Liquid Assets

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CEO: Rex Ecoff
LOCATION: Indianapolis
Equipment: 120 Freightliner Century Class tractors with Detroit Diesel Series 60 and Meritor 10-speed transmissions and drivelines. 30 company-owned Kenworths from an acquisition and 460 owner-operators. LTC owns 1200 Brenner tanker trailers.
Freight: Bulk tank transportation and distribution solutions for chemicals, agricultural and life science products, intermodal container services, rail car/rail site logistics, storage, asphalt, dry plastics and starches, lubricants and petroleum, and dedicated fleets or fleet conversions.
Challenge: Surviving a tight commodity market.
Solution: Planning for business cycles by building cash reserves and investing in management and technology.

Not that long ago, it was easier to make a living pulling tankers. The pay was good. Customers were loyal. And competition wasn’t as fierce as it was for general freight or produce haulers.

“Five years ago, companies used to work closely with shippers,” says Lanny Wilhelm, president of Indianapolis-based Liquid Transport Corp. “The drivers knew what they were doing. The shippers made sure the carrier made a profit.”

But things aren’t so easy today. In fact, a number of trends have made life difficult for LTC: chemical companies, a large portion of LTC’s business, have consolidated or closed, resulting in fewer loads and excess capacity; expensive insurance premiums and “hold harmless” contracts have reduced margins and increased risk, respectively; and clients are under greater pressure to cut costs in logistics.

“With all the merging and changes among chemical companies, there’s not as much dedicated freight either,” Wilhelm says. “More and more this business is becoming lane haul.”

For tank carriers, capacity presents the biggest challenges. Unlike general freight truckload, too many competitors isn’t the problem. Although a few new carriers have made forays into the business, the real culprits are fewer loads and higher utilization. Cliff Harvison, president of the trade group National Tank Truck Carriers, says some tankers are in use 20 hours a day, where in the past a tank might be used for one short run a day. “There are also fewer loads, particularly in the chemical sector,” Harvison says. “There have been tremendous degrees of merger and a transfer of chemical manufacturing to off-shore production.”

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As the market has softened and carriers have become more efficient and competitive, rates have plummeted. The post-Sept. 11 climate hasn’t helped either. Chemical companies in particular are shifting much of the liability burden to carriers as both industry and trucking struggle with rising insurance premiums. Shippers are forcing carriers to sign contracts binding them to risks they haven’t faced before. “If you don’t sign the contract, you don’t get any loads,” Wilhelm says. “Some of our competitors have signed these forms and put themselves at great risk. We’ve even had customers ask us to sign a contract sight unseen before entering into a bid process.”

Cultural shifts
Shipping managers have undergone a fundamental shift as well. “They’re newer, younger MBA guys,” says Don Grossett, LTC’s vice president of sales and marketing. “They’re in those positions to reduce costs, reduce costs and reduce costs.”

Other companies are closing their shipping departments altogether, relying instead on third-party logistics companies. Such moves have made keeping business difficult even when clients are old friends. In July, a company for which LTC has hauled loads for more than 20 years put its business out to bid, saying it would let LTC know in three weeks if the carrier still had the business. “We’ve serviced the bejesus out of them,” says John Miskimen, vice president of operations. “We’ve had a 100 percent level of service every year. Now our business is being put out to bid tomorrow.”

Just as the shipping departments have changed, so have the personnel in charge of loading and unloading at companies, Miskimen says. “They’ve eliminated a lot of their experts – people who know a lot about the chemicals we transport. Now the traffic function at a chemical corporation is a stepping stone to other departments. They’re only there for a few years. The scary part of it is they ask us questions [about the chemicals].”

Drivers show up at docks where company employees once numbered in the twenties to find only a handful of workers around to assist. “The drivers are left to do all the work,” Wilhelm says.

Outperforming the market
Even though LTC paints a dire picture, its bottom line hasn’t been dramatically impacted. The company, which has been in business for more than 60 years, continues to make money because of heavy investment in technology, safety training and management. Tough conditions are part of the normal business cycle, says Rex Ecoff, CEO of LTC, which has 800 employees, including 600 owner-operators and truck drivers. Planning for downturns, capacity issues and changes in customer relations can soften the valleys and put a company in a better position to take advantage of the peaks.

“Our rates are lower right now,” Ecoff says, than in 1999 when they began to fall. “But we have softened the overall impact on our rates better lane balance.”

How did LTC do it? Surprisingly by spending more money. Better management and investments in technology have improved utilization. When other carriers are cutting staffs and extending

LTC’s senior management team, from L to R: Arthur Bortolini, Rex Ecoff, John Miskimen, Lanny Wilhelm, Don Grossett and Mark Johnson. Not pictured: Keith Lewis.

equipment cycles to survive, LTC, which operates 24 terminals in 14 states and provides a number of services including rail logistics and storage, instead has spent money hiring trainers and safety personnel and upgrading computer systems and equipment.

