I was in Indianapolis in early March, covering the Green Truck Summit, when I checked my voicemail and found a message from Steve Russell, chairman and founder of Indianapolis-based Celadon Trucking. He wanted to talk about the company’s...
I was in Indianapolis in early March, covering the Green Truck Summit, when I checked my voicemail and found a message from Steve Russell, chairman and founder of Indianapolis-based Celadon Trucking. He wanted to talk about the company’s ambitious growth plan for Canada (see pg. 42) and the fact I was in his backyard struck us both as far too coincidental to ignore.
I hopped in a taxi and headed over to see Russell and ended up spending the better part of the afternoon with him, discussing a wide range of topics. One of the things that’s been on my mind lately is the fact there seem to be 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. 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. 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.
Another limiting factor when it comes to growth for a small company is the cost of new equipment. Russell 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.
Fleets hang onto trucks longer and then find themselves with a seven-year-old truck worth $20,000 and need a $100,000 mortgage to upgrade to a new truck. 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?
I asked Russell if he’d be able to replicate his success growing Celadon in today’s environment? He 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?
I think of all the 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 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 was a melancholic realization. Russell was less sentimental in his outlook. Look at Facebook founder Mark Zuckerberg, he said. He started from scratch and is worth $20 billion. 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.”