Cross-border truckload carrier Celadon Group is working hard at capacity growth these days. It bought two regional carriers in 2002 and 2003, along with part of a third this year. This is a part of an ongoing industry trend as smaller players leave the market for good and are not being replaced, states Celadon’s chief executive.
“The analogy I like to use is the one of the melting snow and mountain streams that feed the big river,” explained Steve Russell, Celadon’s chairman & CEO, in an interview with Fleet Owner at the company’s headquarters in Indianapolis.
“In the past, you had all of these trucking companies. Many of these were small- to medium-size carriers that fed their capacity into the overall capacity available from the trucking industry. This is the ‘big river,’ so to speak,” he explained. “You may have had small carriers that ‘dried up’ through bankruptcy or by selling out to a larger company, but you always had new ones forming behind them.”
Today, he said, those “small streams” of small- to medium-sized carriers are drying up for good and are not being replaced. This lowers the overall trucking capacity available from the “big river” that is the trucking industry.
“It’s much harder for the ‘have-nots’ to become ‘haves’ in this industry now,” Russell added. “For example, I started this company almost 20 years ago with $40,000 in the bank and 50 trucks. Within three years, I had 600 trucks. You just can’t do that anymore: the technology needs of this industry are so much higher, insurance and fuel costs have skyrocketed, and drivers are much harder to find. It’s totally changing the dynamics of this industry.”
Celadon is coping with these changes by focusing more tightly than ever before on finding high-quality safe drivers– largely by buying up smaller carriers. Buying the trucks, trailers, and customer base of Burlington Motor Carriers in 2002, Highway Express in 2003, and the dry van operations of CX Roberson wasn’t nearly as important, in some respects, as gaining the chance to recruit the drivers at those carriers for Celadon’s operations, Russell said.
“The drivers were almost more valuable than the assets,” he explained. “We attribute much of our success to our driver-focused culture: recruiting safe and experienced drivers, providing the opportunity to drive new equipment, and offering competitive compensation and lifestyle programs. We believe the benefits of our culture show in driver turnover of less than 80% for 2004 compared with an industry average of 121% as reported by the American Trucking Associations.”
It’s also helping the bottom line, he said. For the first six months of fiscal 2005, Celadon’s net income increased to $5.5 million on 10% higher operating revenue of $211.3 million, compared to a loss of $4 million – caused by a $6.9 million trailer write-off charge – for the first six months of fiscal 2004. For its second fiscal quarter in 2005, Celadon net income nearly doubled to $2.8 million on 10% higher operating revenues of $106.9 million – boosting earnings by 42% to 27 cents a share.
“Low turnover and a strong safety program are important corporate and social goals, but we also believe they help improve our bottom line by reducing costs, contributing to keeping our trucks seated with drivers, lowering insurance and claims costs, and improving customer service,” Russell said. “We intend to continue to strive for an environment where valuing and fairly compensating our drivers contributes to strong morale.”
Russell also pointed out that Celadon was awarded first place in the 2004 Truckload Carriers Association’s National Fleet Safety Award for carriers with over 100 million miles – the third time in four years that Celadon received a safety award from TCA and an indicator of how the company benefits by focusing on recruiting safe drivers.
“Looking forward we see freight demand expected to continue to grow at least as fast as industry-wide truck capacity,” he said. “With the additional drivers (over 220 to date) and freight from the CX Roberson acquisition, we feel good about our revenue growth prospects for the remainder of our fiscal year and into fiscal 2006, as well as the environment for additional rate increases.”