Northwest Arkansas Spawns Major Trucking Companies

It seems an unlikely scenario. Four major trucking companies, including the nation’s largest, based in one of the more inaccessible regions of the country. Yet, Northwest Arkansas, with its winding two-lane highways, has spawned some of the most successful trucking companies in the nation.

J.B. Hunt Transport Inc., the country’s largest publicly traded trucking company, has its headquarters in Lowell. Willis Shaw Express Inc., the country’s eighth-largest refrigerated carrier, is based in Elm Springs. Cannon Express Inc. operates from Springdale, and P.A.M. Transportation Services Inc. has facilities in Tontitown.

All four companies operate internationally on the continent, and all but one are publicly traded. Willis Shaw remains a privately held company as a wholly owned subsidiary of Comcar Industries Inc. of Auburndale, Fla.

Why here?

I don’t think there is any one real good answer,” says Alan Roller, a vice president with Willis Shaw. “There were some local people here who saw trucking as a way to get into business and found some opportunities here.”

“It’s probably not considered the hub of the transportation industry,” says Steve Palmer, a vice president with J.B. Hunt.

The companies tolerate the difficult highways. It was the poultry industry, Wal-Mart Stores Inc., a central national location and native entrepreneurship that created the companies.

J.B. Hunt is Nation’s Largest

J.B. Hunt has grown from a small operation that transported rice hulls to Northwest Arkansas from the Delta to a fleet of 7,750 tractors, 27,773 trailers and 8,345 drivers hauling freight in three countries. Last year, the company had revenues of almost $1.5 billion.

The firm incorporated in 1961 and formed The J.B. Hunt Co. Beginning with five employees, Hunt became the first person to market rice hulls as poultry litter. Within five years, Hunt became the world’s largest poultry litter producer and was making regular trips to Northwest Arkansas to deliver the litter to poultry growers.

In 1969, Hunt, an eighth-grade dropout, bought a trucking company in Prescott, Kan., and moved it to Bentonville. Two years later, J.B. Hunt Transport Inc. was incorporated and, in 1972, moved to Lowell, where the company currently is based.

The company’s stock was offered to the public on Nov. 22, 1983, with 1.32 million shares selling for $15.50 each. The early years saw dynamic growth – as high as 300 percent a year in the early 1980s. By 1988, J.B. Hunt was a Fortune 500 company. In 1993, the company’s annual revenue exceeded $1 billion, and it continues to grow.

The largest publicly traded trucking company in the nation is making radical changes. Earlier this year, the company initiated a driver compensation program that shook up the industry. In a single move, the company raised the average pay of its drivers by 33 percent, making it the highest-paying truckload carrier in the nation.

The pay increase reflects a change in the corporate philosophy of the company, says Palmer, a vice president with J.B. Hunt. Last year, more than 70 percent of the company’s drivers had less than one year experience. Currently, only 12 percent of the drivers are inexperienced with about one-third having more than five years’ experience.

“The change has decreased the company’s costs for accidents, which are less than one-half the number from last year, and cut costs of training drivers. The savings have almost completely offset the extra expense of the pay increase, Palmer says.

The pay increase is part of what company officials call a “culture change” within the company to put more focus on the drivers. Company managers are now required to complete a one-week training course on how to deal with drivers and their problems, Palmer says.

“A key piece of the future, and arguably the most important milestone in our history, is the decision to elevate the driving job to the status it deserves,” the company notes in its 1996 annual report to stockholders.

“We probably didn’t pay enough attention to the drivers, so we’ve renewed our commitment,” Palmer says. “We decided we couldn’t change the whole trucking industry, but we could change J.B. Hunt.”

Other major changes include the elimination of four services the company previously offered. The special commodities division, which includes transportation of hazardous materials, was sold two years ago. The equipment the company used in its automobile hauling service was sold last year after less than two years as part of the company. The company also eliminated its flatbed hauling service and sold its parcel management service, Palmer says.

All the changes were part of the company’s plans to return to what it calls it core activities. When Wayne Garrison, current chairman of the board, returned to the company two years ago, he reviewed the company’s operations and recommended that the company “narrow and define” its operations, Palmer says.

“It was causing a little bit of blurred vision,” he says of the company’s attempt to operate seven divisions. Now, the company will limit its concern to its three most important divisions: the van and intermodal division, a logistics service and dedicated contract service.

The van division is considered the core of the company and includes the traditional truckload carrier operations and the company’s more recent intermodal operations. Last year, the company carried more than 1 million loads for 9,200 customers with an annual revenue of $1.1 billion. The loads were split almost evenly between traditional truckload and intermodal.

The intermodal operations were opened in 1990 with a contract with the Sante Fe Railway Co., now known as the Burlington Northern Sante Fe. Hunt shipped about 25,000 loads by rail that first year. Currently, Hunt has contracts with 10 railways and made 500,000 shipments by railway last year.

