Have we seen the end of the trucking tycoon?
I was in Indianapolis the other day covering the Green Truck Summit and Work Truck Show, when I checked my voicemail and found a message from Steve Russell, chairman and founder of Indianapolis-based Celadon Trucking. My first thought was ‘Shit, what have I done to piss him off?’ You see, the real big wheels generally only call me when they take umbrage with something I’ve written. But in this case, Steve wanted to talk about the company’s growth plan for Canada and the fact I was in his backyard struck us both as far too coincidental to ignore.
I hopped in a cab and headed over to see him and ended up spending the better part of the afternoon with Steve discussing a wide range of topics. It was a visit that both inspired and energized me, and provided me with plenty of fodder for future blogs.
One of the things that’s been on my mind lately, as we have mourned the passing of trucking pioneers such as Don Schneider and Pat Quinn, is the fact there seem to be very few opportunities for ambitious entrepreneurs to build a trucking company in this current regulatory environment. If you look at the major players today, few were created in the last decade or two and many pre-date deregulation. Opportunities still exist, particularly in underserved niche markets, but the odds are stacked against anyone launching a start-up trucking firm.
It’s often been said that the barriers to entry have become more substantial in recent years. I tend to disagree with that. While the OEMs aren’t giving away new trucks on a promise, as they once were, it’s still easy enough to buy a used truck and find some freight to haul. The barriers to entry haven’t changed substantially, but in my view, what has changed is the barriers to success have gotten far more difficult to overcome.
Trucking companies today face an overwhelming list of societal, human and compliance requirements that didn’t exist in the past. At the same time, costs have risen and as a result, trucking operators no longer have any margin for error. None whatsoever. Think about this for a second: a small fleet or one-truck operator that’s involved in an accident will need to generate $200,000 in revenue to cover the $10,000 insurance deductible, assuming they’re running a margin of 5%. Good luck with that. And that’s not to mention CSA implications and all that other stuff. One mistake can put you out of business.
Another limiting factor when it comes to growth for a small company is the cost of new equipment. Steve grabbed a pen and paper and scribbled out for me the new trade-in formula: In 2006, he pointed out, a new truck cost $95,000 and a three-year-old truck was worth $50,000, so a company looking to upgrade would require a loan of $45,000, which was easy to get. Today, a new truck costs $125,000 and a three-year-old truck is worth $50,000, so the company requires a $75,000 loan and nobody will write it.
Because of this, fleets are hanging onto trucks longer. They then find themselves with a seven-year-old truck worth $20,000 and need a $100,000 mortgage to upgrade to a new truck. Meanwhile, the maintenance costs on a seven-year-old truck are 18 cents a mile compared to five cents a mile on a two-year-old truck, Steve pointed out. The only option for many smaller companies is to start trading in two or three older trucks for one new truck and suddenly a 180-truck company becomes a 150-truck company and so on. How do you grow a fleet under those conditions? It’s nearly impossible, which is why we’re seeing so many acquisitions, where trucks come packaged with drivers to operate them and customers to serve with them.
Steve expects to see the truckload industry undergo significant consolidation in the years ahead. There are currently thousands of truckload providers. Steve thinks there could eventually be only dozens, pointing to the rail and LTL industries of examples of where capacity is controlled by only a handful of providers.
Last month, I asked Dan Einwecther, founder CEO of Challenger Motor Freight if he would be able to replicate his own success if starting out in today’s environment. While he didn’t rule it out entirely, he admitted it would be much more difficult.
“Back then we had a much freer reign in many ways as an industry – whether from a regulatory perspective or compliance – we’d just go. It was definitely a different time,” he told me. “We have more responsibilities placed on our shoulders today, both financial and safety, employment regulations, how we treat our employees, our obligations to society – it’s dramatically more complex.”
When I asked Steve the same question, he was even more cynical. Steve started Celadon in 1985 by leasing 50 trucks at a cost of about $30,000, which by today’s standards would equate to maybe $200,000. Today, he said, to start a trucking company with 50 units, you’d need at least $3-$4 million just to get started. Who, in their right mind, would make such a significant investment for such meager returns?
“That’s why there are very few start-ups,” he said. “What start-up company can you name that has started in the last five years?” I certainly couldn’t name one.
