If a trucking renaissance ever arrives, it would look a lot like Old Dominion Freight Line and Knight Transportation. Both companies kept their bottom lines in the black during the worst recession since the Great Depression.
Thomasville, N.C.-based ODFL was the only billion-dollar publicly owned less-than-truckload carrier to report a profit last year, earning $34.9 million on $1.25 billion in revenue. Knight, a truckload carrier, had a $50.6 million profit in 2009.
Profits and sales slipped at both companies, with net income falling nearly 50 percent at ODFL from the previous year and dropping 10 percent at Knight. But both companies were able to apply the brakes well before they would have skidded into the red.
“I don’t believe it’s possible in any business to maintain an exact level of profitability in a down cycle,” said David Congdon, president and CEO of ODFL. But he does believe trucking can be profitable and sustain that profitability, one carrier at a time.
“I don’t think you’re going to have a major renaissance in which all the carriers become rational all of a sudden. That hasn’t happened in the 40 years I’ve been in this business,” Congdon said. “Each trucking company basically stands on its own, and its success is driven by its leadership, by the way it runs its business.”
Operating ratios — operating expenses as a percentage of operating revenue — offer a look at how well ODFL and Knight were able to run their businesses during the recession. ODFL’s operating ratio rose from 88.9 percent in the third quarter of 2008 to 96.6 percent in the first quarter of 2009, the height of the recession. The company’s OR then dropped below 95 percent before falling to 89.1 percent in the last quarter.
If Knight Transportation were more efficient, it would be a railroad. Its operating ratio, 83.3 percent in the last quarter, hasn’t risen above 87 percent in the past five years. In fact, in 2005 and 2006, Knight had a lower OR than Union Pacific Railroad.
There are other carriers with low operating ratios and strong profits — truckload carrier Heartland Express, for example — but on average, ODFL and Knight outperform their public LTL and truckload competitors.
The carriers’ attention to profit, process and customers is paying off in the economic recovery, positioning ODFL and Knight for expansion ahead of competitors struggling after reporting steep losses in 2009. Both are spending money to expand their businesses, rather than correct deficiencies.
“You need to keep an eye on more than the bottom line to achieve sustained profitability,” Congdon said. “You cannot deliver sustainable profitability unless you have a very clear vision of where you’re taking your company,” he said. “It’s not just turning the pricing knob up one day and down another. It doesn’t work that way.”
For Congdon, the three most crucial elements of a long-term profit plan are knowing your business — both what it is and how to do it — knowing your costs and then, armed with that information, knowing how to negotiate an appropriate price.
“What we try to achieve with our customers is a fair and equitable price for services that meets reasonable profitability objectives and still offers the customer a fair and competitive arrangement,” he said. “A real renaissance in trucking would be understanding your costs and arriving at an appropriate price that results in a profit, but also gives the customer the best price you can offer.”
Contact William B. Cassidy at email@example.com.