October 2013, TruckingInfo.com - Cover Story
In a crowded market, small fleets can’t afford to take their eyes off the competition.
To be a fleet of fewer than 100 trucks in America today is to be a long-tailed cat in a room full of rocking chairs: every move fraught with risk, perils at every turn. Large fleets can outpace, outperform, outbuy, outhire and outlobby the smaller fleets. Enforcement has an easier time picking them off because they tend to lack (for the time being) the sophisticated and disciplined approach to safety and management that are hallmarks of many a larger fleet.
Still, the vast majority of truck fleets in the country consist of 200 trucks or less – more often than not, fewer than 25 trucks. They show no sign of disappearing anytime soon, though odds on their long-term survival seem to be stacking up against them.
One of the fleets we spoke with for this story offered an off-the-record remark that is simply too revealing to omit: “There was a period for us when new trucks were out of the question. We did what we could with maintenance and repairs, and I’m convinced the trucks were safe, but if CSA had been in effect when I started this business, we would not be here today.
“I’m not sure how today’s 5- to 10-truck fleets, with rates the way they are now, are carving out the money they need to make the safety improvements.”
So, if there was a time when an owner-operator could build a small fleet on his or her near tireless energy, perseverance and personal sacrifice, what does it take to grow a small fleet today? According to those we spoke with, it takes wits, an unerring eye on costs, and service, service, service.
A common thread with the successful fleets we spoke to is service. They all say they have established relationships with their customers that allow them to charge more than the prevailing rate. They earn that rate by going above and beyond delivering the service.
Keith Tuttle, president of Motor Carrier Service Inc. of Northwood, Ohio, says, “We do many things for our customers that the huge carriers cannot do. We put a service moat around them to keep others out – the specialty stuff, the last minute calls, the weekend stuff,” he says. “The idea is to make the customer look good to their customers and they will keep coming back to you.”
In another market, where service is harder to differentiate, Rich Hernandez of Mustang Express runs team loads out of El Paso, Texas. With 27 tractor and 55 trailers, he’s hardly the biggest fish in the pond, but that’s not his goal. He wants to keep a reasonable flock of customers happy so his phone will keep ringing.
“For me, it’s about reliability and transparency,” he says. “I can’t haul every load, but the customers who trust me with their freight know I’ll be there when I say I will, and if something goes wrong, I’m on the phone working it out. I believe they appreciate my honesty and effort, because they keep calling back.”
Hernandez says he has a handful of customers that are always shopping for rates. They get the same service as his best customers, but when he has to prioritize something, they won’t be at the top of his list.
Unsavory work, like running the Eastern Seaboard, can pay premium dollars. Look for niches that nobody else wants to handle.
“I don’t spend a lot of time with those customers because I know they will do it again,” he says. “I think my rate is fair. The customer either sees the value or they don’t. I’ve recognized them for what they are and I treat them accordingly. I look after my good shippers and take care of the rest as best I can.” The key, Hernandez says, is knowing the difference.
All three of the fleets we talked to for this article have had good experiences overall with their bankers. Granted, all are now established and profitable companies, but even in the early years, they were able to build on previous good relationships.
Hernandez says his bank set some limits on his growth, and he’s better off today for it.
“When I was starting out, the bank loaned me enough money for two trucks,” Hernandez recalls. “The bank manager said there would be no more until I proved I could handle what I had. ‘Come back in six months and we’ll talk about it again,’ he told me. I’ve worked hard on my credit rating ever since.”
Recently, he was offered an interest rate of 3.8% for some new equipment.
“When you’re starting up, everybody is watching you and you need that credit exposure,” he says. “We made a point of paying all our bills immediately, and it seems to have paid off.”
Jim Pack, president of KF Express in Columbus, Ohio, admits financing can be challenging, with the bank demanding lots of security and personal guarantees.
He says personal guarantees can be risky, so his strategy is to avoid tying up too much of his own money. Instead of buying, he’s soon to take delivery of 100 trucks on a full-service lease program.
“It’s simple and easy and the credit process is fairly streamlined,” he says. “Best of all it doesn’t tie up a lot of working capital.”
Leasing doesn’t work for everyone, but while some might say it’s too expensive, Pack says it works to the strengths of what is currently a 60-truck regional van and flatdeck fleet.
“In a lease, you’re only making payments on the piece of the vehicle that you’re using,” he points out. “The residual drives that. The money factor is basically an interest rate, and the length of the term drives your payment. They are less capital-intensive than buying outright, and I certainly couldn’t afford to maintain our vehicles in our shop for what we pay them on a per-mile basis.”
