Building a Future from Drayage Wreckage

One company’s catastrophe is another’s opportunity

By Tony Seideman

Few industries are more fragmented or vulnerable to economic downturn than the drayage business.

Drayage involves the movement of goods from ports of arrival to logistics centers, other transportation modes, or relatively close final destinations. It is an industry that has relentlessly resisted the waves of consolidation that have rolled over transportation in recent years. Tens of thousands of owner-operators provide services to hundreds, if not thousands, of relatively small companies.

New Vision

When it comes to stability, order, focus and, to a degree, general sanity, the drayage business has always suffered some significant shortfalls. Thus, the idea behind RoadLink seems a good one. The company’s vision: invest time, money, effort, and technology in creating a seamless transportation environment that stretches across North America.

In the last couple of years, RoadLink invested large sums in everything from creating systems that move shipment data swiftly and accurately — a breakthrough for the drayage business — to buying up numerous fairly significant players in the business.

RoadLink’s recent purchases include such companies as:

•  American Freight Systems, a Vancouver, Wash.-based international intermodal trucking service with about 55 trucks.
•  West Coast Trucking of Seattle, Wash., which has a fleet of about 70 trucks.

•  And the biggest buy of all, CP Ships Trucking Ltd., which RoadLink bought from Hapag-Lloyd (Canada) Inc. It runs a fleet of 240 trucks, primarily through owner-operators, and maintains six locations in the U.S. and Canada.

Drayage Takes Hit

That kind of outreach can leave a company very vulnerable during a business slump — or what many in the industry are describing as the worst collapse they’ve seen in their entire careers.

“There’s been a decline in the freight — a drastic decline, says Echo Noona, assistant to the terminal manager, at Drayage Express LLC of Garden City, Ga. She provided one of the steepest estimates of decline anywhere in the U.S., saying business was down by a full 45%. “Everybody is just hurting so bad,” she says.

In New Jersey, business is down by about 30%, says Norman K. Swenson, president/general manager of Casco Services Inc. of Newark, NJ.

Staying Ahead of the Slump

With the aggressive nature of RoadLink’s expansion plans, few would be surprised if the company was showing real discomfort at this point. RoadLink Chief Executive Officer Chris Munro admits, somewhat ruefully, that his company was founded on the basis of serving a “dynamically growing container industry.”

Although business is down, RoadLink is under no significant economic stress at present, Munro says. Since 2006, the company’s revenues have risen from $180 million to about $450 million. Ticking off the points like a man who has been asked about his business’ financial health a great deal in recent months, Munro says, “We are profitable. We are generating cash. We pay all our obligations on time, and we have a strong balance sheet.”

Preparing for Economic Crisis

Members of the drayage industry were almost uniformly stunned by the onset of its economic crisis. “Things kind of went off a cliff in the late fall,” Swenson says. RoadLink saw signs that trouble was coming and prepared for it as rapidly as possible.

“We started to see some tail off in August,” Munro says. Initial steps including centralizing operations in one office in Bethlehem, Pa., boosting companies, and taking advantage of any and all opportunities for synergy offered by the companies RoadLink had purchased.

“By doing that, plus moving more to an asset-light, non-fixed cost model, we’ve been able to basically reduce our cost base,” Munro says. Volumes fell by 18% in October and November 2008 and are currently down by about 10% from the previous year. Yet the intensified “asset-light” model means that the percentage of RoadLink’s 2,300 drivers who are independent is up from 70% to 90%, which has helped the company significantly reduce costs.

Drayage Market Stabilizing

Munro says the word “positive” best describes how he feels now. “We feel our volumes have plateaued in the last three months. I’m not going to say it’s a trend, but we certainly hope it is.”

While some say the drayage market is still in free fall, more agree with Munro that things have stabilized. “It’s kind of leveled off. We’ve had three months where it’s been kind of steady, but at a much reduced level,” Swenson says.

“The volume’s come back for us after Chinese New Year,” echoes a Los Angeles-based drayage executive who asked not to be identified. “We’re fairly busy right now — I say, ‘fairly busy’ but nothing like we’ve been in the past.” Strict new environmental regulations are adding to the devastation, as owner-operators are having a hard time coming up with the cash to update their vehicles, the executive says.

Trucking Companies Feeling the Stress

Even if business doesn’t drop significantly, current conditions are putting enormous stress all across the drayage industry. “There were a lot of drivers sitting and not getting any work. They just couldn’t afford to keep their trucks, so they turned around and sold them and went seeking other kinds of employment,” Noona says.

She adds, “A lot of trucking companies are going out of business. They’re cutting their drivers, cutting their office staff, cutting pay. Just recently, we merged in with another company so we could keep our office here in Savannah open.”

Banking on Brighter Future

Few expect the hard time to ease any time soon. “This will clearly be a long term challenge to this industry, for at least the next 12 to 18 months,” Munro says. But RoadLink sees a big potential opportunity for a growth-oriented company that’s the biggest player in its business, using its size and the momentum as a lure to attract skittish customers.

“Price is a huge component, but guarantees of service and guarantees of surviving, those are the big issues,” Munro says. For his company, the conditions will result in improved links with its customers. “In my mind, the situation will accelerate some deepening and meaningful relationships,” he says.

Regrettably, many companies won’t be experiencing the same. “I believe, unfortunately, that there will be fewer and larger players. There will still be smaller players, but I believe the industry will consolidate, because a deep rooted recession is here now.”

In This Issue

News, Trends & Analysis
New Items

Glimmer of Recovery

Supply Chain
A Quick Primer on Site Selection

Managing with the Supply Chain in Mind

Compliance Corner: Trade Compliance Requires a Focus on Information Gathering

How to Green Up Your Logistics Operation

Supply Chain product review
Trucking Software

Special Section
Creating the Extraordinary — the Prince Rupert Story

Features
Building a Future from Drayage Wreckage

Gateway at a Glance Pacific Northwest

Ports & infrastructure
Stimulus Bill Has Cash for Ports . . . for the Right Projects

What Shippers Need from Inland Ports

Port Product Review
Lift Trucks

Commentary
New Trends Driving Transpacific Trade

Who, What, Where, When

Final Say