Weaving a “spider’s web”

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We have meticulously designed a trucking network referred to as the ‘Spider Web,’ which targets specific traffic lanes based on the pricing and volumes associated with those lanes. Once we transition our business from many of the less profitable lanes we currently serve to the ‘Spider Web’ lanes, we expect considerable improvements in our base revenue per mile, among other factors.” –Cliff Beckham, president and CEO of truckload carrier USA Truck Inc.

It’s an interesting concept truckload carrier USA Truck is trying to bring to life: a “Spider Web” of interconnecting network of short-haul routes that should – if all goes well – allow the company to increase profitability.

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I tried talking to Cliff Beckham, USA’s president and CEO, about the “Spider Web” concept but (not surprisingly) he’s been busy with other things – which include, at the moment, keeping USA’s head above water long enough for its new lane structure to start reaping benefits.

Like for everyone else in the trucking business, 2009 proved a tough year for USA. It lost $2.5 million on 8.3% lower revenues of $85.1 million in the fourth quarter last year compared to the same period in 2008. For all of 2009, the company lost $7.2 million on 16.6% lower revenues of $331.5 million, compared to profits of $3.1 million on revenues of $397.6 million in 2008. Not happy numbers, for sure.

Still, USA’s been working gamely over the last few years to retool its entire operation as part of its “Vision for Economic Value Added” or “VEVA” strategic plan, which includes – among other things – significantly reducing accidents to drive down the cost of insurance and claims.

[That safety effort – dubbed by USA as a War on Accidents – is definitely reaping big rewards. Launched almost three years ago, it’s resulted in USA reducing its frequency of our DOT reportable accidents by 33.3%, when comparing fourth quarter 2009 numbers to fourth quarter 2007 numbers: helping the carrier reduce insurance and claims expense by 210 basis points year-over-year, or approximately 11 cents per share. That’s not too shabby, if you ask me.]

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Yet the big ticket item in USA’s plan to return to fiscal health – and stay there – is the “Spider Web” plan, which again amounts to shifting the company’s focus from long-haul to short-haul freight; redesigning its freight lane structure accordingly, shrinking the number of lanes it serves down from a once-lofty 6,000 to merely 1,400.

“We are transitioning our trucking operations to shorter length-of-haul traffic lanes where freight is more abundant,” Beckham noted in the company’s year-end earnings report. “Year-over-year, our length-of-haul declined 14.2% to 594 miles. To counter this decreased length-of-haul, in early 2008 we launched Project Velocity to enhance our ability to dispatch more loads; a necessity in a shorter-haul operation.”

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Project Velocity – a key part of the "Spider Web" concept -- measures the number of times USA loads its fleet each week. During the fourth quarter of 2009, USA said it improved its “Velocity” metric 13.2% to 3.0, though that is still short of its goal of 3.8. “While we have yet to win enough freight through the customer bid process to counter the falling length of haul, we are making progress,” Beckham said.

This is where the "Spider Web" process comes in, as it then creates specific traffic lanes based on the pricing and volumes associated with those lanes. “We introduced this network to our employees in August 2009 and once we transition our business from many of the less profitable lanes we currently serve to the ‘Spider Web’ lanes, we expect considerable improvements in our base revenue per mile and Velocity, among other factors,” Beckham noted.

To date, the carrier is starting to see results from this endeavor. Year-over-year, its trucking base revenue per loaded mile and trucking base revenue per total mile improved in the fourth quarter last year, up 0.7% and 2.8%, respectively – actually increasing in every quarter of 2009, despite the economic downturn.

“Our lane density, a critical factor in our network design, currently consists of approximately 4,500 lanes; however, it is still well above our goal of 1,400 lanes,” he said. “Before we introduced the Spider Web [concept] in August, approximately 34% of our loads were moving in Spider Web lanes. By the second half of December, that percentage improved to approximately 39%.”

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Yet Beckham is also well aware that many challenges remain to making this concept a success. “Our ability to transition to the Spider Web is dependent on our ability to win the right freight through customer freight bids,” he stressed. “To date, the results of our fourth quarter bids have been encouraging. The number of loads moving in Spider Web lanes in early January has continued to improve. We have added volume in the right lanes, and industry conditions are slowly improving.”

In fact, Beckham noted that seven of USA’s 10 largest trucking base revenue weeks in 2009 occurred during the fourth quarter, with utilization trends turning positive in late November. During the first three full weeks of January 2010, the carrier also experienced trucking base revenue growth when compared to the same weeks in 2009.

"We believe industry conditions have bottomed. However, tractor capacity remains abundant and pricing pressure remains severe,” cautioned Beckham. “We anticipate our first quarter results will be similar to our recent quarters and there will likely be sequential downward pressure on industry pricing as lower priced third and fourth quarter bids take effect. However, we also believe the imbalance between industry tractor capacity and freight demand will gradually improve throughout 2010 as businesses begin restocking inventories and as unsustainably low freight pricing and rising fuel prices begin thinning industry capacity.”

Needless to say, USA’s effort to shrink the size of its lane network, while also shortening its length of haul, all while boosting profitability, will be tough to accomplish in this still-difficult economic environment we’re in. It’ll be interesting to see if they can pull it off.

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