Pack says his maintenance facility is geared toward trailers, so letting the leasing company worry about the power units is a sensible option.
Drivers, drivers, drivers
Being small poses a few challenges when it comes to recruiting, but there’s a bright side, too. Pack says his company doesn’t have the budget for advertising or big sign-on bonuses, and because the fleet is small, it’s not front and center on drivers’ radar screens.
“The job – regional operation, hourly pay, home most nights – sells itself,” Pack says. “Getting in front of he driver is the hard part. We’re successful with word-of-mouth from our drivers and using local Craigslist ads. They’re both free, too. I don’t have $15,000 for a 30-second spot on satellite radio, but I don’t need drivers in Sacramento, Chicago or Bangor either.”
Tuttle’s fleet boasts a 22% turnover rate, which keeps recruiting and training costs in check. He credits the small size of the fleet for a closer relationship with the drivers and lower turnover.
“My wife and I go to our employees’ weddings and funerals when we can, and we’re very transparent about the operation of the company,” Tuttle says. “We discuss all our costs openly – some say we’re too open – drivers have a say in our tractor spec, and we reward the drivers for good work. It’s how I’d like to be treated by a company. It would be harder to maintain this sort of a relationship with drivers if we were a lot bigger. So I’d call that an upside to our small size.”
In a crowded market, small fleets can’t afford to take their eyes off the competition.
Words to the wise
You won’t find a tutorial video on YouTube about running a small trucking company. Instead, we offer a few parting words of advice – the keys to success – from our three apparently successful small fleets.
Rick Hernandez, Mustang Express: “Being in the business as long as I have, you learn which customers are willing to pay and which ones aren’t. Don’t waste your time hauling freight that’s not profitable.”
Jim Pack, KF Express: “Long before you see financial distress in a company, you generally see maintenance distress, where people are taking a band-aid approach to equipment. It shows up on the BASIC scores before it really catches up with the financials. You have to maintain your equipment today with CSA tracking every mistake you make.
“If you find you can’t keep up with the maintenance, it’s probably time to take a serious look at the financial health of the whole company. Call it an early warning system.”
Keith Tuttle, Motor Carrier Service: “Don’t be afraid to hire people who are much smarter than you are, and let them do what they do really well. I take very little credit for our performance, other than that I hired the right people to make it all happen.
“I give all the credit in the world to my general manager. When he came in here 10 years ago, he more than doubled the size of the company.
“And I would highly suggest fleets look at becoming part of a benchmarking group, and become involved with American Trucking Associations, the Truckload Carriers Association and your state trucking association. You absolutely need to know what’s going on in the industry.”
Running a small fleet today still demands tireless energy, perseverance and personal sacrifice, but that’s no longer enough.
You have to as smart or smarter than competition, regardless of how big they are.
Top 3 barriers to success
We asked each of the fleets what they thought were the greatest obstacles on their paths to success. Access to capital, interestingly, was not one of them. The three cited most often were rate-cutting competitors, the temptation to chase cheap freight, and getting too big too soon.
Keith Tuttle, president of Motor Carrier Service Inc. of Northwood, Ohio, remembers a television commercial that ran in Toledo a while back.
“It was a spot for a used car dealer. It said it lost money on every deal but it made it up on volume,” he recalls. “Doesn’t that sound like trucking?”
Tuttle says his biggest battles are with carriers that want a certain lane and will cut the rate way below market value to get it. “I always get the lanes back after a few months,” he says. “The big carriers want the lanes when it’s convenient to them, not to the customer. My service brings them back every time.”
For Jim Pack, president of Columbus, Ohio-based KF Express, the toughest part of growing is turning down work that seems better than nothing at the time.
“We benchmark a daily revenue target that our equipment has to hit every day,” he says. “When you start straying from the mode you built the business around, you can fall short of the benchmarks.”
Mustang Express started in 2001 when then company-driver Rick Hernandez was laid off. He borrowed money to buy two trucks and started running a team operation hauling Mexican freight to U.S. destinations.
He started slowly, but as his reputation grew, he started getting calls from shippers he hadn’t heard of.
“It would have been easy to borrow more money and expand, but my banker warned me against it,” he says. “I’m thankful now that they didn’t set me up to fail at that early stage. I’ve grown this business one truck at a time as the need arose and I was ready to expand.”
Hernandez says he’s seen fleets spring up and grow to 60 or 70 trucks in a few years and then disappear. “At first I wondered how they did it,” he says. “I could probably get the money to buy 15 trucks in three months, but that would be the wrong thing for me to do.”
Three fleets, three common pitfalls. Each still in the game to talk about the mistakes they realized early on could have killed them.