With the recent bankruptcy filings of Al’s Cartage of Kitchener, Ontario and Alvan Motor Freight of Kalamazoo, Michigan, two more well established family run regional LTL trucking firms appear to have been claimed by the high cost of fuel and the current freight recession. Al’s Cartage was an 80 year old southwestern Ontario LTL carrier while Alvan had been around for 67 years and had terminals in Michigan, Ohio, Indiana and Illinois.
What is interesting is that the demise of each company appears to be tied in part, directly to a business decision to focus on the automotive industry. A traditional LTL and container carrier, Al’s Cartage made a huge mistake by going after auto parts work a few years ago, admitted the company’s President, Norm Frohlich in an interview with Todaystrucking.com. It wasn’t long before Al’s was “squeezed out” of the cutthroat sector. “It cost us a lot more than it was worth,” he stated. Al’s tried to revert back to its old lanes, but to little avail. “We were pretty well back to where we started, but we just couldn’t get the volume back up fast enough. The expenses were there, but the volume wasn’t.”
Alvan President and CEO President and CEO James Van Zoeren indicated that the 87 day strike at American Axle, one of Alvan’s top customers, was deadly. “The American Axle strike is absolutely killing us because of the trickle-down effect with the closure of General Motors plants and how that impacts our customers who are first- and second-tier auto-parts suppliers,” Van Zoeren said.
However, it was clear that there were a number of other forces at work that contributed to the closure of these two companies. “Alvan was quickly becoming a dinosaur. Our ability to compete with much larger carriers than ourselves was becoming compromised. Our costs were higher and we were struggling to keep up on a technological basis,” said Van Zoeren. The general state of the economy in the U.S. Midwestern states was also not helpful.
Overcapacity in the trucking industry has also resulted in increased competition, intense pricing pressure and margin erosion. In addition, the financial crisis in America is resulting in reduced liquidity and more limited credit options for trucking companies. For Canadians, the slumping U.S. economy and the high Canadian dollar are limiting exports making it even more difficult for cross-border carriers to find export loads to the U.S.
There appear to be several lessons to be learned from the departure of these two companies.
1. It is important to maintain a diversified customer base to minimize the impact of a downturn in a particular sector of the economy. It can be very risky to bet the farm (or trucking company) on one specific industry no matter how large and attractive it may appear to be.
2. As a small to medium sized regional LTL carrier, it is important to have a strong niche where the company is able to differentiate itself and achieve some economies of scale.
3. If the company cannot achieve critical mass and establish a core competence in a specific industry vertical or geographic area, it may be best to form a strategic alliance or merge with a stronger player before the wolves are at the door.
Clearly there was much more at play than the current freight recession when you peel away a few layers of the onion and look at what contributed to the departure of these two well known industry names.