Article

Won't Give It Away

Heartland is operated with an eye toward long-term profits instead of short-term cash flow.

March 2006, TruckingInfo.com - Feature

by Russ Gerdin Chairman & CEO Heartland Express Inc.

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Russ Gerdin doesn't consider himself much of an innovator, despite the fact that his company, Heartland Express, continues to enjoy the lowest operating ratio in the truckload industry. But accomplishing that has more to do with attention to details than with innovation, insists the chairman and CEO.

Yet when you talk to Gerdin, it's obvious he looks at things a little differently than the pack. For instance, take his remarks at the Merrill Lynch Global Transportation Conference last summer.

"It blows my mind on a daily basis, everyone crying about a shortage of drivers," he said. "It seems to be a sickness within the truckload industry that we truckers have to haul all the freight – it doesn't matter if it pays, we just have to haul it. So in order to do that, we have to hire a whole bunch of bad drivers to haul a whole bunch of bad freight."

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When asked about those remarks, Gerdin told us, "It seems like the trucking industry as a whole doesn't do a real good job of containing themselves when they've got all kinds of drivers. They just buy trucks and start hauling freight. They haul a lot of bad freight to be able to say they have X amount of trucks."

The number of trucks a fleet has is immaterial, Gerdin says. It's how you use them that counts.

"There's a lot of ego in trucking," he says, leading in essence to a competition to see who has the most trucks. "If you ask people whether a company is making money or it's broke, everyone knows. But if you ask the same people how many trucks that company has, nobody knows."

In 2005, Heartland's operating revenues rose 14.6 percent to $523.8 million, and its net income increased 15.1 percent to $71.9 million. Its operating ratio – 80.1 percent, with a 13.7 percent net margin.

In fact, a driver shortage is not such a bad thing, Gerdin says. "The driver shortage makes you realize you have to provide a better living for the drivers, and then you have to charge more." Higher rates mean not only better pay for the drivers, but a better bottom line for the trucking company.

"We don't know of anyone that pays [drivers] more than we do in the overall package."

Heartland gets what it pays for, Gerdin says, in the form of lower turnover and more experienced, safer drivers, which also leads to better insurance rates and better customer service. "We don't hire any trainee drivers, so we're paying more to get the experienced driver. We're willing to pay to get that kind of a driver." And they're willing to let drivers go who aren't up to snuff. "We let a lot of drivers go because they've had two or three late loads. Most people don't do that. We're constantly culling to have the best workforce of all."

Better drivers also allow Heartland to save money on the number of people needed on the administrative side. Most trucking companies average six non-driver employees per truck, Gerdin says. At Heartland, that number is three and a half. "So we have 40 percent fewer people doing the same amount of gross volume. Our philosophy is to have fewer people, which lets you take better care of those people and have better people to make decisions."

Much of Gerdin's different approach to trucking comes from growing up in the business. "Every time Dad got a dollar, he bought another truck, and all he did was build up a bank," he says. "I worked for him the first year out of college, and at that point we agreed to disagree. I think you should have no debt, have new trucks and not be working on them all the time. Dad believed you should have debt and work on trucks all the time. Maybe that's what shaped me, was watching how hard he worked. I watched him work like I see so many truckers doing today. The lesson I learned from him was doing the opposite of what he did."

Having no debt is a big part of what allows Heartland to operate differently, with an eye toward long-term profits instead of short-term cash flow. "When I started 40 years ago, I bought one truck, and when I got it paid for, I bought another one," Gerdin says. "We can have a new truck sitting out there, and because it's paid for, if we don't have what we want for rates and we don't have what we want in a driver, that truck can sit there."

Heartland also operates only new trucks, which brings maintenance savings. "We don't run our shops in the evening or on the weekends. Everyone says you can't do that, but we do," Gerdin says. "It's awfully expensive to have night shops. It's a known fact they're twice as inefficient as a day shop."

The company also carefully specs its trailers to last longer and need less maintenance, rather than cutting corners to get a cheaper purchase price.

Gerdin was 25 when he bought his first truck. He has no plans to retire. Though he's seen a lot in the last 40 years, he says, some things don't change.

"There is not anything new in the trucking industry," he says. "The driver still drives; he's still the key. The load has to get there on time. And it's been that way as long as I've had trucks. We see too many ideas that are going to revolutionize something that has not been revolutionized at all."

The key to success, he says, is not running after every new innovation, but "just to be better at what you do in many, many small ways."

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