Editor Dana L. Brundage and Senior Editor William B. Cassidy discuss why there is a need for a trucking industry renaissance, how far away we are from such a renaissance and which companies have already started this transition in this podcast.
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Q: This week The Journal of Commerce put out their annual Guide to Trucking. In that you write about a trucking industry renaissance. Can you tell me why you think such a renaissance is necessary in the industry?
A: its largely because trucking has had such a hard time financially for the past three years, especially during the recession of 2008 ad 2009. There were thousands of smaller companies that went bankrupt or simply shut down, owner-operators who parked their trucks, and many, many major trucking companies reported serious losses.
It’s only this year that we’re beginning to see a real turn around financially for many companies. We’ve seen it in their balance sheets and their profit and loss statements for public companies. We’ve seen it in the rates that are being charged by trucking companies to shippers. So there’s a real need for financial recovery in the trucking industry, not just to make a lot profit but in order to be able to reinvest going forward in their own operations.
Q: How far away would you say we are from such a renaissance?
A: We’re still a ways away in some areas, and in some areas we’re quite close. It depends on the kind of company really. And this was the point that came across in my reporting which I would like to give to you. People talked about a rail renaissance for about ten years now. It started out with people trying to see if they thought there was a chance for a trucking renaissance. I believe there is but it won’t look like the rail renaissance that much.
The rail renaissance was all about sustaining profit by controlling capacity, by controlling the ability of the industry to grow in a way because there are only about seven class I railroads. There are thousands and thousands of trucking companies.
But the thing that is happening with trucking is that companies that are able to understand their costs, to better manage their customers relations and understand their customers’ costs, are finding it easier to set a price which is amenable to the customer and also gives them a fair profit.
And that is where I think the renaissance in trucking is going to come about. It’s going to be a change in management in a way which enables trucking companies to achieve more sustainable profitability rather than being caught in these up and down cycles that we have from recession to recovery to recession again.
Q: Bill are there any companies currently heading in that direction?
A: Yes there are some companies who are already there I would say. Two of them: one in truckload and one in less-than-truckload.
Knight Transportation, a truckload carrier based in Phoenix has an operating ratio in the range of 83 I believe. The operating ratio is the ratio of their operating expenses to their operating revenue. So at 83 that means they are making close to 20 cents on every dollar, which is extraordinary for a trucking company. Railroads have ORs in the 70s ad 60s for the most part, the major railroads.
In the LTL arena it’s Old Dominion Freight Lines. Old Dominion is the only one of six publicly traded LTL carriers with more than $1 billion in revenue that had a profit in 2009. They’re not the biggest of these carriers, in fact out of those six they’re down toward being number six, but they are the only one that had a profit. Although their profit was halved in 2009 they were still in the black. Second quarter of 2010 their profit doubled from the same quarter in the previous year and from the first quarter. So they’re care of attention to their own costs and their customer costs have paid off for them in a very big way.