For example, the company has increased its ability to measure equipment utilization, lane analysis and productivity. The software was developed in house and supplements the company’s McLeod Software system. “We can do a lot of different tracking of how productive we are,” Wilhelm says. “We know if a unit is sitting at a tank wash or a rest area, where there are no dollars being earned.”

The biggest battle LTC is fighting is the commodification of its industry. As capacity has increased and as carriers have improved efficiency, they have cut prices to be more competitive. Coupled with a new emphasis on cost-cutting at chemical companies, tanker haulers have little to sell but price. “It’s a struggle,” admits Miskimen. “Our fear is you’re going to have someone cut to the bear bones and try and do this job unsafely.”

Even so LTC works hard to avoid commodity business, focusing where possible on customers willing to pay for service. LTC can still use its considerable safety record as a selling advantage; it has invested in safety by hiring additional personnel at terminals and, this summer, by instituting the Smith System defensive driving curriculum. Such moves help assure chemical companies that their name won’t show up on CNN. “Smaller carriers are willing to roll the dice,” says Art Bortolini, vice president of finance. “The easiest thing to do is cut back on safety and maintenance. At our company all we do is live and breathe safety.”

“It’s not cheap,” Wilhelm says. “But it’s a long-term investment. If we have fewer accidents, we can offer better service.” Plus, there is a dollars-and-cents benefit: a major break on insurance. Where other tank carriers have experienced triple-digit increases in insurance rates, LTC has managed to keep increases low, largely based on its experience.

When LTC’s sales staff goes to market, the company also promotes its technology and service record. Its fleet is young, both in trailer and tractor age. Using imaging systems and satellite dispatch the company can deliver better, on-time service, says Bortolini. Customers like the high-tech advantages as well as the ability to electronically tender loads. LTC benefits from improved productivity. “We’re able to do far more transactions with fewer people,” he says.

Technology also lets LTC monitor load availability by lane in real time and push that information out to every manager. “We’ve been able to focus our guys on lane balance,” Grossett says. “We’re getting better utilization and higher yield freight in backhaul. Our revenue per mile is somewhat better.”

The company is also focusing on freight that’s a better fit instead of trying to grab what’s available. LTC won’t haul freight just to have cash flow. “This lets us run our business to our advantage,” Miskimen says. “We get to build a stable base, identify what’s good for us and grab what is a good fit.”

Sometimes that means going after business from smaller shippers, which are easier to sell on value-added services, Grossett says.

Also, LTC’s newer equipment and well-dressed drivers help win business from image conscious companies, the company says. “We won’t allow drivers with pony tails, and there’s no short pants,” Wilhelm says. “Our owner-operators play by the same rules. What’s at issue, however, is whether LTC’s worth more than XYZ? Our clients have to justify paying us more.”

While LTC looks for profitable customers, it avoids those that mean higher risk. “Shippers try to shift every bit of burden to the carriers,” Wilhelm says. “Tank truck carriers need a better understanding of what these contracts do to their companies.” The company has spent considerably more on legal issues in recent years and negotiates the contracts it is offered. “Internally, we spend a lot more time on contracts,” Bortolini says. “Some of these contracts from shippers are obscene.”

The effort may cost more – in both lost business and in legal fees – but one bad experience with an unfavorable contract could set LTC back substantially. “A lot of our competitors ask themselves, ‘Do I go out of business today or do I take the risk?'” Wilhelm says. “We don’t take the risk.”

Relying on reserves
Getting profitable freight remains a constant battle. But the company is winning partly because it planned ahead for current market conditions. Competing through service, technology and attention to detail is a luxury that LTC, unlike most of its competition, can afford. During the good times, LTC built substantial cash reserves that allow it to invest in personnel and equipment, and avoid taking business that is unprofitable or risky.

Consider the hiring of Peter Legere, the company’s vice president of training and development. Legere, who was hired five years ago, has a Ph.D. in business management and 20 years of experience at Roadway Express. At LTC he develops management and driver training programs and orientation programs for new drivers. Legere is the kind of employee that companies might want but can’t afford in a tough market.

“Our management team has many years of experience,” Wilhelm says. “We’ve spent a lot of money on technology and on personnel. We think they’re worth the investment.”

LTC is surviving – even growing – amid tough times because of its conservative approach, strong finances and stable management, Bortolini says. “We see so many of these carriers price for cash flow instead of pricing for profit. That doesn’t help long term. Because we have been conservative, we can live in this period of over capacity. We see a lot of companies falling by the way side.”

“Instead, we look at the long term,” Bortolini says. “Business goes in cycles. Our returns aren’t as substantial right now, but they’re good.”

That’s something Liquid Transport Corp. can live with.