Escolar Documentos
Profissional Documentos
Cultura Documentos
n July 2007, the management of East Central Ohio Freight (ECOF) met to decide
whether to increase the companys efforts in the volume less than truckload (VLTL)
freight market around the companys Cambridge, Ohio, headquarters terminal.
CEO Dave Dupuy, President Paul Dupuy, Vice President Robert Dupuy, Controller
and Secretary/Treasurer Rudy Kline, and Vice President of Sales Joe Tarantino participated in the meeting.
Robert summed up the issue:
Its just the economics of whats going on right now in the trucking world. It is a terrible
year and we have to do something. If we are going to get into VLTL we need to move.
Other people (carriers) are starting to jump on the bandwagon now because business has
dropped off dramatically. The Cambridge market has declined in truckload business, so
to maintain our revenue we have to look at other opportunities.
ECOF was nearly 100 years old and was larger than the vast majority of trucking
companies in the highly fragmented industry. At the same time, the family-owned company positioned itself as Large enough to service: small enough to care. The companys limited experience in the VLTL business had been positive to date, but expansion
would require capital expenditures of about $250,000 and additions to the work force
that would increase labor costs by a similar amount. Times were difficult in the trucking
business and there were no guarantees that the demand from customers (shippers) would
support a new resource commitment. Both the dollar amount and the uncertainty made
this a significant issue for the company.
BACKGROUND
The company began in Cambridge, Ohio, as East Central Ohio Transfer, a moving and
storage company. Tink Breen purchased the firm in 1946 and continued its original
focus but started into the freight business as well. Robert F. Dupuy joined the company
in 1946. While he didnt have the money that Tink did, he was willing to work hard to
make the company a success. In order to grow the company, Tink was reinvesting in it
so much that he didnt always have the money to pay Robert. Instead, he decided to make
Robert a partner. Shortly thereafter, they moved the company to a new location, dropped
the moving and storage portion of the business and focused on freight hauling.
Copyright 2009 by the Case Research Journal and David W. Rosenthal. A prior version of this csse was
presented at the North American Case Research Association Annual Case Workshop, October 2009.
63
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
In those days East Central Ohio Transfer focused on the less-than-truckload (LTL)
business. Company trucks usually made many stops during the day and returned to the
terminal in the evening. The company owned its tractors and trailers and hired drivers to
run the routes. In the LTL business, a truck would rarely leave the terminal to make only
one stop, but rather would make many stops delivering small loads. A driver might make
five fully loaded trips in one day making many drops within the surrounding area or
might have only five small drops to make in other states. It simply depended on the day
and the customer. Some customers had long hauls, usually out of state, while others had
short hauls in the state of Ohio only.
In 1956 Tink Breen died and ownership of the company passed to Robert Dupuy.
At that time, the company was on the verge of bankruptcy. Robert used his savings to
get it going again and began to expand by opening new terminals in Akron, Cleveland,
and Cincinnati, Ohio.
In 1961, Roberts oldest son Dave joined the company after earning his business
degree from Muskingum College. Later, the company opened two more terminals in
Columbus, Ohio, and Wheeling, West Virginia. Dave focused on sales and customer
service operations, and Robert continued to run freight operations. In 1972, Roberts
other son Paul received his business degree and joined the firm. The business was doing
well, having grown to 500 employees. Paul worked with his father and concentrated on
operations.
In 1981, Robert established East Central Ohio Freight (ECOF) and decided to concentrate on full truckloads (TL). The TL business was different from the LTL business
because drivers had to own their own tractors. ECOF provided the trailers. A TL driver
took a load from one place to another, and that was the only load in the trailer. By contrast, a full LTL trailer had several loads, and the driver dropped each off at a different
location.
Shortly after entering the TL business, ECOF began dealing with TW Metals, a steel
company in Cambridge, and quickly became its house carrier. TW Metals became
ECOFs largest account and provided the necessary impetus for growth.
When deregulation occurred in 1981,1 the entire industry was in a state of upheaval,
and ECO Transfer, the LTL business, was no exception. Company management
believed that in order to create and support a competitive advantage they either had to
grow outside of the state or consolidate and improve their niche within a few states in
the region. Growth outside the state would help to generate stable customers and long
hauls. Concentration in the region would permit better direct service for a larger number of customers. Thus, in th eearly 1990s ECO Transfer joined forces with Yorck, a
similar company in Michigan, in the early 1990s to move freight between Michigan,
Ohio, and the bordering states, providing better coverage, more flexibility, and a greater
market presence.