The use of the railroads allows the company to make cross-country shipments for 15 percent to 20 percent less than the cost of driving a load across the country, Palmer says. The railways have become an important resource for the company, and managers hope to expand the service by as much as 20 percent each year. Intermodal service already is growing faster than traditional truck shipment, Palmer says.

“It’s obviously a very critical piece of our business,” says Paul Bergant, executive vice president of marketing for Hunt.

Hunt has increased its ability to use railroads by working with a trailer manufacturer to design a trailer that can be removed from the carriage and loaded onto a railway car. More than one-half of the company’s trailers are equipped with the new containers, which can be double-stacked on railroad cars, Bergant says.

Another rapidly growing division of the company is its logistics service. The logistics division works with companies to plan the most efficient method of transporting freight. Under the system, companies can contract with Hunt to manage any or all shipments, allowing the companies to concentrate on their own core activities.

“In effect, we are replacing their transportation system,” Bergant says.

The logistics service was started in 1992. Last year, the division added $300 million to the company’s revenue. Bergant says the company expects the division to contribute $1 billion by 2000.

Hunt also holds a $45 million contract with the Quaker Oats Co., as well as contracts with Georgia-Pacific Corp., Tandy, J.C. Penney, and ALCOA, Bergant says. All the business makes Hunt the leading third-party logistics provider in the nation.

The third division that the company plans to focus on in the future is its dedicated contract services, which was formed in 1993. The company uses its own equipment, drivers and operations managers exclusively for the customer who signs the contract. Currently, the subsidiary has 110 contract customers and operates a fleet of 1,123 tractors, 1,966 trailers and employs 1,413 people.

Other significant changes the company has made in the last few years include reducing the speed limit on its trucks to 59 miles per hour, which saved money in reduced accidents and fuel consumption, and replacing trucks more often, which reduced maintenance costs.

Cannon Express Grows With Wal-Mart

Cannon Express Inc. of Springdale, an irregular route truckload carrier, began in 1981 when Dean Cannon bought C.R. Kidd Produce Inc., a five-truck produce and refrigerated hauling company. Today, the company operates more than 900 tractors and 1,939 trailers, and it employs 1,160 people.

Buying the company was a return to the trucking industry for Cannon. He had owned his own trucking company from 1974 to 1980 and operated about 30 trucks. He sold the company in the fall of 1980 because of the rising fuel prices.

“It didn’t look like it would be feasible to continue operating it,” Cannon says.

But, he soon discovered he wasn’t ready for retirement at the age of 39.

“I got bored, really,” he says. “Doing nothing was more than I could handle.”

He began working with Kidd as an unpaid consultant. Within six months, he owned the company.

We needed more trucks to continue growing with our customers,” Cannon says. “He [Kidd] didn’t want to do it, so he sold it to me.”

By 1986, his company still owned only five trucks, but Cannon was managing a fleet of more than 100. He expanded the company by contracting with individual truck owners to haul freight for the company.

In June of 1986, Cannon made a major investment in his company. He eliminated the independent contractors and spent about $8 million to buy 100 tractors and 130 trailers.

“It was a tremendous debt and a tremendous risk,” Cannon says.

The following year, the company went public, selling 690,000 shares of stock at $5 each. Since that time, the company has grown at an average annual rate of about 30 percent and twice been named by Forbes as one of the fastest growing companies in the nation.

Wal-Mart is the single largest customer for Cannon Express. Last year, the company hauled about 68,000 loads for Wal-Mart, about one-half of the trucking company’s business. Alice Walton was added to the company’s board of directors last November.

“We understand how they work,” Cannon says of Wal-Mart. “We have grown up with that.”

Cannon says he has cultivated the relationship since 1981, when Wal-Mart was only a small part of the trucking company’s business. Now, Cannon Express sets the standard for other companies that haul goods for Wal-Mart, Cannon says. His company has a record of delivering Wal-Mart’s products 99.4 percent on time, he says.

“There are no commitments or contracts,” Cannon says. “We earned their business by being the best carrier. The other carriers have to try and measure up to that.”

Things have slowed for the company in the last two years. Higher fuel prices and increased competition for drivers have cut the company’s earnings. Net income for the first nine months of the company’s 1997 fiscal year, which ends June 30, was down almost 60 percent from $1.45 million to $862,467. Earnings per share for the same period was down from 45 cents per share to 27 cents.

“It’s not what we’ve experienced in the past,” Cannon says.

During the last two years, the company had as much as 10 percent of its equipment idle at a time because of the shortage of drivers. Cannon says driver shortage will always be a problem.

“It’s a day-to-day thing, a balancing act,” Cannon says. “Drivers, typically, are transient.”

Cannon says he expects the company to continue growing but at a far slower rate than in its previous years.

“We’ll go easy into it and see what we can do,” Cannon says.

P.A.M. Continues Its Return

P.A.M. Transportation Services Inc. of Tontitown continues to make its return in the trucking industry. Losing money and near failure in 1988 and 1989, the company stabilized in 1990 and its stock prices began rising again in 1992. During the last two years, the company has expanded by acquiring two other trucking firms.

