Is There Room For Midsize Fleets?

Many equate size with success in the truckload business, but don't be too quick to count out the smaller fleets.In the fiercely competitive world of for-hire trucking, fleets running 25 to 100 or so vehicles would seem to be in an unenviable position. They're too large to escape the overhead that comes with a full-time management and operations team, yet they're too small to enjoy the economies of

Many equate size with success in the truckload business, but don't be too quick to count out the smaller fleets.

In the fiercely competitive world of for-hire trucking, fleets running 25 to 100 or so vehicles would seem to be in an unenviable position. They're too large to escape the overhead that comes with a full-time management and operations team, yet they're too small to enjoy the economies of scale that come with big fleet purchases. But with the proper attitude and approach, many midsize fleets are finding that being neither big nor small has its advantages too.

Trucking, especially in the area of contract carriage, has become a volatile business, with shippers constantly on the lookout for a better deal, and with freight patterns changing and evolving in response to a variety of economic forces. For midsize fleets, it's just that volatility that keeps them prospering, according to a number of fleet owners and executives.

"We're an old company that's been here for a long time," says Bill Rossi, president of Rossi Trucking, a flatbed carrier with 16 tractors and 16 trailers headquartered in Barre, Vt. "Our size lets us tailor our service so we can avoid direct competition for the most part," he says. "But that also means we're changing what we do all the time because the industry is always changing."

For example, Rossi specializes in hauling construction materials throughout New England. Not too long ago, much of the fleet's business involved crossborder hauls into Canada. However, the drop in the Canadian dollar's value "has killed the export market, so we don't have that business anymore," says Rossi. "We've got to be ready to change because we're dependent on market conditions at all times."

Technology is another area of change that can't be ignored, Rossi believes. "It's expensive, but you need it if you're going to run efficiently and stay in business," he says. Wireless communications -- Qualcomm's satellite service in Rossi's case -- "has made us more like a taxi company. Customers call and we move it. In today's market, you can't just put freight on a truck and hope it gets there."

That need to anticipate changes in customer service requirements has also prompted Rossi to invest in new technology back in the office. "And we're going to have to invest more in new software and systems," says Rossi. "That's the future."

Thibodaux, La., is about as far away as you can get from Vermont in terms of weather, terrain, and accent. But Sandy Arabie, the president and founder of Arabie Bros. Trucking, speaks the same language as Bill Rossi when it comes to surviving and prospering as a midsize fleet. "Your company and your equipment have to be versatile," says Arabie. "You have to be willing to change and grow with the times and your customers."

When Arabie started 18 years ago, he had one dump truck and concentrated on construction work. Today, the fleet has 20 tractors, an assortment of dump, bulk, and van trailers, and five dump trucks. "We still do some construction work," says Arabie, " but it's not a major portion of our business. Construction is seasonal, and we've tried to get some stability by going after year-round business."

A large portion of the fleet now services the sugar industry, hauling cane from the fields to sugar mills and then hauling raw sugar from the mills to refineries. "We even haul the bag-ass -- cane fiber residue -- from the mills to fiberboard plants," says Arabie.

Arabie also has six tractors dedicated to an air freight contract, making overnight hauls between New Orleans and Dallas with shipments that don't make it onto the aircraft for one reason or another.

"We don't see much competition from larger fleets," says Arabie. "I'd guess you'd say that service has been the key to our success. We're not the cheapest, but we do a good job for a good price. We know our customers' businesses and what they expect."

While midsize fleets sometimes find it hard to obtain capital to invest in new trucks, Arabie believes that the only way for a fleet his size to succeed is to keep safe, reliable equipment on the road. "You have to keep your trucks well maintained so they can run and make money for you over the long term," he says. "We finance new equipment over four years and then run it another four years. And we still have a decent residual value because of the way we maintain it. Because people know us and how we maintain our trucks, we rarely trade anything out. We almost always find a local buyer.

"But you need a steady level of business at a price that includes a profit to do that," explains Arabie. While he's not afraid of competing with larger and smaller carriers for that business, Arabie wants to make sure that shippers are making an apples-to-apples comparison when choosing a fleet. As this year's president of the Louisiana Motor Truck Assn., his focus is on encouraging tighter truck-safety enforcement "so that those of us who are committed to running good equipment don't have to compete with unscrupulous carriers."

As for the future of the company, substantial growth isn't in the plans, "unless we find other customers with steady freight," says Arabie. "If we grow too much, we might lose the quality of service that got us the business in the first place. We could end up losing both business and profitability."

Still, as a midsize fleet with a sharp focus, "the last few years have been some of the best we've ever had, and I feel real good about the next few years," says Arabie. "If a trucking company like ours can't make money now, they don't want to."

Less is more Sometimes the agility that comes from being a midsize fleet allows a carrier to survive and even prosper by downsizing rather than growing. Five years ago, Cuddeback Trucking, a flatbed hauler in San Diego, had 30 tractors. Today, the fleet has 15.

