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Q: This year has been a little soft for the trucking industry in general. What has your business environment been like?
Pierce: As with our competition, we saw some softness in the first half. Starting with the third quarter, tonnage has firmed up in both our LTL and our TL [truckload] businesses. We have some areas that continue to have more capacity than demand, but we do think that's beginning to firm. About a year ago, we first saw a softness in truckload, which typically is an early sign of softness in the economy. We are not bullish on the second half, but we are encouraged by what we are seeing.
Q: Which sectors are showing the most strength?
Pierce: In truckload, automotive is doing well. Our business there is mostly with the foreign-owned companies that have built plants throughout the Southeast and Southwest. We have seen some strength in the retail market in the eastern part of our distribution network, but retail, in general, continues to be soft. In Texas the petrochemical industry continues to be a good business for us.
We are expecting a holiday season much like last year, when the big push from retail in the second half never happened. We anticipate a similar pattern this year, but we are prepared should there be a bigger than expected seasonal surge.
Q: What is your corporate strategy in terms of further growth and expansion?
Pierce: Geographically, our focus has always been the distribution market in our 13 core states. Our president, Gary Sasser, has always felt that this is where our strengths and our roots are located. We want to continue to be the best at providing a distribution network in the South, which we define as stretching from El Paso, Texas, to Norfolk, Va., and from Cincinnati to Miami, and all points in between. Obviously, our customers in that geographic area have freight moving all over the globe, so we will continue to position ourselves to satisfy those needs. There are large metropolitan areas outside of our 13-state network that offer tremendous opportunity in terms of shipments to and from our area. We have been in several of those markets, such as Chicago and St. Louis, for many years, and more recently we opened up Cleveland and Milwaukee. We also have operations in Los Angeles. These are all excellent tonnage producing cities to and from our core market.
We also are very excited about a new endeavor that we will launch early in 2008. This is a project that we have been working on for some time with a network of other privately held regional carriers. Together with these partners, we will offer a new national service that will be equal to or better than anything in the marketplace because it will have the personal touch that privately held, regional carriers are known for. Linking with other regional carriers is not new, but we will be bringing added value to our customers. It is too early to go into more detail, but this will be a branded service that we will market collectively. We expect it to launch in the second quarter of next year and we are really excited about it.
Q: What was the strategy behind your turnkey supply chain management services?
Pierce: This is another area where our president had the vision many years ago. He knew that in order to compete and to serve our customers, we had to transition our offerings in line with the market. So we have had multiple service offerings for more than 28 years. Even when we had only a small fleet in a small network, we offered both LTL and TL services. Over the course of the years, we have expanded both geographically and in terms of service, and about 10 years ago we took the next step. We decided that our strategy should not be to continue to build and push products, but to evolve into a solutions provider. I know that phrase gets overused, but that was our commitment -- to provide all the services a company needs in its complete supply chain. We saw that the 3PLs had done an extremely good job in the early '90s positioning themselves in this way by reengineering and redesigning the supply chain network and then going out and sourcing the correct asset-based providers. Our strategy was to do it all, providing our assets when that was appropriate. We said, 'Let's buy the technology, let's bring in the right people with the knowledge to reengineer and redesign, and after the solution is developed, if our red truck is the best tool, we will bring it to the table. If it is not, we will go out and procure the best transportation.'
A lot of things in this industry have changed. Companies that used to be competitors can now be strategic partners if that is what's best for the customer.
Q: Tell us about your international service.
Pierce: About four years ago we opened operations at the ports of Los Angeles and Long Beach to provide transloading services for our customers that import goods from Asia. That was a major step for us and it really benefited our customers. About two and a half years ago, we opened the same kind of facility at Seattle-Tacoma. We think it is really important to be at the ports and handle that transloading service ourselves. We can then put the container right on a stack train - we have a strategic relationship with Pacer International - or we can break it down into truckload or less-than-truckload shipments and send it direct to the customer.
Another thing that has evolved since we have been in the ports is that customers have come to us and asked us to do more than transload their freight and get it back South. Since a lot of that freight would eventually be shipped out to the West Coast to fill orders, they wanted us to unload the container, warehouse the goods, and pick, pack and ship their West Coast orders, so that is what we are doing. We are using some of our strategic partners to provide short-haul truckload or LTL service in the West.
Of course most of the freight imported to the West Coast comes in from China, and we also have a long-term relationship with what we think is the finest forwarder in China, China International Freight. We are exclusive with them in the Southeast and Southwest, so it is a seamless process for our customers to ship from Asia to anywhere in our distribution network, whether they are shipping less-than-containerload or full containerload or even airfreight.