I think of all the great trucking companies today, and how most were built upon a similar foundation: one guy with a truck, a vision and a truckload of ambition. I admitted to Steve I found it somewhat sad that the same opportunities don’t exist today and may never exist again. The glory days of trucking seem to have passed, which to me, as an observer with a passion for the industry, was a melancholic realization. Steve was less sentimental, more philosophical in his response. Look at Facebook founder Mark Zuckerberg, he said. He started from scratch and is worth $20 billion. Same with the founders of Groupon and other tech firms. There are still opportunities to build something substantial from nothing and to become incredibly wealthy, he said.
“But as an asset-based trucking company? Not a prayer.”
So I throw it over to you, folks. As the title suggests, have we seen the end of the trucking tycoon?
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Interesting thoughts, James. I asked Murray Mullen the same question in my year end-interview, but phrased it a little different. With all the mergers, acquisitions and consolidations going on, will trucking eventually be controlled by a few mega-companies? His answer was what I figured. To summarize, he said trucking is a industry of entrepreneurs, and there will always be entrepreneurs in this business. Who knows, perhaps there’s a TransForce just starting up somewhere with a few trucks and we don’t know it yet. Sure, entry into the business has many barriers and hoops, but a couple of lucky breaks, a few good contracts and customers (and a turn around in the economy) could spark a whole new generation of trucking companies, and these folks don’t give up easily. Sure many will fail, but the cream rises to the top, and it always will.
You get it James, Awesome.
we’d just go. It was definitely a different time.
There in lies the problem (You cannot just go)
Thanks to EOBRs and Speed limiter supporters.
$125,000 for a truck and to be so micro-managed Really ?
I am happy that I got to enjoy my life as a trucker
in my life time. 1980 -2000 if was fun.
Sadly I will not go back, I do miss it sometimes.
As a kid smokey and the bandit or convoy and my love to drive
and being able to earn good money doing what was FUN made
me get into it.
James you said you like/ love your job.
What would be the final straw for you.
Being told what to write about or not?
You if you had enough F/U money you would say NO.
trucking operators no longer have any margin for error. None whatsoever. Think about this for a second: a small fleet or one-truck operator that’s involved in an accident will need to generate $200,000 in revenue to cover the $10,000 insurance deductible, assuming they’re running a margin of 5%. Good luck with that. And that’s not to mention CSA implications and all that other stuff. One mistake can put you out of business.
The ownership and management is wholly to blame for this situation. And its not only running a trucking company has become difficult, its finding qualified drivers (that are accident free) that will become the greatest problem. New drivers are not created safe from day 1. It takes years of making little mistakes before a driver becomes a truly safe one. Under the current mess of over-regulation that downloads more and more responsibility & liability on the drivers, its becoming impossible for new driver to gain employment. For exactly the reason quoted above.
Ownership & management a wholly to blame. Since trucking deregulation they intentionally pursued the profit motive over all other considerations, and the governments responded with the regulation mess the industry has now. And its not getting any better. Blind reliance on Technology will not fix this mess.
Well Mr. Menzies I have been told time and time again that the trucking industry is deregulated, that anyone can buy a truck and go trucking.
I have watched lots of guys buy a truck or 2 and claim they are making money – they are either really good BS’ers and can’t add up one and one or know something I don’t know. Because being a 2 truck O/O I just can not compete. My cousin asked Me a few years ago what it cost to run a gravel truck and a gravel truck is no different from a truck hauling freight – the numbers were crunched and knowing what the jobs for a gravel truck were paying, at the end of the day there was no money and We figured it out that either some one was not being paid or a corner was being cut.
And this is no different from hauling freight or doing tractor service.
Everyone seems to have a sad sob story,
The little Guy can not compete, I have been in the trucking industry for over 30 years, I should of listened to My Mother and became a Lawyer, the Glory Days of Trucking are Long Gone !!