"The economy, especially here in California, hit the skids," says Bill Cuddeback, who started the company 20 years ago. "The people we did business with all cut back. Fortunately, I'm a pretty conservative guy, so we didn't have much debt, and we were able to survive the downturn by shrinking."

Now that the economy is better, controlled growth will bring the fleet back to the 30-tractor level in about three years, Cuddeback estimates. "We'll get there on service," he says. "We're going after more Mexican freight because it can be hard to deal with and we feel we have expertise that others don't."

Despite his conservative nature and a tight freight market, Cuddeback says "investment in new technology has been absolutely necessary." The fleet has already spent money on satellite communications for its tractors and new computer systems for the office. "And it's not over," he says. "It's become an ongoing part of the business."

Leon Johnsrud says he's "never had a desire to be a huge operation." The fleet he started in 1963 -- Johnsrud Trucking of Des Moines, Iowa -- is an 88-tractor tank fleet that specializes in hauling food grade materials that require careful temperature control. "We've been asked to look at two deals in the last six months that would have doubled our size, but we're not interested," he says.

"Everyone talks about how many trucks they've got," says Johnsrud. "I call it the Wal-Mart game -- low prices and high volume, trying to have something for everyone. Very few can accomplish that over the long term. I'm not interested in the gross -- it's those bottom-line numbers that I like."

Instead of rapid expansion, the fleet has grown slowly and steadily with existing customers who value Johnsrud's expertise and service. "I've had customers that I've lost five times over price, but they eventually come back because of the service," he says.

Avoiding one large contract also helps the fleet maintain those good bottom numbers. "We haul for some large companies, but our biggest customer is only 11% of our business," says Johnsrud. "That helps smooth out the ups and downs."

While the fleet sees no immediate need for wireless communications in its operation, it, too, has invested heavily in management technology, matching many larger fleets in computer power. "We've got an IBM AS/400 running McCormick software," says Johnsrud, who is fortunate to have a son with a degree in computer sciences. "And we're ready to go with EDI when customers decide that they want it."

Running a midsize fleet can be a tough business, admits Johnsrud, but he and his family enjoy it. "I've had opportunities to sell out, but I haven't," he says.

With Leon's daughter Jackie now acting as the fleet's president, he says 1997 "is looking real positive for us, at least based on bid requests. We have a lot of customers in the snack food business, and service is the big issue for them, not transportation costs."

Fast track While many midsize fleets feel most comfortable with slow, steady growth, Climan Transportation of Dorval, Quebec, has been growing at 70% a year over the past few years and expects to double in size in 1997. Concentrating on LTL and truckload carriage in the Southern U.S. and Mexico, the fleet is currently running 80 tractors and a similar number of dry van air-ride trailers in mostly JIT operations.

"The shift to JIT has really helped us," says founder and president Richard Climan. "It makes people more dependent on their carrier's service, and the flexibility of our size makes us more responsive to those service needs."

Although the fleet's growth plans are aggressive, they're part of a long-term strategy. "We've been building a customer base over the years, and now we're ready to expand and develop it," says Climan. "We held back until everything -- including a good driver pool and the right equipment -- was in place."

As Climan sees it, contract carriage "is a $2 billion a year business. That's a lot of business to draw from, and there have to be a lot of opportunities there for a smaller, well-respected carrier."

Beyond 1997, Climan believes that additional growth will come from expansion into logistics and warehousing services. "That's where the market is heading -- one-stop shopping," he says.

Baylor Trucking Inc. of Milan, Ind., is as large as it's ever been with 110 company-owned tractors and another 42 under lease from owner-operators. A truckload carrier that has carved out a niche for itself hauling paper and paper products from the Midwest to the West and East Coasts, the fleet has seen no growth for the past few years, according to president Bob Baylor.

The brake on growth has not been lack of business opportunities. "It's been extremely difficult for smaller fleets like ours to get the quantity and quality of drivers we need to grow and still maintain service levels," says Baylor. "It's especially hard in the lanes we run. Not many drivers want to make that run up to New York and Boston."

Despite the tight driver pool and increased price competition from larger carriers, Baylor says he's "cautiously optimistic about 1997." The fleet, started by Baylor's father 50 years ago, has built up a loyal customer base in its niche and is now ready to grow on that record of longevity and loyalty. Like Climan, Baylor expects strong growth this year, although he'd rather not put a percentage on it.

"We sell value-added service," he says. "We sell an excellent on-time record. We sell online tracking and EDI services for shippers. And we see more and more shippers buying into the value of those services."

As different as they may seem, the half dozen midsize fleets interviewed for this story all seem to follow Baylor's formula -- find a niche, build a reputation for service, invest in technology, be ready to grow when business conditions allow, and, above all, be flexible enough to change with your customers. Being neither big nor small may have its disadvantages, but the payoff for following that formula seems to be anything but midsize.

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