“We felt like things were healed and we could begin growth,” says Robert Weaver, president and CEO of the company.

Weaver started the company along with Paul Maestri in 1980. Both were former employees with J.B. Hunt. P.A.M. started that first year with five tractors and 15 trailers. By the end of the year, they had about 30 tractors, Weaver says.

Their first customer was Wal-Mart, who initially accounted for more than 50 percent of the company’s business. Wal-Mart remains an important customer although it now comprises less than 10 percent of the company’s business.

Although the initial concept of the company was to keep it small – about 50 trucks – the company had reached that point early in 1981. By 1985, the company had about 250 trucks and management recognized that the company would have to continue to add trucks if it were to continue to serve its customers, Weaver says.

Weaver and Maestri had to make a decision: borrow money to finance the growth, or go public with a stock offering. In the fall of 1986, about 2 million shares of stock were sold for $11.25 a share, raising more than $20 million for the company. Maestri retained 52 percent ownership of the company and Weaver kept about 12 percent.

The stock rose to more than $16 per share in 1987 before taking a drastic plunge to just more than $4 a share in 1988. By 1989, the stock price dropped below $2 a share, where it hovered until 1992. The stock price jumped to almost $8 a share by 1993 and currently is selling for about the same price.

“We had some basic problems,” Weaver says. “Rates were too low, expenses were out of control and we had idle equipment.”

Weaver had left the company in 1987 but returned in January 1990 after Maestri sold his controlling interest to MJM First Limited Partnership. Matthew Moroun, a 26-year-old trucking executive, controls the partnership and also maintains partial ownership of Central Transport International of Warren, Mich.

Under Weaver’s leadership and the additional resources of Central, P.A.M. began its comeback. Its single largest customer is General Motors Corp., which accounts for 22 percent of the company’s total business and is still growing. In all, about 37 percent of the company’s business is from the automobile industry.

At the end of 1996, the company operated 912 tractors, 2,398 trailers and employed 1,438 people. Plans include adding 100 more tractors and 140 trailers to the fleet this year.

On Jan. 31, 1995, P.A.M. bought Choctaw Express Inc. and Choctaw Brokerage Inc. of Oklahoma City. The $2.5 million acquisition added 55 tractors and 120 trailers to the company. Choctaw Express did most of its hauling for General Motors and had $12 million in revenue in 1994.

The following year, the company purchased Allen Freight Services Inc. of Jacksonville, Fla. Allen Freight was a struggling company and the management at P.A.M. believed they could make the company profitable again. P.A.M. bought the company’s stock for $200,000 but assumed $3.7 million in assets and $3.5 million in liabilities. The acquisition added 150 tractors to P.A.M.’s fleet.

Although the performance of Allen Freight was disappointing last year, Weaver says, the company has been profitable since January. Plans include expanding the company, which still is operating under the Allen name, Weaver says.

P.A.M. doesn’t plan any acquisitions or major changes for this year. However, the company hopes to maintain an annual growth rate of at least 20 percent, much of it through acquisitions, Weaver says.

“We are certainly in the market,” he says, “but we want to make sure everything is right.”

Willis Shaw Was First

One of the oldest trucking companies in Northwest Arkansas is Willis Shaw Express Inc. of Elm Springs. Willis Shaw started the company in 1938 to haul live chickens to processing plants around the country. The company still operates from its original facilities.

In 1969, Shaw sold the company to Del Monte Foods. Ten years later, Del Monte sold the company to R.J. Reynolds, who owned six other trucking companies at the time. When R.J. Reynolds divested itself of all its transportation companies except one in 1983, Willis Shaw and two of his sons, Bob and Dennis, repurchased the company. The Shaw family sold the company a second time in 1987.

“Today, the company is owned by Comcar Industries of Auburndale, Fla., a privately held company that owns six trucking companies and six other companies. Willis Shaw is the second-largest of the company’s trucking concerns. The largest is Midwest Coast Transport Inc. of Sioux Falls, S.D. Comcar’s revenue last year was more than $350 million, says Billy Ready, a senior vice president with the company.

Willis Shaw Express operates 731 tractors and contracts with 155 independent truckers. The company has 1,140 refrigerated trailers, employs about 1,200 people and operates in all the continental United States and Canada. Last year, the company had revenue of more than $106 million, making it the eighth-largest refrigerated carrier in the nation.

Campbell Soup Co., which has facilities in Fayetteville, is the company’s oldest and single largest customer. Willis Shaw began hauling for Campbell 45 years ago, and the company currently accounts for about 10 percent of Willis Shaw’s annual business.

As for the future at Willis Shaw, there are no plans to go public with a stock offering, says Alan Roller, a vice president. The company hopes to continue at an annual growth rate of 5 percent to 7 percent, he says.

“We’ve been steady over the last few years,” Roller says. “We will grow when the economy allows it.”