“Insanity is doing what you‘ve always done, the way you‘ve always done it, and expecting things to get better.” -Bill Abberger.
There‘s been a slowly building tsunami of events reshaping the truckload market as we know it over the last decade and as a result carriers are being forced to radically re-examine their operations to stay profitable and remain viable entities for the future.
Werner Enterprises nicely outlined many of the issues that are causing such a dynamic shift in the way truckload carriers must do business today in its year-earnings report. Now, being a publicly traded company, the company stresses that it‘s only addressing these issues in terms of its own personal outlook - not in any way trying to draw a picture for the whole industry. Still, it‘s worth looking at how these trends reshaping Werner‘s business are indeed doing the same for the truckload industry as a whole.
“The year 2007 proved to be extremely challenging for the trucking industry and Werner Enterprises, as the downturn in the housing sector and the increased truck capacity that resulted from the 2007 truck pre-buy were among several key factors that contributed to a soft freight market,” the company said in its earnings report.
“By far, the most challenged of our asset-based divisions in 2007 was our medium-to-long-haul Van fleet, which is our irregular route, 48-state, solo driver fleet,” the carrier continued. “While the current weakness in freight volumes can be attributed to recent trends, freight volumes over the past decade in the medium-to-long-haul Van fleet have been affected by several factors.”
Those factors include:
· The continuing decline in length of haul due to the regionalization of freight by the big box retailers.
· The rapid growth of imported products shipped through ports using ocean containers that carry goods intact into the domestic U.S. Although a very high percentage of these ocean containers are currently transported empty back to the ports, this cost structure is beginning to change as railroad and ocean carrier contracts are renewed. This change could lead to more transload opportunities from the ports if freight shifts away from intact container shipments to truckload trailer shipments.
· Growth within the intermodal sector.
Because of these longer and shorter-term trends, the relative size of Werner‘s medium-to-long-haul dry van fleet has dramatically changed over the past 10 years. Back in December 1997, the carrier said its medium-to-long-haul Van fleet was approximately 58% (3,100 trucks) of its total fleet size. Today, following fleet downsizing in November 2007, Werner‘s medium-to-long-haul dry van fleet numbers 2,250 trucks - but that accounts for only about 27% of its total fleet now. From mid-March to December 2007, Werner effectively reduced its medium-to-long-haul fleet by 750 trucks.
But that‘s not the whole story. Werner is also totally reorganizing how its different divisions support one another in the market - for, in the carrier‘s own words, while it remains difficult to earn an adequate rate of return on assets and operating margin measured solely on its own, the value of the medium-to-long-haul dry van fleet to Werner is greater than the sum of its parts.
Werner said its regional fleets (shorter length of haul van capacity based in five specific geographic regions) rely on our medium-to-long-haul dry van fleet freight base for additional volumes, equipment maintenance routing, equipment replacement cycles, and weekend mileage production. Freight volumes in Werner‘s regional fleets gradually improved during 2007 - supporting the 20% fleet growth that occurred during fourth quarter of 2006.
The carrier‘s expedited “Team Werner” operation (longer-haul, time-sensitive, team driver service) also relies on the medium-to-long-haul dry van fleet for pre-staging of expedited shipments, repositioning team trucks into critical team lanes, and utilizing our medium-to-long-haul dry van freight base to help smooth their freight volumes. Werner noted its expedited division experienced 18% growth during 2007.
Finally, Werner‘s dedicated fleet - assets under contract for the sole purpose and use of the customer - also relies on our medium-to-long-haul dry van fleet for flex trucks and surge capacity for our dedicated customers, especially due to its ability to rapidly place hundreds of trucks in a geographic region to meet the needs of dedicated customers. “Our dedicated fleet also relies on our medium-to-long-haul [dry] van freight base to fill backhaul lanes, thereby limiting empty miles and reducing costs for our dedicated customers,” Werner said.
All of this helps Werner‘s effort to further diversify its service offerings - thus minimizing the impact cyclical swings in truckload demand can have on its bottom line. Today, Werner said its dedicated operations account for 35% of its overall revenues, with Mexico and Canada international shipments accounting 9% of revenues, and logistics through our value added services [VAS] division making up 11% of revenue. “[That] helped soften the impact of a less favorable freight market in fourth quarter 2007, while providing increased service offerings to our customers,” Werner reported. “We intend to continue to diversify and grow dedicated, international truckload and VAS.”
It‘s tough to adapt to the huge market shifts going on in the truckload sector today, but Werner certainly seems ahead of the game in terms of re-orienting itself to benefit from all the business changes occurring right now.