Outsourcing Changing Trucking Industry

The national trend of outsourcing is changing the trucking industry.

Some larger trucking companies are providing more than the traditional tractor/trailer rig and driver that other businesses hire to transport goods. The service has become personal, even tailored to the specific needs of each customer.

For companies that want to outsource their transportation needs, trucking companies offer two choices: a logistics service or a dedicated contract service.

A logistics service takes control of a company’s transportation department and manages it. The amount of service varies with each customer, from managing an existing fleet of trucks to providing trucks, drivers and dock workers.

A dedicated contract service is a more comprehensive form of outsourcing. The trucking company determines the needs of the client, then provides all the trucks, trailers, drivers, dock workers and support staff necessary. The client has little more to do than tell the trucking company where and when it wants its products delivered.

The change began in the trucking industry about four years ago when trucking companies started installing on-board satellite computer systems on their trucks. The system made truck schedules more precise and efficient, says Lane Kidd, president of the Arkansas Motor Carriers Association in Little Rock.

The improved communication with the truck drivers and control of the schedule made trucking companies so efficient that they could replace the fleets owned by individual companies and still deliver the freight quicker and cheaper. Larger trucking companies began forming logistic departments to capitalize on the new market, Kidd says.

As the larger trucking companies pursue the large national accounts, the smaller trucking companies will find regional niches as the trend spreads, he says.

“It will have a trickle-down effect in the trucking industry,” he says.

Executives at the more than 100 trucking companies that are members of the AMCA believe growth in the industry will come from acquisitions and the outsourcing services, Kidd says.

J.B. Hunt Transport Inc. of Lowell has pursued the outsourcing business as aggressively as any trucking company in the nation.

Two of the company’s three divisions are devoted to outsourcing services. Executives at Hunt believe that each of the divisions will eventually contribute $1 billion in annual revenue to the company.

Three years ago, Hunt began narrowing its focus in the trucking industry as part of a plan to concentrate the company’s resources on its “core business,” the same logic driving the outsourcing trend in other businesses. The company sold its special commodities divisions, which transported hazardous materials; its division that specialized in hauling automobiles; the parcel management service; and flatbed division. The company now consists of a van/intermodal division, J.B. Hunt Logistics Inc. and J.B. Hunt Dedicated Contract Service.

J.B. Hunt Logistics was started in 1992 and already is the nation’s largest third-party logistics provider. In 1996, the division contributed $300 million to the company’s annual revenue. The division’s revenue is expected to reach $1 billion by 2000.

Hunt has contracts to handle the truck shipments for some of the nation’s largest companies. Hunt has a $100 million contract with Weyerhauser Co. and a $45 million contract with the Quaker Oats Co. as well as contracts with Georgia-Pacific Corp., Tandy, J.C. Penney and ALCOA.

J.B. Hunt Dedicated Contract Service was started in 1993 and works in conjunction with the logistics service. For companies that use the service, Hunt handles every aspect of the client’s transportation needs. Hunt uses its own equipment, drivers and operations managers exclusively for the specific customer. The division has more than 100 contracts and employs about 1,500 people. It operates a fleet of more than 1,000 tractors and more than 2,000 trailers.

With DCS, Hunt puts its own employees within the customer’s company to handle all the company’s shipping. The employees are linked to Hunt’s data base and can coordinate all shipping schedules for maximum efficiency. Every aspect of the customer’s account is customized according to its specifications, including the type of trucks needed and even the color of the trucks.

The division has customers that range from automotive suppliers, grocery and food companies, building materials companies and some of the nation’s largest retailers.

In 1996, the DCS division received an international certification that required Hunt to meet standards in 19 areas of outsourcing. Hunt had to demonstrate proficiency in management techniques, quality control, documentation procedures, contract review, inspection and testing, internal auditing, training and statistical techniques.

When the services of DCS are combined with the resources of Hunt’s other divisions, it is a comprehensive service that few other trucking companies can compete with.

The importance of outsourcing accounts was demonstrated earlier this year when Hunt filed a lawsuit against 19 former employees of the DCS division who left to work for another company. Hunt accused the former employees, which included the president of the division, of stealing corporate secrets and trying to take customer accounts with them.

The former employees, many of whom had helped start the division, denied the charges and accused Hunt of reneging on promises of bonuses that would have totaled millions of dollars.

The lawsuit is pending in Benton County Circuit Court.

Arkansas Best Corp. of Fort Smith is one of the larger trucking companies in the state that isn’t participating in the move to provide logistic services. The company included three logistic services among its subsidiaries until 1997, but it sold two of the subsidiaries and closed one last year.

Arkansas Best opened Integrated Distribution Inc., a logistics subsidiary, in 1987 and operated it until it was sold Nov. 3 to Wagner Industries. The subsidiary provided truckload and large less-than-truckload transportation, customized handling of freight, warehousing facilities and fleet coordination for companies outsourcing their transportation needs.

Arkansas Best acquired two more logistics services when it purchased the assets of WorldWay Corp. in Aug. 1995.

The company merged the two services, Complete Logistics and Innovative Logistics, and sold the combined services in August.

During 1996, the logistics services contributed $54.8 million to the company. Integrated Distribution, the company’s oldest logistics service, had a 14 percent increase in revenue that year. The company lost $3.5 million, about 17 cents per share, in earnings when it sold the logistic services.

The trend will continue in the trucking industry, Kidd says. Trucking companies will continue to change and find ways to secure a share of the growing business of transporting the nation’s freight. q