Cooperation worked for a few years, but union contracts, health care, and other
union-related issues were becoming too costly in the face of increased competition in a
deregulated market. By contrast, the TL side of the business, ECOF Truckload, was
doing well and had potential to grow. As a result, the management decided that they
would sell their LTL business to Yorck and dissolve ECO Transfer. ECOF became the
main business entity and continued to grow using a fleet of owner/operators.
64
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
THE SITUATION
Robert commented on the reasons for considering VLTL:
The most sensible option for us seems to be VLTL. The terminals in question are aligned
perfectly to combine these VLTL shipments to make full TL runs. Cambridge handles
the east coast, Cincinnati handles the southern states, and Indianapolis handles the western states. (see map, Exhibit 1) In Cincinnati they are doing 70 percent VLTL, 30 percent TL. Indianapolis is more along the lines of 60 percent TL and 40 percent VLTL.
Out of our facilities the business is coast-to-coast, but an average haul is around 1,000
miles, roundtrip.
In VLTL what has been our practice in Cincinnati and Indianapolis is that we usually
put 2 or 3 shipments together. So as an example, our goal is not to take anything less
than 12 feet in a trailer. We look at it as 12 feet is a fourth of a load. In these 53-foot
trailers we still have a 48-foot market as far as pricing.3 So we might put two shipments
on the truck, lets say, out of Indianapolis shipping tanning beds. Its going out to
California18 feet lets say. Lets say theyre paying us $2,500. And then well look
through our system and match up another shipment to fill up that trailer. Now that load
could be going to Arizona, or really anywhere en route. So wed put two shipments on a
trailer, two different shippers and two different bill tos and deliver them with a stop
off. The back-haul4 in our system is that usually were looking to other brokers for busi-
65
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
ness back.5 When we back-haul we do it with full truckloads. Very seldom do you see a
VLTL on the backhaul.
The real benefit of VLTL for us is that it puts more revenue on the truck. A straight truck
load does not have the revenue that two partials will have. Lets say the full load is $1,000.
Half a load would be typically $500, but we bump it roughly another 20% on that. So
youd be looking at $600 for a half-load, and two half-loads would get you $1,200 versus $1,000. With the extra stop there is an additional expense, but usually the driver will
get paid an additional $35 for the drop. So thats really our additional expense. The truck
drivers are paid on all miles, which means that the drop needs to be at least somewhere
on the route or not too far off so that youre not adding a whole lot of cost. We figure
our costs are about 10 percent extra. Were marking it up 20 percent and we are paying
out about 10 percent and keeping the other 10 percent. So, Cincinnati picks up half a
load and then you can add a half a load to it in Cambridge without adding any miles to
it. Thats how Cambridge is a key in this.
Another benefit is that we need to fill our trucks and get as much business as we can.
Fuel costs are rising dramatically and everything is up, so that puts more money in here
just to appease our drivers to keep them here. We are very fortunate we have only about
a 30 percent turnover with our owner/operators. That is very good. Most truckload carriers have owner/operators turning over 100 percent in a year. Weve had people that have
been with us a very long time. We treat them very well, pay them weekly and deal with
them fairly. Our office is always open, and if they have a complaint they can come in and
talk to us. We have an open-door policy all the time so they feel like they are part of the
company, too. Were very fortunate for that. Still, there is only so much that loyalty can
do if we dont have loads.
Robert continued to talk about the risks and costs associated with a move to VLTL at
the Cambridge terminal:
The biggest thing we have to look at is that it does involve additional equipment and
additional manpower as far as city units (smaller trucks similar to those used by UPS)
involved to gather the merchandise, to bring it in here to our facility. So, theres some
additional handing. There is additional capital cost for the local tractors, forklifts for the
terminal. The additional capital cost is probably about $250,000.6 In addition, we figure
well have to hire at least 4 people immediately. Ultimately we would expect to hire as
many as 12 over time. That would include city truck drivers, dispatchers, managers, clerical workers. The average cost per person is about $800 per week. The drivers might
be a little less and the managers might be a bit more. Benefits would run about another 40 percent on top of that on average.
Other carriers are catching on to it; theres more competition than there was prior to this.
Our competition is the regular LTL carriers. They can usually be more cost effective for
the shippers versus VLTL, by far. That is a big plus for them. LTL carriers like Yellow and
Roadway7 are made up of networks to support many terminal locations; we are not. They
have lots of volume coming from all over, and that gives them flexibility and efficiencies.
When we put our shipments together, the load leaves the terminal to go straight to the
destination. The LTLs have many different locations. Theyll ship from one terminal to
another, unload, reconfigure, then deliver. We go direct.
