Truckload of Troubles : America’s...

Sterling Transit, a longtime California trucking firm, had an enviable safety record--the company won a safe-driving award from the California Trucking Assn. last year--but it wasn’t enough to steer it away from disaster.

Last November, the 57-year-old Montebello trucking company slammed into a mountain of debt and closed its doors, one of 1,000 trucking firms nationwide to do so last year.

Ten years after the federal government lifted most of its restrictions on interstate trucking, the industry is still in turmoil. Intense competition among trucking companies has led to vicious rate wars that have weakened some firms and wiped out thousands of others.

Besides fighting it out among themselves, a large number of trucking companies face increased competition from railroad intermodal networks. With special flat cars, railroads transport container cargo inland after it arrives on ships from overseas.

A few years ago, virtually all container cargo was shipped by truck. But now, said Bernard Campbell, a transportation analyst with the consulting firm Data Resources in Cambridge, Mass., “the railroads have gotten their acts together. In many cases, they are just as quick and cost-efficient as trucks.”

Trucking executives said in interviews that when the lengthy, post-deregulation shakeout is finally over, only two kinds of companies--nimble local firms and national giants--will remain. These executives said continued rate wars will drive regional firms--such as Sterling Transit--out of business, or into the arms of larger, acquisition-minded competitors.

Jerry Lundberg, owner of Sterling Transit, said deregulation helped kill off his firm. Lower-cost, non-union trucking companies were able to attract his regular customers with lower rates. Last year, Sterling lost 10 accounts worth a total of $300,000 a month--one-quarter of its monthly revenue. “We simply couldn’t compete,” he said.

Other companies have disappeared through mergers. In California, one of the strongest regional carriers, Viking Transit of San Jose, was gobbled up in 1988 by Roadway, one of the nation’s top three trucking companies. More recently, Los Angeles-based Transcon agreed to buy Coastal Corp.’s money-losing ANR Freight Systems in a deal that would create the country’s fourth-largest trucking firm. (The acquisition is being contested in federal court, however, by an Illinois investment firm that claims Coastal had agreed to sell ANR Freight to it.)

Deregulation has not been a disaster for all trucking firms. Given the freedom to operate anywhere in the country and to set rates, a number of companies have grown and prospered. The big firms, such as Consolidated Freightways, Roadway and Yellow Freight, have especially benefited from deregulation because they have the financial wherewithal to withstand rate competition and the size to compete in many markets.

Smaller firms have grown in a deregulated marketplace by carefully selecting their market and watching costs. Donald Freymiller, owner of a Bakersfield firm that transports refrigerated freight, said deregulation has allowed his company to grow from 95 trucks in 1980 to 625 today. “Those who cry foul haven’t learned how to curtail costs,” he said.

Consolidated Freightways, based in Palo Alto, has probably pursued the most aggressive expansion plan since deregulation. It has broadly diversified from basic long-haul service into regional trucking, ocean shipment and air freight, evolving from simply a trucking concern into a well-rounded transportation company.

Consolidated’s February, 1989, acquisition of Emery Air Freight, for example, is an integral part of the company’s plan to expand in Europe. Consolidated President and Chief Executive Lary R. Scott envisions a network that would fly goods from the United States to Europe on Emery, then deliver them on Consolidated’s trucks.

Other large trucking companies have taken a more conservative approach.

Yellow Freight, the nation’s largest trucker, has no intention of straying from its specialty, long-haul trucking.

Bob Burdick, Yellow Freight’s marketing vice president, said part of the reason that Yellow, headquartered in Overland Park, Kan., has not diversified is that it was not prepared when deregulation occurred. Unlike its chief rivals, Consolidated and Roadway, it lacked a terminal and communications network and needed to play catch-up to compete with them.

“We will continue to emphasize our core business” and, unlike Consolidated, “we will not set up regional companies,” Burdick said. “Each company is pursuing its own strategy and, in time, the stockholders will decide which was the correct course of action.”

Transcon, Consolidated Freightways and Yellow Freight are among the firms that focus on delivery of small shipments for a variety of customers. Known in the industry as less-than-truckload carriers, these firms collect shipments from customers and distribute them from a central terminal in much the same way that United Parcel Service gathers and delivers packages.