Hey, Kris Kringle (aren’t you supposed to be hauling yer freight in a sleigh with some reindeer?) Hee Hee. I agree with you that the industry is not at all favorable to the little guy with a couple trucks. He will have trouble competing with the big carriers in most instances, but the one thing where the little guy can ALWAYS shine is when it comes to customer service. The little guy can have a load picked up and tied down and be rolling before the big company can even get the load dispatched in most cases. The problem is, the little guy’s only got trucks in one or two places at any one time, so if the customer needs a truck somewhere other than there, it leaves the small outfit at a disadvantage. The way that I am trying to survive is: I am the only person who the customer will have to speak to. I completely understand my equipment and all the rules, regulations and limitations that pertain to it. I don’t have ANY inexperienced employees. I don’t have any debt on my equipment. I work ONLY BY THE HOUR, from my yard to my yard-no exceptions!! I don’t have to make up stories about why the driver screwed up or the fuel card was over it’s limit or anything else…just tell it like it is and if they don’t like it, they can get someone else to move their freight! I don’t get a lot of work, but when I get it, it pays very well! I have NEVER had any complaints about the service that I provide…only about the bill! Anyone who is actually ready to ship and receive the load immediately is ok with how I charge but the customers who are not ready and take up a bunch of my time and get charged for it are usually unhappy, but the way I see it, next time they will not waste my time, or, they will call someone else….either way is ok with me!
Hey, you guys aren’t answering the question: “Have we seen the end of the trucking tycoon”
Personally, I think this is the most provocative question one could ask about the trucking industry.
Looking at the way the large carriers need to purchase other companies in order to grow, I’d say they have hit the wall when it comes to growing and we need to understand the difference between an investment group like Trans-Force which is only responsible to its investors and an actual tycoon such as Dan Einwechter – which actually built Challenger from the ground up.
Whether we are talking about Dan Einwechter or any one of a number of other folks who have pioneered great success for themselves within the trucking industry, I’d say that there is a new reality on the horizon and that becoming a tycoon will not mean what it once meant; perhaps the new tycoons will be “Micro-Giants” (I just made that up) with pin point focus on niche markets, after all, smart truckers like Stephen refuse to engage in a race to the bottom like those with the Zellers mentality “the lowest price is the law”.
Here is a word of advice from a guy which has owned two fleets – to anyone which cares to take it:
The most critically important part of your business success or failure will be your customer(s)
Find and keep a good one!
Hi Larry, thanks for steering me back onto the topic! As you know, I have a way of rambling on and on and getting sidetracked! To answer James’ question, I think that it is quite unlikely that there will be many future trucking tycoons! I agree with you about finding a good customer and sticking with them. However, customers of today are RARELY looking for customer service and instead seem to be focused mainly on cost-cutting alone, regardless of the level of service that is to be provided. In the last 10 years, I can think of at least that many ‘good customers’ who have tried to pry my rates down. When I explain to them that fuel, tires, oil, parts, service and the cost of living have all gone up, so the rate will not be getting any lower until one or more of the costs go down, they have either bought their own truck(s) or found someone who will ‘do it cheaper’. They still call me, on Sundays, at midnight, in a blizzard, or at 5:00am when their bargain trucker didn’t show. I don’t mind…at least I still get my hourly rate, just not as often!
MICRO GIANTS??? I like the ring of it. However Celadon has big plans for Canada, and so many others have as well. I certainly hope they all remember that WHEN IN ROME DO AS THE ROMANS DO. We are a 10th the size and are spread out more so than they are. our climate, causes concerns, as does, the higher liability our Insurance companies, force us to carry. Yet a truck is a truck and we both have the same costs. I hope Mr. Celadon, has done his homework about that part of the equation as well.It may be prudent to check out our backyard, before taking over the SANDBOX.
If only it was as simple as buying a truck and HAMMER DOWN??????
Kevin are there more or less or the same in 2012 than pick a
a year maybe 1989 for example. Accidents, rollovers.
By big rigs than now? Dont seem like it.
Great comments, as always, guys. Looks like this discussion has run its course, but before moving on to something else, I thought I’d share this story from Steve Russell about another trucking tycoon. Steve has a picture of Harwood Cochrane on his office wall, and refers to him as his ‘idol.’
Harwood started a one-truck company called Overnite Transportation in 1934, took it public in 1950 and then sold it in 1986 to Union Pacific for $1.2 billion. They made him sign a five-year non-compete clause at the age of 75. When he turned 80, Harwood decided to start another trucking company and founded Highway Express. In August 2003 at the age of 91, Harwood sold that company to Celadon for about $12 million. Celadon, of course, decided to make him sign a five-year non-compete – at the age of 91! When that agreement expired at the age of 96, Harwood called Steve Russell and said “Steve, I think I’m going to start another business!” He’s now 99 years old.
What a great story, and testament to the entrepreneurial spirit of the trucking industry.