Trucking by the Margins
The Journal of Commerce, April 12, 2010
By Satish Jindel

Comparing the list of Top 50 trucking companies of 2009 against the reports from carriers in 2008 shows pain all over — declines in annual revenue from 7.6 percent for UPS to 42 percent for Vision Logistics.

But it is noteworthy that during one of the worst economic downturns in more than 50 years, the parcel car­riers, with the highest service prices of all three major trucking segments, had the lowest decline of 8 percent in revenue compared to a much larger decline of 21 percent for LTL carriers and 26 percent decline for truckload carriers. Furthermore, the two parcel carriers and one much smaller same-day company generated as much in total revenue from their ground operations as the 14 LTL carriers on the Top 50 list and the 33 truckload companies on the list.

However, even though the truck­load carriers experienced the largest decline in total revenue — 25.7 per­cent, compared with 21 percent for LTL carriers during 2009 — the collective operating margin for the truckload carriers was much better than the LTL carriers on this list.

Although one might have expected the best performers in terms of top line revenue would be the trucking operations of parcel carriers (including their smaller LTL units), it is surprising that truckload margins are holding up somewhat better when one considers the grow­ing role of 3PLs in domestic shipping. LTL carriers have often claimed to be negatively affected as 3PL firms look to reduce transportation cost for their customers by consolidating LTL ship­ments into truckload.

However, those same 3PLs also could have consolidated multiple parcels into LTL shipments for even greater savings in transportation costs. So either the 3PLs are not skilled in consolidating parcels into LTL shipments, which represents a growth opportunity for 3PLs, or the multiweight shipments created by such parcel consolidation remained in a low-weight range that remained within parcel networks for the parcel carrier hundredweight service.

What was striking about the results of trucking companies in 2009, in fact, was not that they were hurt by the downturn in demand, but that the financial pain seemed to be spread unevenly and that shipping pat­terns did not necessarily follow the path most experts would expect.

Although the LTL and truckload companies posted similar declines in revenue during 2009, the truckload companies collectively fared much better in terms of operating margin than the LTL cousins, largely because of greater discipline in matching capac­ity with demand and retaining value for service even with strong competition from intermodal operations.

It would be hard for an economist to make a case that the economic col­lapse of 2009 was more severe on the LTL or the truckload segment. On the contrary, one could make a more convincing case that in a tough eco­nomic environment when shippers are pressured to reduce expenses in all areas, the highest priced service, which is parcel, should have been hit the hardest. Or the truckload segment should have been hurt as shippers sent smaller orders, leaving the LTL carriers to benefit from the decline in two segments on either end of its shipment spectrum in 2009.

Within the truckload segment, the list shows that even companies with focus on specialized services such as reefer (Prime and C.R. England) and tanker operations (Kenan and Qual­ity) can reach revenue levels to make the list of Top 50 trucking compa­nies. In addition, trucking operations with other specialized services that often get overlooked, such as flatbed (Vision), auto (Allied) and dedicated services (Greatwide) and even heavy-haul ( Anderson ) service, are also represented.

With the success of J.B. Hunt in offering a portfolio of services spin­ning out of its core truckload business, the results represented here also may attract more traditional truckload carriers to seek organic expansion and acquisition into specialized trucking operations. This would mark a reversal of past trends, when J.B. Hunt withdrew from specialized trucking operation in mid 1990s.

From a competitive and indus­try dynamics viewpoint, the LTL segment was not at any greater dis­advantage compared to parcel and truckload segments. The parcel seg­ment has very few direct competitors, but the truckload industry has many times more competitors than the LTL segment. Furthermore, although the parcel carrier segment has fewer competitors than LTL, it has a much higher fixed cost for sortation equip­ment and buildings.

No matter what segment you operate in as a carrier or use as a shipper, changes have finally taken hold at the carriers since 2009 to better match capacity with market demand, setting the stage for finan­cial improvements for all segments. This has not come as fast as many in the industry would have liked, of course.

Still, while the increase in revenue will be driven by external factors such as economic growth in United States , these companies are in a better posi­tion collectively and individually for improved operating margins in 2010 with greater success in 2011.

Satish Jindel is President of SJ Consulting Group, Inc. with offices in Pennsylvania and India