As Hurricane Sandy swept toward the East Coast on Oct. 28, the situation confronting Steve Gast became tougher, but his choices, in a sense, became simpler. The president and CEO of trucking operator New Penn saw forecasts and conditions worsening across the entire Maine-to-Maryland region served by his company.
At risk was a network of 22 less-than-truckload terminals, with about 1,300 employees and hundreds of freight-carrying tractor-trailers on the road at any time. “We knew the eastern half of our system was going to have to be shut down, basically the I-95 corridor from Baltimore all the way up to Boston,” Gast said in an interview Feb. 7 at New Penn’s Lebanon, Pa., headquarters. Gast and his management team that Sunday afternoon had to decide whether New Penn would go beyond protecting terminals and employees in the oncoming storm’s path. Should the carrier try to stay at least partially open in western New York?
As a better picture of the storm’s massive size and intensity emerged — Hurricane Sandy’s wind diameter spanned more than 1,100 miles at its peak — the answer was clear: All New Penn operations would shut down for the storm’s duration.
The company closed up tight Sunday evening and didn’t reopen until Tuesday evening, Oct. 30, well after the storm surged ashore on Oct. 29. The complete shutdown was an unprecedented reaction to an unprecedented natural disaster. And it was, Gast said, the only decision the trucking company could have made Oct. 28.
“You had to make the call,” Gast said. By 4 p.m. Sunday, “we had wind forecasts for gusts of up to 70 or 80 miles per hour Monday as far west as Buffalo,” he said. “A second storm was coming up the Appalachian spine, and they were predicting heavy snowfall in the western part of Virginia and into our territory. There were a lot of moving parts to the weather. At that point, we just made the decision. Could we have put a few people on the road in Pittsburgh or Buffalo? Why take the chance?”
Those companies that did take the chance — and there were very few in the Northeast that chose to operate during the storm — ran into roadblocks from the Chesapeake Bay to the Connecticut River as state after state declared emergencies and closed highways and bridges to heavy truck traffic or all vehicles on Oct. 29. Pennsylvania limited speeds and banned certain types of trucks from certain roads. Connecticut eventually ordered all vehicles off its highways later that day.
Long-haul truck drivers unfortunate enough to be caught in Sandy’s path were forced to shelter at places such as the F.L. Roberts Roady’s Truck Stop in Springfield, Mass., where truckers forced off Connecticut highways weathered the storm.
That’s the situation New Penn wanted to avoid, said Shawn P. Nolan, vice president of operations. “What we learned on Sunday changed our outlook as to the extent of the storm,” Nolan said. “We had a lot more specific information. And Monday morning wouldn’t have offered a whole lot of opportunity to get anything done.”
New Penn came through the storm with significant damage only at its terminal in South Kearney, N.J., which flooded when Sandy’s storm surge pushed up the Hackensack River. “While people suffered a lot of hardships, the good news is to my knowledge we didn’t have any severe injuries to any of our employees,” Gast said.
New Penn certainly is a survivor. The company, along with competitor A. Duie Pyle, is one of the few remaining northeastern LTL carriers of its generation — the first wave of trucking firms established as the truck replaced the locomotive as the primary intercity mover of what was then called less-than-carload freight.
For two generations, the company was controlled by the family of co-founder Henry R. Arnold, who started “New Pennsylvania Motor Express” with partner Cloyd F. Erdley. “Central Pennsylvania many years ago was a big textile area, so Henry Arnold and his partner bought one or two trucks and started taking textiles into New York City,” Gast said. The textile industry waned, but the trucks remained.
Like many local competitors, New Penn expanded during the regulatory era. Unlike many of those companies, the trucking company survived deregulation in the 1980s and expanded more rapidly as part of Arnold Industries, which also had a truckload arm and a warehousing business. In 2001, Arnold Industries sold New Penn to nationwide LTL trucking operator Roadway, which was in turn acquired by Yellow in 2003, the genesis of giant LTL holding company YRC Worldwide.