The less-than-truckload business is generally in better financial shape than the rest of the trucking industry, primarily because fewer companies focus on it. One reason is cost. The ability to efficiently juggle many deliveries for many customers requires investment in sophisticated computer equipment. Often, the less-than-truckload carriers supply their customers with computer terminals so they can track their shipments themselves.

The costly equipment is essential, trucking executives say. “If we didn’t have it, we wouldn’t be in business right now,” said Scott of Consolidated Freightways.

However, the less-than-truckload business is not immune from the rate wars that have bothered the rest of the industry.

The rate wars are a direct result of government deregulation, which gave shippers the right to negotiate rates. Deregulation also opened the door to many new trucking firms, creating an increase in capacity and more rate pressure.

Trucking firms routinely bargain rates down to capture business, at the expense of profits. Last year, a 4.7% rate increase announced in April by less-than-truckload shippers was discounted away by late fall.

In some markets, trucking firms charge special weekend rates that are nearly half the regular rate to keep trucks from sitting idle when business is slow.

This year, trucking firms have raised rates 5% to 7%, in part to cover fuel costs. But trucking executives say they are not sure that the increase will remain in force, especially if the economy slows.

“We’re concerned,” Scott said. “Our profits are not what they should be. Something has to happen to stop the rate erosion.”

The pressure on profits has led trucking firms to trim costs where possible. Freymiller Trucking of Bakersfield replaces its fleet every two years to keep fuel and maintenance costs low. The fuel efficiency of its fleet has doubled since 1980, owner Donald Freymiller said.

He also said his liability insurance rate has fallen sharply since 1985, when he started testing his drivers and job applicants for drug use. (Federal law requires all trucking firms to test employees for drug use beginning this year, although the start of those tests has been delayed by legal challenges.)

Many trucking firms have taken aim at labor costs, which normally account for about 47% of a company’s operating expenses.

A growing number of trucking firms are giving employees a stake in their future through employee stock ownership plans or profit-sharing programs, in return for wage concessions. But those solutions don’t work if the company isn’t successful.

Sterling owner Lundberg said his company’s 180 drivers took a 13% wage cut two years ago in return for an ownership stake, but it wasn’t enough to keep the company going.

Consolidated Freightways took an unusual approach to lowering its labor costs. Rather than expand its network by selectively buying regional firms, it started new companies from scratch--but with non-union labor.

Employees of these regional companies, which are called Conway and specialize in overnight delivery, earn nearly as much and have many of the same fringe benefits as Consolidated Freight-ways’ long-haul drivers, Scott said. But the Conway drivers aren’t restricted by union work rules that limit their tasks. For example, the non-union drivers also load and unload freight.

Surprisingly, Consolidated Freightways’ tactic hasn’t ruffled the Teamsters Union, which represents most union drivers but hasn’t tried to organize Conway. California Teamsters official Alex Ybarolaza said he understands Consolidated’s strategy and that it seems successful. But in general, he said, non-union workers earn less and have fewer benefits than union workers.

Deregulation has led to some unusual alliances. Two months ago, J. B. Hunt Transport Services, a full-truckload company, joined forces with its traditional rival, Santa Fe Railway, to form a door-to-door delivery service for business customers. Rather than compete with the railroad along the Los Angeles-to-Chicago route, J. B. Hunt will pick up and deliver freight transported between those two cities by rail.

Campbell, the trucking industry analyst, said he expects other truckers to seek similar deals. “It’s hard for truckers to attract drivers to these long-haul markets, and the competition is cutthroat. Why not back away a little bit and form a venture where they can have a better chance of making money?”

As the scores of trucking failures testify, not every company is doing well. Even large companies, burdened by high labor costs and a lack of modern equipment, have trouble. For example, many trucking industry analysts question the proposed merger of Transcon and ANR, two money-losing companies.

Executives at Transcon say they think that they can consolidate the two companies’ distribution networks, cut the fat and make money. But industry watchers wonder whether Transcon can actually pull off the financial alchemy and turn the red ink into black.

“It is going to be very difficult to put the two companies together,” said George G. Morris, an analyst with Prescott, Ball & Turben, an investment firm in Cleveland. Morris described Transcon as having been in “financial free fall” before the merger.

“If we go through another recessionary period, it will very difficult,” he said. “I guess only time will tell.”