Study in Contradictions, P.A.M. Keeps Truckin?

Everything about P.A.M. Transportation Services Inc. appears to be a contradiction, but somehow it works.

A true-false test could be instructive:

• P.A.M., one of the nation’s most successful trucking operations, is named for a man who hasn’t had anything to do with the company for 11 years.

• P.A.M. is based in the hamlet of Tontitown which is best known for its annual Grape Festival and a handful of restaurants that specialize in fried chicken and spaghetti.

• P.A.M. is owned largely by a giant Detroit corporation, which also owns the busiest international bridge in North America.

• The giant Detroit corporation resurrected the failing hometown company and helped it become a stable, job-producing concern.

• P.A.M.’s camera-shy CEO, Robert Weaver, works for the Detroit corporation, but he’s an Arkansas boy who talks like one.

• P.A.M. is named for a man named Pam.

If you answered “true” to all but the last one, you’re right. P.A.M. is named for its co-founder, Paul A. Maestri, whose family also runs the town’s Mary Maestri’s restaurant.

While the company’s recently released 2000 results were a step backward for P.A.M., they still stood out from the bulk of the trucking industry.

Like most motor carriers, P.A.M. saw a decline in revenue and profit in 2000 from the industry’s banner year of 1999, but still turned in some solid numbers in spite of a market hampered by slowing freight, driver shortages and rising interest and insurance rates.

Total revenue was down slightly from 1999, $205.2 million against $207.4 million. Income dropped 23 percent to $8.7 million, but in a year when many carriers lost money, P.A.M.’s $1.02 earnings per share looked strong.

In the past year, the company’s common stock (Nasdaq:PTSI) has ranged from $7.50 per share to $11. P.A.M. stock closed at $8.25 on March 13.

Maestri and Weaver, University of Arkansas graduates who worked at trucking giant J.B Hunt Transport Services Inc. of Lowell, started P.A.M. in 1980. They built the little trucking company, with Weaver acting as vice president and a director. In 1986, Weaver took a short-lived turn as president and COO, after taking the company public, but left after a disagreement with Maestri in 1987.

Weaver then bided his time as a transportation consultant for two years.

With the company on the verge of bankruptcy in 1989, Weaver reentered the picture, along with Central Transport Inc., a privately held transportation company in Warren, Mich., near Detroit.

“Bob Weaver went out there and found this company,” said Dan Moore, an industry analyst who follows P.A.M. for Stephens Inc. in Little Rock. “Weaver was able to find capitalization for the company and basically took over control.”

The Detroit Connection

Central Transport is owned by CenTra Inc., a holding company founded in 1973 and still run by the Maroun family of Detroit. Named as one of Forbes magazine’s top 500 private companies in 1999 and again last year, CenTra boasts 4,000 employees and annual revenue of $775 million.

CenTra CEO Manuel Maroun owns an astonishing variety of businesses and properties, including, according to Detroit’s Metro Times, Michigan Central Station, a huge abandoned railroad station, and the Ambassador Bridge. The bridge, whose 1,850-foot span made it the world’s longest suspension bridge when it opened in 1929, connects Detroit and Windsor, Canada.

That an international border crossing that carries 27 percent of all merchandise traded between the United States and Canada is privately owned by a trucking mogul is not, apparently, a source of wonder in Detroit although little information is readily available about the Marouns or their connection to the bridge.

But an Arkansas truckload carrier headquartered in a town of about 500 people — the size of one Detroit block — seems to fit right in with the rest of the Maroun’s eclectic portfolio.

At least it worked out for P.A.M., which, by the way, runs regular routes across the Ambassador Bridge into Ontario and on to Quebec.

Central Transport bought Maestri’s 2.5 million shares in P.A.M., immediately becoming the majority shareholder, according to a 1995 report by analyst David Guthrie of Memphis’ Morgan Keegan Inc.

It was a marriage made in heaven, or at least Detroit. Not only did the Central cash bail the company out of a financial bind, but it installed Weaver at the helm and directed some prime business P.A.M.’s way.

“Ever since then, Bob Weaver has been the president and done a phenomenal job,” Moore said.

“Bringing P.A.M. out of the brink of bankruptcy and into profitability and growth was really two-fold,” Weaver said in a written response to questions for this article. “First was to identify the major problems at P.A.M. and implement a plan to address those. But once that was done it really came down to a matter of people.

“There were plenty of people here with plenty of expertise to take care of a multitude of problems. What they lacked was the morale, confidence and the authority to act as they needed to address those problems and take care of those situations. I was very fortunate to be able to facilitate that.”

Eleven years later, the company is still reaping the benefits, not only of Weaver’s leadership, but of the Maroun company connections. General Motors is P.A.M.’s largest customer, accounting for about 30 percent of the the company’s freight hauled in the 1999 fiscal year.

And that business was a direct result, Guthrie said, of the Central Transport relationship.

“Central was instrumental in helping P.A.M. develop a relationship with GM,” he said in 1995. Moore agreed last week.

“I would say that there’s a clear connection between that,” he said. “The Marouns’ location [automotive manufacturing mecca Detroit] certainly helps to add to the company’s exposure.”

The auto industry contributes almost half of the revenue P.A.M. gains from its top 10 customers, the company said in its latest annual report.

Weaver discounts the importance of Marouns’ location but doesn’t deny the impact of their business relationships.

“The fact that the Marouns have their businesses located in Detroit had no bearing on us getting into the automotive business,” he said. “However, the fact they were able to open the door and introduce us to the automotive companies allowed us to begin a relationship with them. Our service and reputation has allowed us to build on that relationship.”

Solid Business Model

The keys to maintaining profit in the face of declining revenue and hostile market conditions lie in P.A.M.’s business model, Moore said.

More than half of P.A.M.’s business is in dedicated contracts, an enviable route schedule, Moore said. Dedicated routes are regular, repeated pick-ups and deliveries for a customer. P.A.M.’s dedicated customers include General Motors and Wal-Mart Stores Inc.

Such routes offer stability through fixed rates and the ability to plan for the long term, as well as generally paying higher, less competitive rates. Service counts for more than price on most dedicated runs.

“Dedicated business implies guaranteed capacity and service,” Moore said. “As a result, P.A.M. is able to enjoy a more dependable revenue and operating income stream in the face of harsh operating fundamentals.

“Their dedicated contract services have allowed them to enjoy a relatively high rate of tractor utilization. The trucks continue to run.”

P.A.M.’s other advantage is “outstanding” expense control, Moore said. The company’s operating ratio, the percentage of expenses to revenue, was 90.6 percent, one of the lowest in the industry. Most carriers hover in the mid-90s.

Moore credited “very strict cost controls on the part of management” and “a very solid business model” for the expenses-to-revenue percentage.

“There are any number of factors that go into maintaining a good operating ratio,” Weaver said. “A few very important ones would be the customer mix, the utilization of equipment, diversification and the ability to change. This is not a static industry, nor are the conditions you deal with static. Because of our makeup, we are able to effect change rapidly to market conditions.”

The company employs 1,899 people and operates the headquarters, maintenance facilities and its primary terminal in Tontitown. Dispatch offices are also located in Jacksonville, Fla.; Columbia, Miss.; Warren, Ohio; Oklahoma City; Willard, Ohio; Riverdale, N.J. and Irving, Texas.

P.A.M. is actually a holding company that includes several trucking and logistics operations, among them Choctaw Express Inc. and Decker Transport Co. Inc., both acquired by P.A.M. during the 1990s.