Its hard to say how much a shipper might save using VLTL, because with (regular) LTL
you have cost by the hundredweight and differences in freight class. We dont differentiate on that. We strictly go by the number of feet of the trailer being used. So sometimes
we could save somebody 40 percent, sometimes we can save them 10 percent, but you
have to use at least 12 feet of trailer.
66
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
The other thing isand this is on the downsidewe take on the average probably one
to two days longer than your normal LTL, because we have to match our shipments
together and then send them out. The Yellows put them on the truck, move them to the
destination, thats all theyre really worried about. Weve got to be careful about accepting and matching loads.
Probably we could get additional business out of 50 percent of our regular shippers, in
terms of the Cambridge location. Company-wide, we run about 500 loads a week, on
average, split roughly 50-50 front-haul and back-haul. We are trying to increase our sales
by about 20 percent overall. We estimate that our regular shippers would generate about
70 percent of that increase, so 30 percent of the new business will have to come from
new customers. It is not that our customers are clamoring for this new service. We are
going to have to go out and sell it.
Were very broad. Were not focused into one particular segment. Were very diversified
in our customer base. No market were in accounts for more than 10 percent of our volume. Theres no one customer with that much more volume than anyone else. Among
the top 50 customers we see a gradual drop down. Theres no big drop from one to
another. The top 50 make up close to 80 percent of our business.
67
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
Transportation Outlook: A Brief Calm in the Metals Hauling Storm, Dan Markham,
Associate Editor, Metal Center News Online, June 2007
Some analysts even described the current market as a freight recession. One of those was Eric
Starks, president of FTR Associates, a Nashville, Indiana-based firm that specialized in forecasting
freight transportation needs.
Were in an inverse situation right now, with more trucks than freight, says Larry Hall, transportation
director for Heidtman Steel, Toledo, Ohio. Or at least its far closer to even.
Steve Williams, president of Maverick USA, Little Rock, Ark., one of the largest steel transport companies in the U.S., says the market started to turn in August 2006 and nose-dived in the fourth quarter.
Theres been a steady erosion of profits since then, he adds. Williams agrees that many freight
companies are already teetering on the brink of bankruptcy, if they havent already dropped .
How long will the so-called freight recession last? Some analysts believe North America is already
shifting out of the condition, while others expect the volume of trucks to exceed the volume of loads
until sometime in 2008. Were kind of in between, says Starks. Things arent getting worse [for
trucking companies], but were not seeing them get better. The earliest we see it turning around is late
2007.
By and large, we have a pretty rational environment right now, and its giving both sides of that community, the shippers and carriers, the chance to take stock of their mix of suppliers and mix of customers. Its a heavier planning and negotiating environment than its been in a while, he says.
Of course, there is the one transportation cost that impacts everyone in the chain. Were faced with
relentless fuel costs, says Greg Malarney, director of transportation for TW Metals, Exton, Pa. Diesel
fuel costs have escalated from an average $2.46 per gallon at the beginning of the year to $2.87 in
April, according to the Energy Information Administration. None of us likes to pay that fuel surcharge.
But if you dont compensate that carrier, he wont be around your freight in a year, says Hall.
68
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
Nationally, there were more than 320,000 trucking companies in the U.S. generating combined revenue of $255 billion annually. In the eastern Ohio region, competition for freight was intense. In Cambridge, ECOF Direct was one of ten TL carriers,
including FEDEX Freight and American Freightways. Within 30 miles the number of
competitors jumped to over 50. A large national freight brokerage company listed 67
TL carriers with whom they had placed loads, all within 75 miles of Cambridge.
Government listings indicated approximately 20 competitors with 50+ trucks, 45 in
the 1050 truck range, and up to 1,500 owner operators within a 100 mile radius.
While the short term economic conditions were generally weak, the long term outlook for freight trucking was good. An Ohio Department of Transportation study indicated that freight-truck traffic would grow faster than general traffic:9
Vehicle-miles-of-travel (VMT) by freight trucks will increase 2.30 percent per year.
Over the next 20 years, freight-truck traffic will increase by 58 percent.
Freight-truck VMT will increase from 18 million to 30 million per day.
Although freight-truck traffic will grow significantly, truck payloadsthe weight of
goods and materials carried by freight truckswill decline slightly from an average
of 16.1 tons per truck to 15.9 tons per truck.
This decline is due to a shift in the economy toward production and trade of lighter,
higher value goods and more frequent shipment of smaller loads.
