Recession and Shipping and Trucking and Transportation, Distribution & Logistics and Distribution & Logistics

Trucking firms shift gears to weather long downturn

March 20, 2010

Back in the early 1990s, Doug Williams and two buddies started a trucking firm out of a trailer along West Washington Street.

“If we could haul a ham sandwich around town to make a dime, we’d do it,” recalled Williams, who would later go on to build Venture Logistics into an $83 million company with 500 employees.

But even Williams and other established logistics companies have found the last few years more challenging than any other time since the perilous early days of their enterprises.

trucking factboxIf it wasn’t higher fuel prices, it was softening business in key sectors, such as the automotive industry. Fewer goods to move created overcapacity and softened rates. Surviving the downturn has meant deep cuts, changes in the cargo mix, and, in some cases, bankruptcy.

“We hit the wall back in July of 2008,” recalled Benjamin Cook, co-founder of Arcadia-based carrier Tradewinds. High fuel prices drove the company into Chapter 11 reorganization that summer.

Since then, Tradewinds has better diversified its customer base, taking on more retail and food-and-beverage clients. Now, no one customer is more than 6 percent of Tradewinds’ business.

It also took on some warehousing and distribution business and began maintaining trucks in-house to trim costs.

Tradewinds paid back creditors and exited bankruptcy on March 5, after 18 months.

“I can say for the first quarter we’ve steadily seen week-to-week steady growth for us,” Cook said.

In 2008 alone, an estimated 3,000 trucking firms failed, taking out about 7 percent of the nation’s truckload capacity, according to industry reports. It’s unclear exactly how many in Indiana shut down for good, although the recession sent several others into Chapter 11 reorganization, including Indianapolis-based Freight Master Logistics.

Freight Master filed for reorganization last December, citing the loss of business from Chrysler. The minority-owned trucking firm, which at one point generated $86 million in annual revenue, also lost a key contract with Boeing, according to court records. Freight Master’s Web site has disappeared and calls to the company were not answered.

The downturn was a mixed blessing for Indianapolis-based Celadon Group, among the nation’s biggest haulers focusing on the United States, Canada and Mexico.

On the plus side, publicly traded Celadon was able to snap up struggling companies on the cheap, including Arkansas-based Continental Express, for $24 million.

Such acquisitions grew Celadon’s customer base. It brought on leading consumer electronics retailer Best Buy. The deals also put Celadon in the intermodal business—the company had never before offered a connection to rail shipping.

In better times, Continental would have cost “a hell of a lot more,” said Celadon founder and CEO Steve Russell.

But even for Russell, a titanium-tough industry veteran who grew up in Brooklyn, N.Y., it’s been a painful time. Revenue for 2009 fell 13 percent, to $490.3 million. Celadon’s stock price last March tumbled below $4.50. During quarterly conference calls, analysts pecked at management like vultures on road kill.

Russell grew philosophical.

“I sat in the dental chair, and I swear this is true,” Russell said, recalling a visit to the oral surgeon last year to have a tooth pulled. While waiting for the painkiller to kick in, he asked the doctor how he would make a liability in life into an asset. Surely wondering if he’d injected Russell with something other than Novocain, the doctor thought about it. “He said, ‘Lean into pain. Don’t run from it.’”

All of which became Russell’s preamble for leading Celadon through the downturn. The company cut its work force 12 percent—roughly to 690 employees from 785. Among other things, it stopped funding its 401(k) plan and cut management bonuses. It shook up the sales force to get more hunters and fewer gatherers. More money was thrown toward eliminating debt.

Celadon also continued to shrink automotive business from the cargo mix. Now, its largest single customer is Wal-Mart, and that’s only 4 percent of the business.

“The reality is, we leaned into the pain. We didn’t run from it,” Russell said.

Shift or stall-out

Roger that at Venture Logistics.

Williams estimated that 5 percent to 8 percent of the company’s work force was eliminated. He credits a fiscally conservative approach to running the business for not having to make deeper cuts.

This was at a logistics firm that grew at a torrid pace in recent years. Between 2004 and 2008, its revenue soared 275 percent, earning it Inc. magazine’s ranking of 17th-fastest growing transportation firm in the nation.

Helping fuel that growth was the 2006 acquisition of Indianapolis-based Oliver Trucking. Oliver over the years not only carried records for RCA and CDs from Sony’s Terre Haute plant, but also established routes on the East and West coasts for the entertainment industry.

Then, in 2007, Williams’ firm acquired a terminal on the northern edge of O’Hare Airport in Chicago, which “gave us that final gateway in the Midwest.”

Venture Logistics, which also runs trucks between Mexico, the United States and Canada, diversified its once-automotive-heavy customer base, carrying more retail and dry goods. The company also became more adept at putting multiple customers’ goods on a single trailer that might not otherwise have operated fully loaded—maximizing trailer usage.

Venture also took on more logistics work involving packaging and repackaging items.

“We’re trying to do as many value-added things as possible,” Williams said. “We’ve really tried to reinvent ourselves in the last two or three years.”

Reinvention is also under way in the moving and storage end of the industry.

Indianapolis-based Wheaton World Wide Moving was able to better weather the downturn in the household- and corporate-moving sectors by picking up big chunks of work from the military, contracts that accounted for about 65 percent of its business last year.

The 115-employee company was able to avoid layoffs. While the industry as a whole fell an estimated 15 percent, Wheaton’s business was up almost 1 percent, said A.J. Schneider, Wheaton’s vice president of sales.

But military and government business is unpredictable. Wheaton this year wants to light a fire under its household moving business.

“This is a very old industry. People are used to having the phone ring, and it’s not ringing anymore,” Schneider said.

So the old barrel-chested business is turning to social media to reach potential clients—sort of like Methuselah texting on an iPhone.

Wheaton for years has had the blessings of Good Housekeeping, and regularly advertised in its magazine. But Wheaton now puts more ad money into an online version of the magazine’s home and garden section. It’s created a kit for its 250 moving agents around the country to appeal to prospective clients online, as well as social networking sites.

It hired Michelle King, who runs the all-woman Shelle Design, an advertising firm in Rushville, to tap her expertise on how to target women, in particular, who tend to have the most influence on moving decisions. Wheaton will seek a place in their hearts through “Webisodes.”

“Moving is an emotional issue,” Schneider said.

Wheaton is even analyzing the ways of upscale women’s retailer Kevin Cole. The chain cleverly sends to a woman’s e-mail address—often before she’s arrived home—a special offer based on something she’d just bought minutes earlier at the store.

Recovery on doorstep?

Exactly when the trucking industry starts to show a sustained recovery is anyone’s guess. Russell, during a recent conference call with analysts, did offer some positive signs, including an increasing shift of production from China to Mexico. Celadon has even resumed business with big former client Chrysler, which is boosting production in Mexico and plans to build Fiat models there. Still, Russell sees the prospect of additional trucking failures in the near term, when many vulnerable firms won’t be able to afford to renew license plates for their fleets.

Last month, KeyBanc transportation analyst Todd Fowler said volumes are improving above his expectations, with strong movement in cargo such as chemicals, paper and industrial goods.

Increased volume coupled with the failure of numerous trucking firms could result in demand’s outstripping supply as early as next quarter—the first time in more than three years.

“We feel maybe things have at least bottomed,” Williams said. “We feel very confident as 2010 progresses, and perhaps in 2011 we can look at more expansion opportunities.”•

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