Over the past six years, New Penn survived the near-collapse of YRC Worldwide. Between 2006 and 2012, YRC Worldwide reported more than $3 billion in combined annual net losses. The company’s annual revenue shrank from nearly $10 billion in 2006 to $4.3 billion in 2010 before rising again in 2011 and 2012.
Now, as one of three increasingly profitable YRC regional carriers, New Penn is contributing to the parent company’s revival. The three regional companies — New Penn, Holland and Reddaway — returned to the black in 2010, with a $3.1 million combined operating profit. They increased that profit to $32.9 million in 2011 and more than doubled it in 2012 to $70 million. The group’s combined revenue increased 5.6 percent last year to $1.64 billion, while fourth quarter profit rose 21.7 percent to $8.4 million on a 2.5 percent increase in revenue to $391.4 million.
In the third quarter, the YRC Regional group had the second-best operating ratio among the publicly owned LTL trucking companies, 93.5 percent, following Old Dominion Freight Line, which posted an 85.1 percent operating ratio for the quarter.
The regional revival gives YRC Worldwide the room it needs to concentrate on rebuilding the successor to Yellow and Roadway, long-haul YRC Freight.
“The regionals had a very good year,” YRC Worldwide CEO James Welch said. “They’re a critical piece of this operation. As supply chains ebb and flow, customers tend to move distribution centers around based on what’s happening with imports and exports. Our regional carriers are well positioned to handle that change.”
Significant changes have reshaped the LTL market since Gast arrived at New Penn in 1997. He previously worked for USF Red Star, Sun Carriers and McLean Trucking — all historic trucking operations that did not survive the tumultuous changes of the 1980s, 1990s and, in the case of Red Star, early 2000s. At its core, the LTL business is faster now than it was 20 years ago, and much more complex.
“The old classic 40-by-40-by-48 pallet, nice square stuff that a forklift can take off a trailer, it’s not as prevalent as it used to be” on LTL docks, Gast said. New Penn is handling more freight that once would have been shipped by the truckload and more products such as refrigerators and other appliances that require special handling.
“We made a decision several years ago to leverage our ability to handle unique types of freight that others might not get excited about. In trucking language, you’d call that freight ‘ugly.’ We do a lot of business in that area because it allows us to leverage our strengths and when you do that, hopefully, you get paid for it.”
Changes in packaging add complexity to the mix, and it all must move faster. “Speed is a key factor in New Penn’s success,” he said. “Getting a shipment from Baltimore to Buffalo overnight is ho-hum now. It needs to be there before noon next day — and 50 to 60 percent of our shipments are delivered before noon.”
Speed isn’t defined solely by transit times. “It takes all kinds of forms,” Gast said, “from time-definite windows to on-the-day deliveries. You might get a new book release from a publisher with literally hundreds of shipments on the 10th of the month, and they’ll say, I want everything delivered on the 18th of the month.”
New Penn, he said, has survived and thrived by adapting to the needs of such customers as they evolve. “What we’re trying to do at all times is integrate ourselves into our clients’ supply chains in a way that it’s very clear to them we’re adding value,” Gast said. “A lot of the market is transactional, and we’ll never get away from that, but there also is a big chunk of the market that is taking a high-level view of the supply chain, and they need partners that they can pull in and rely on.”
Those partners increasingly include third-party logistics providers. The relationship between shippers, 3PLs and truckers can get “fuzzy at times,” Gast admitted, especially when it comes down to who “owns” the customer. “The 3PL has the freight, but no assets. We’ve got the assets, but not the freight. We’ve got to get together and figure out how we can help our mutual clients, find the best way to use our assets, and somewhere along the way make a little money,” he said.
Gast is confident New Penn and its sister YRC regional carriers can build on the gains of the past two years. “I’m frankly optimistic about 2013,” he said. “Most of our customers have retooled themselves, and we’ve retooled ourselves. Some of our paper goods customers are doing very well, which I like to
think means someone else needs their packaging product to get other shipments out the door.”
Whatever course the economy takes in 2013, the growth of next-day and increasingly same-day distribution will not slow, he said. “The need for speed is going to get pushed from many different angles,” including the rise in online retail sales and even leaner inventories, “and that’s good for regional carriers.”