistic about the returning economy. So much that I am doing something that I have never done since I have been in expediting; I am adding trucks in January. There are great buys and financing out there right now, and last week I bought a Century Class tandem (D) unit and added it to my fleet.

I think that what we are seeing is an evolution of the expedite industry, I see it in the quality of driver/owners that I am getting and I see more respect from the truckload industry when I am out on the road. I think everyone is starting to realize that we are here to stay.


Jereld Bunzey
B unit
Six Wheelers Expediting

I think 2002 is going to be a profitable year. I see a major shift of paradigm; same game, but new rules and those who understand this shift will profit by it. In other words, the way expediting has been has changed dramatically; the markets are leaner but the profits are still there.

Specialized marketing by the expediting companies to the shippers/receivers will changed, Fewer loads, but better quality loads will be available. We'll see more companies pioneering a specialized market with companies of less that a hundred employees.

There will be more networking between the expediting companies. It will not be a time for crybabies, but rather for those who are seriously business minded.

I see the third quarter of this year being a profitable one.


Terry O'Connell
B unit
FedEx Custom Critical

In this type of business, we're all living on the hope and a prayer that the expedited freight will become available in 2002 and that we're the ones selected to haul that freight. We're looking for a turnaround from the depressed business levels of last year.

An improvement over last year will be necessary for me to maintain my faith in this segment of the trucking industry. If it doesn't improve over last year's poor showing, we'll just have to lick our wounds and move on.


REPORTS FROM THE TRUCK SUPPLIERS

Dan Tilley
Expediting Truck Specialist
Freightliner of Knoxville

It's surprisingly good, starting around Oct-Nov. I've been taking orders for all sizes of expediting trucks from Sprinter to Class 8, no end in sight for right now.

The used market seems to have bottomed out, and is now rebounding. The extremely low-priced used trucks that we were seeing just a few months ago have stabilized, so now is the time to act if one is considering a used vehicle.


Dan Schultz
Summit Trading
Kent, OH

The last quarter of last year, we didn't see the typical surge of business levels that we've seen in the previous 5 years. There seems to have been substantial attrition in the owner/operator ranks.

For 2002, the slow down usually associated with the first of the year has not been extreme, but more of a typical 1st quarter. If the economic indicators are to be believed, we should experience a rebound to pre-2000 levels. I am hopefully optimistic for later in this year.

Over the last three years, I feel that the expediting truck buyer might have tended to overspend on equipment by purchasing units with all the options when possibly a more modestly equipped truck would have helped with the bottom line. Year 2001 was a wake-up for many folks in that it reminded them that this is still a cyclical business.

I'm happy to say that a shopper can definitely get a lot of truck for the money in the used truck market.

Bill Moore
TSI Western Star
North Jackson, OH

Truck values have dropped so much, many of the owner/operators are upside down and it's been tough for them to upgrade.

I do think however, it's bottomed out now and truck values seem to have stabilized. That's a very positive note. I think expediting in general is in a similar situation in that the worst seems to be over. As a matter of fact, I'm ready to put fresh inventory on the lot.

Even when the economy does pick up, truck financing will be the major issue for many people. The best advice I can give the potential truck buyer is to keep those payments current and maintain their good credit.

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