P.A.M, J.B. Hunt Dedicate Efforts, Grow Revenue

Robert Weaver’s team at P.A.M. Transportation Services Inc. clued in to dedicated contract services before most of its truckload carrier brethren. Now emulating Weaver’s model has become the sector’s practice du jour.

“J.B. Hunt recently realized that growing their dedicated fleet is a good idea,” said Donald Broughton, a transportation equity analyst with A.G. Edwards & Sons in St. Louis.

“But Weaver’s team had that figured out a decade ago. As a result, P.A.M. has seen better operating margins and more sustainable results. That’s happened through a combination of organic growth and acquisitions, but certainly their dedicated segment has been huge.”

Weaver, P.A.M.’s president and CEO, did not return telephone calls made over a two-month period from the Northwest Arkansas Business Journal. Kirk Thompson, president and CEO of J.B. Hunt Transport Services Inc. in Lowell, has long enforced a martial law-esque blackout of information from the company to the media. Even J.B. Hunt’s media relations director requests not to be quoted.

But the rise in contract carriage revenue at the two companies speaks far louder than camera-shy or press-paranoid executives. Simply, it proves the folks at both firms know what they’re doing.

In 1993, about 30 percent of P.A.M.’s revenue, or $21 million, came from dedicated routes. Today, that figure is more like 60 percent or $135.6 million. Weaver, who took over P.A.M. in 1989, is credited by analysts at Little Rock securities firm Stephens Inc. with engineering the emphasis on contract service. It is believed that the Tontitown firm’s dedicated segment at the start of the 1990s amounted to less than 30 percent of the business, but that information is difficult to come by.

Regardless, Weaver’s plan helped grow the company’s top line from $70 million in 1993 to $226 million in 2001. Broughton initiated coverage of P.A.M. in March with a “strong buy” rating. He previously followed J.B. Hunt closely but does not any longer.

Hunt’s contract business as late as 1999 represented only 15 percent or $320 million of its annual revenue. For 2001, that figure had grown to 26 percent or about $549 million.

“In J.B. Hunt’s case, we’re seeing evidence of a new strategic outlook where there’s less emphasis on intermodal business and certainly less on logistics,” Broughton said. “Evidence that they put less emphasis on intermodal is available in their asset mix. For years they were committed to cabover tractors, which are ideal for intermodal business because the routes are shorter and they’re less heavy than conventional tractors. But J.B. Hunt is converting its fleet to conventional tractors because that makes more sense for a company that’s determined to grow its dedicated contract business. It’s the proof in the pudding.”

J.B. Hunt brought in slightly less total revenue in 2001 ($2.1 billion) than it did in 2000 ($2.16 billion). But P.A.M.’s revenue was up 10 percent from $205.2 million in 2000 to $225.8 million last year. Hunt’s shear size — with 11,000 tractors compared to P.A.M.’s 1,413 — probably contributed to its slip during 2001’s sour economy.

Broughton said another reason P.A.M. has sustained its growth so well is because its contract business is largely with automotive giants such as General Motors Corp. Although investors might question buying into a company in a cyclical-sensitive industry such as trucking, which in turn serves the very cyclical-sensitive automotive industry, Broughton said P.A.M. still gets results.

“P.A.M. has its contracts spread out over dozens of different automotive plants that make different models of cars and brands,” Broughton said. “SUVs or luxury cars might sell differently at different times of the year, but P.A.M.’s overall business continues to grow. They have held up well despite automotive strikes and repositionings, like the shutting down of G.M.’s plant in Oklahoma City last May.

“That plant just reopened, and it certainly was a big account for P.A.M. in 2001. But it didn’t show up as a negative in their financials because when they lost it, P.A.M. found ways to keep their trucks busy. Now they’ve wound up with an even bigger share of that business.”

Broughton said the new focus should bode “very well” in coming years for J.B. Hunt, which spun out its logistics division during 2000 into Transplace.com with five other firms.

J.B. Hunt’s contract customers include the likes of Wal-Mart Stores Inc. in Bentonville and a “Who’s Who” of mega retail vendors.

Good Corporate Citizens

In addition to better operating revenue and potential for growth, contract services appear to boost driver morale and improve safety performance. P.A.M.’s longtime emphasis on dedicated routes coincides with the fact that it almost always gets the best safety marks of any carrier in its class. As J.B. Hunt has moved toward more contract business, its safety records are expected to improve.

According to J.B. Hunt’s Web site, the firm has cut its number of preventable accidents per 1 million miles about 40 percent from 1996 to 2001. Better risk management is further evidence that J.B. Hunt has taken a sharp pencil to its internal cost management.

“What happens is drivers are running the same routes again and again,” Broughton said. “A driver isn’t having to read a map while he’s driving. He knows when the next left or hard right is coming, and how fast he can take an off ramp without rolling the trailer. The net result is better predictability in not only his driving conditions, but in his schedule.

“More dedicated business means drivers have more regular schedules, and therefore they can make a decent living and enjoy their off time more.”

According to the most recent statistics available from the U.S. Department of Transportation, an estimated 1 million people were involved in 451,000 total large truck related crashes in 1999. Of those, 5,362 people were killed and 142,000 people injured; a third suffering severe brain damage or loss of a limb. Ninety-two trucks were involved in fatal crashes in Arkansas.

In 1999, the average cost per large truck crash involving property damage was $11,300. In cases when any of the passengers suffered an injury, that average rose to $217,005. For every fatality, it was $3.54 million.

The total cost of all large truck crashes in 1999 was $34.1 billion, or losses per hour during a one-year period of $3.9 million.