Copyright 2001, Traffic World Magazine
Overnite Transportation Co. is the largest of the handful of LTL carriers that navigated the recession-polluted waters of 2001 and emerged more profitable than it was during the relatively flush days of 2000.
Although final numbers have not yet been released, Overnite expected 2001 profits to exceed the $42.5 million net profit it posted in 2000. Through the first nine months of 2001, Overnite had $35 million in net income on $862.1 million in revenue, compared with $29.9 million in earnings on $839.5 million in revenue during the first nine months of 2000. Its operating ratio improved to 95.1 in that period, compared with 95.6 during the first nine months of 2000.
With even industry stalwarts United Parcel Service and Con-Way Transportation Services expected to post earnings declines in 2001, Overnite is poised to be the largest trucking concern in the country to have an earnings increase in a recession year.
"I think we will be more profitable" than in 2000, Overnite Chairman, President and CEO Leo H. Suggs said recently. "It shows that if you really focus on your customers and deliver what you promise, even in slow economic times, they'll help you out. We've been fortunate to show revenue growth even in a recession."
Even as Overnite works to absorb newly acquired Salt Lake City-based Motor Carrier Industries under its new Overnite Corp. holding company, the Richmond, Va.-based carrier is making overtures to all shippers. It is telling shippers, especially smaller ones, that now is the time to cement contracts with Overnite in preparation for any freight diversion that might occur ahead of the Teamsters' talks with the major national LTL carriers. The National Master Freight Agreement expires March 31, 2003, while the union's contract with United Parcel Service expires July 31 this year.
Overnite officials are luring freight from shippers with the promise of a built-in 10 percent additional "cushion" in the event there is a work stoppage elsewhere in the industry.
"Those customers who already are doing business with Overnite will already be protected and they can build in a 'cushion' of extra freight capacity," Overnite spokesman Ira Rosenfeld said. "Shippers can make arrangements now that protect both them and Overnite. This ensures they have capacity. It also ensures that Overnite will not be flooded with too much freight in case of any work stoppage."
That is in sharp contrast with 1994. Back then, under former Overnite CEO Thomas Boswell, Overnite jumped into the freight void with both feet when the Teamsters struck the unionized LTL industry for 24 days. What should have been a good thing for Overnite actually was a very bad thing. Flooded with too much freight that affected its service levels, Overnite actually lost a few longstanding customers because it could not deliver anywhere close to what it was promising.
"We want to make sure we can handle all the freight efficiently," Rosenfeld said. "That's what we mean about working smarter. We have no intention of jeopardizing service levels that are now in the high 90 percent range. This company has worked very hard to become a reliable carrier. We are going to remain a reliable carrier."
Overnite has long appealed to national shippers because of its discounted rates that often are lower than the typical long-haul LTL carriers. Now it is hoping to outperform the competition by a percentage point or two on the financial side.
"Our primary objective is to outperform the marketplace from the standpoint of the bottom line," Suggs said. "If the others are down 2 percent, we hope to be up 2 percent. We hope to manage our business above those carriers we benchmark."
Under Suggs, a 37-year trucking veteran brought in five years ago by parent Union Pacific Corp., Overnite's philosophy has been to be the low-cost producer in the regional, interregional and long-haul marketplace. That has been accomplished through a company-wide emphasis on efficiency and productivity.
"We are in a position to be both a price and service leader and still have a decent profit margin as well," Suggs said. "In today's marketplace, we are a very efficient company. When companies start looking for ways to save money, Overnite surfaces. Our overall rates are below what they are for the industry."
While Overnite's revenue grew slightly last year to just over $1.2 billion, Suggs said the company is not obsessed with matching the $3 billion revenue posted by industry giants Roadway Express and Yellow Freight System.
"Our objective is not necessarily to be the biggest," he said. "We want to be the best in service, profitability and coverage. In a normal growing economy, we'd like to see double-digit (revenue) growth. But we don't have a growing economy now."
Still, Suggs believes Overnite is positioned to take advantage of what he thinks is inevitable consolidation within the long-haul LTL sector.
"There is going to be additional consolidation in our industry," he predicted flatly. "Very likely you're going to see some combination of carriers or some failures. You're going to see an awful lot of activity in the coming months. There already has been some capacity taken out of the marketplace, mostly in the truckload side. That bodes well for opportunities on the upside of the economy."
Already, Overnite is sharing the wealth with its nonunion sector of its work force. Under Suggs, Overnite dock workers and drivers received another in a series of 50-cent-an-hour wage increases on Jan. 1. That has closed the gap between Overnite workers and Teamsters-covered workers under the NMFA to just 76 cents an hour for local drivers and a mere 0.00245 cents-a-mile for over-the-road long-haul drivers, according to Overnite (See chart). Overnite workers have cumulatively received wage increases approaching 30 percent since 1995 compared with about a 12 percent increase cumulatively for NMFA-covered workers. Base pay for LTL dock workers is $19.85 an hour, compared with $18.50 for Overnite workers.
"The mission of this company is we depend on our people to be successful," Suggs said. "We're willing to share in that success."