DC Velocity - January 2012

S. Congdon, grandson of the founders, became president. He would eventually add the CEO title. His father, Earl, remains executive chairman of the board.

Today, their company, less-than-truckload (LTL) carrier Old Dominion Freight Line Inc., is arguably the country’s most successful truckers and just completed one of the best years in its 77-year history. Yet as he surveys the landscape, David Congdon acknowledges how hard it would be for a new entrant to even begin replicating Old Dominion’s network of 216 service centers in the lower 48 states.

“It would be [almost] impossible
today to start up an LTL company and
build a network like we have,” he says.
“It takes a lot of time and capital.”
Congdon is somewhat pessimistic
about the future for the next genera-
tion of truckers. “I’m not sure I would
encourage my children to start a
trucking business,” says Congdon,
who nonetheless has two sons-in-law,
a niece, and two nephews working for
Thomasville, N.C.-based Old
Dominion.

READY TO HANG IT UP

The thousands of truckers that work the nation’s roads each day likely share the sentiments of England and Congdon. Truckers today face a witch’s brew of challenges: escalating asset inflation, higher insurance premiums, a looming driver shortage, increasing government regulations, volatile diesel fuel prices, and difficulties gaining access to credit. Freight rates, though rising, are for many carriers just covering these higher costs. Faced with poor prospects for profitability, truckers are fleeing the market, and a generation of potential entrepreneurs is being deterred from entering an industry that has historically thrived on entrepreneurial activity.

A third-quarter 2011 survey by mergers and acquisitions advisory firm Transport Capital Partners (TCP) found that 11. 8 percent of fleets would consider leaving the industry in the next six months if volumes don’t increase. About 20 percent of smaller fleets—those with annual revenues of

less than $25 million—would also consider exiting if business fails to improve during that time frame, according to the survey.

In addition, 28 percent of truckers surveyed are considering selling out in the next 18 months if conditions don’t improve, the survey found. That’s the highest total percentage since the survey began almost three years ago. Nearly 40 percent of smaller carriers are weighing an exit, compared with 23 percent of the larger carriers, TCP said.

Ben Gordon, managing director of BG Strategic Advisors, a Palm Beach, Fla.-based company specializing in logistics mergers and acquisitions, says his firm is working overtime in large part fielding inquiries from trucking companies interested in exploring a potential sale. As a result, “we expect to double our deal activity in 2012,” he says.

“IT JUST ISN’T FUN ANYMORE”

Ironically, smaller truckers are more optimistic than their larger brethren—and by a wide margin—about gains in freight volumes. Lana R. Batts, a long-time trucking executive and now a partner at TCP, says smaller carriers are more frustrated with higher costs and bureaucratic red tape than they are heartened by a rebound in freight demand. “In essence, it just isn’t any fun anymore,” she said in a statement.

Many trucking executives started their companies in the 1980s in the wake of trucking deregulation and have no interest in “relearning” the business at this point in their lives, Batts said in an e-mail to DC VELOCITY. Their children have no desire to inherit a business where the risks have become so high and the potential returns so small, she added.

If these trends play out, they will have implications that go beyond a particular bloodline, Batts warned. “The desire to leave … will significantly change the face of the industry as well as the business models that depend upon smaller carriers providing hard assets,” she said. It is estimated that 93 percent of all U.S. truck fleets consist of seven or fewer trucks, with many of those being one-person, one-rig owner operators that drive under contract for larger fleets.

Todd Spencer, executive vice president of the Owner-Operators Independent Drivers Association, says the number of independents leaving the business is growing at “greater numbers than we’ve seen in the past.” The association did not have data to quantify that claim.