To further enhance that service we recently purchased technology that allows our customers to have total visibility from origin to final destination on these shipments, including during ocean and inland transit and transloading operations. We have always been able to give visibility to anything on an Averitt asset, but this allows us to provide visibility on other procured transportation as well. We just rolled that out last month and it already has helped us gain some new business.
All the talk is about China, but Canada is the largest trading partner of the U.S. Averitt has partnered with Canadian Freightways, a leading national carrier in Canada, to provide a joint service through the Chicago gateway and they do an extremely good job for us. So we have excellent Canadian coverage.
Being in the Southwest, we have been in the Mexico market for some time with both LTL and TL service. We are one of the few transportation providers using its own assets in Mexico. And we just recently opened up a new transload warehouse in Pharr, Texas, in sight of the Pharr/Reynosa International bridge on the border. So we are well positioned to provide transparent services into both Canada and Mexico.
Q:Where do you expect to see the biggest growth in the next 12 to 18 months?
Pierce: We expect to see the international market continue to grow and prosper because of all the things going on in the economy, especially offshoring. Percentage-wise, that will probably be our fastest growing segment. I think truckload will continue to grow for us. And of course, we have to keep our LTL network strong because that is the hub of our services.
Q: What is Averitt doing to manage fuel costs and conserve fuel?
Pierce: Well, the first thing I have to say is that we can't control the price of fuel. But we can do a number of things to make sure we use fuel wisely. For example, we recently purchased software that tells our drivers where to buy fuel when they are on the road so they get the lowest price. Sometimes they have to go out of their way by a few miles, but the software looks at the distance, both in time and miles, and compares it to the cost. We do have fueling stations at most of our facilities, so our drivers refuel there whenever possible, and that is an advantage for us.
We provide our associates with the most efficient equipment we can so they have the ability to be more efficient in terms of fuel consumption. Last fall we started putting auxiliary power units on all truckload units and that has been very rewarding. This has saved considerably on fuel. And, of course, we work hard at educating our drivers as to what their contribution means to the corporation and in terms of savings to customers.
One of the things we have been doing for a long time is to bring every associate to corporate headquarters for three days of orientation. There are multiple reasons for that - we explain their employee benefits and so on, but we also use that time to teach them pride of ownership and pride of performance and what they mean to the success of the company. We explain what they can do to help conserve fuel, to be an influence in their environment and, generally, what it means to be a service giver. If we instill that vision early on, it carries over into all their endeavors. Our strategy is to seek, select and train the best people and then use our programs to help them understand and achieve corporate targets.
Q: This must help with driver retention. Do you have other strategies for dealing with the driver shortage?
Pierce: We think we have some advantages, and we are proud of the fact that our driver turnover is about half of the industry average. The program I just mentioned -- bringing associates into headquarters for orientation - is one program that works well for us. Another is that when we hire a driver for our truckload fleet, which is approaching 2,000 company-owned tractors, we let them know that after a year of service they will be eligible to transfer into other areas of the company. A lot of truckload drivers want to continue to drive over the road, but others would rather know every day where they are going to go, which is the case in our dedicated contract operations. So as we bring on new fleets, our truckload drivers have the opportunity to transfer into those positions. And as we grow our LTL business, all those positions go out on our job line and these guys can apply to fill them. We have a full staff doing nothing but recruiting over-the-road drivers and this is an excellent tool to help us get the best and retain the best.
Q: What do you think are the other key challenges facing the industry?
Pierce: Technology is a challenge in our industry, particularly in LTL. The parcel guys have done an extremely good job of using technology to connect with their shippers. Probably 95 percent of all parcels tendered to the Big Three - FedEx, UPS and DHL - are tendered electronically. In the LTL environment that is less than 4 percent. So we need to do a better job of providing technology that allows seamless connectivity with the shipper. That's extremely important for a number of reasons - it enables us to provide total visibility to the customer and it ensures error-free entries, so there is more accuracy in billing and rating and all those things that have to be done around shipments and that lend themselves to error when they are done manually. One step we have taken in that direction is to introduce our customers to a technology we call the O.N.E. portal. The initials stand for Organize, Navigate and Execute. Basically this is a web portal that allows our customers, with one connection, to tender electronic freight bills to Averitt Express and also to any other carrier, which is unique. Many companies enable electronic submissions to their systems, but this portal allows customers to connect to any carrier they choose, along with Averitt. We think this can be a remedy for some of these challenges.
Of course, security continues to be on everyone's mind. I'm sure we will continue to see more restrictions from the government as well as more advances in dealing with security requirements.
To access this interview online, visit The Digital Edition at www.SupplyChainBrain.com.
Averitt Express, www.averittexpress.com
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