Cambridge, Ohio, was located at the crossroads of Interstate 70 (east-west) and 77
(north-south), giving it a strategic logistical position for truck transportation.
69
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
Approximately 50 manufacturing firms were located in the area. Principal manufactured products included paints, electronics (computing systems), glass products, plastics, machine mine tools, ceramics, wood products, electric motors, tools and dies, and
metal alloys.
Large manufacturing sector employers in the region included:
Economic signals for the Cambridge area were mixed. Total manufacturing revenues
were up about 4 percent overall since 2000. However, unemployment had crept up to
over 6 percent in 2006 and was expected to go higher. Two of ECOFs largest customers
had closed or moved from the region. Federal-Mogul had posted losses at the corporate
level every year since 2001. Edgetech, on the other hand was listed in the INC.
Magazine 500 as one of the fastest growing companies in the country.
CONCLUSION
The management of ECOF was worried. Some of the companys largest customers had
closed their doors, and others were watching their costs closely. The company had been
successful in running VLTL out of Cincinnati and Indianapolis. The investment to
extend the company into that business in the Cambridge market would be significant.
The company needed new sources of revenue and other freight companies were considering the same options. The five top managers had come together to reach a decision,
and the time was now.
NOTES
1. Prior to 1981 the Interstate Commerce Commission regulated both the routes that
trucking companies could travel and the rates they could charge shippers. The regulation resulted in higher shipping costs and a limited number of competitors.
Deregulation removed barriers to entry and expanded pricing flexibility. For a given
route or lane conditions changed from fixed prices and oligopoly to monopolistic
competition with many suppliers with varied services.
2. An agency company was essentially a virtual business. It consisted of one or more
salespeople who contracted with shippers, warehousing, and transport to arrange
shipments. It did not have equipment or warehouse facilities of its own.
3. Trailers were either 48 or 53 feet in length. By charging 12 feet as one-quarter of a
load, the company could actually generate some additional revenue if it could completely fill a 53 foot trailer.
4. Front-haul refers to the outbound leg of a vehicle and back-haul refers to the return
leg. Truckers tried to keep trips balanced, meaning they tried to have the truck full
both going and coming back. If a truck took a load to a destination where there was
no freight to bring back, the cost of the return trip had to be covered by the outbound
70
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
5.
6.
7.
8.
9.
charges. Where round-trips were balanced the costs for shippers in each direction
were minimized.
Generally the back-haul generated little profit for ECOF, in most instances simply
covering expenses and the drivers compensation.
Prime rate was 8.25 percent, and standard business loans usually were made at prime
plus 2 percentage points.
YRC Worldwide, Inc. (Yellow) was one of the largest LTL providers in North
America. It had sales of nearly $10 billion in 2006, and operated about 15,400 tractors and 61,400 trailers from 430 service centers. Yellow bought its competitor,
Roadway, in 2003. Major competitors in 2006 included FedEx Freight, and ConWay.
Excerpts from: WORKFORCE 411, The Office of Workforce Development and the
Bureau of Labor Market Information
Ohio Department of Transportation (ODOT) Freight Study: ODOT Division of
Planning, February 2001June 2002.
Exhibit 1
Regional Map
To Cleveland
To Indianapolis
Columbus
To Wheeling,
WV
Cincinnati
To Charleston,
WV
Source: Base map by World Sites Atlas (sitesatlas.com)
71
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
Exhibit 2
Customer
Yearly Revenue
Revenue %
Customer A
$669,293.23
5.1
Diapers
Customer B
$394,719.86
3.0
Pharmaceuticals
Customer C
$337,573.68
2.5
Totes
Customer D
$382,862.68
2.9
Bottles
Customer E
$252,395.67
1.9
Retail Items
Customer F
$156,943.75
1.2
Containers
Customer G
$147,647.70
1.1
Tractors
Customer H
$144,854.00
1.1
Tanning Equip.
Customer I
$122,133.92
0.9
Safes
$83,380.00
0.6
Labels
$2,691,804.49
20.3
Customer J
Total
Commodity
Exhibit 3
Source: Upper Midwest Freight Corridor Study, Howard Wood, Deputy Director of Planning, Ohio Department of
Transportation, 2004.
72
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.
Exhibit 4
Cincinnati
Columbus
102
Cincinnati
Indianapolis
114
Indianapolis
Columbus
176
Columbus
Cambridge
Indianapolis
Los Angeles
79
2,070
Cincinnati
New Orleans
810
Cambridge
459
Source: Mapquest
Exhibit 5
Source: Upper Midwest Freight Corridor Study, Howard Wood, Deputy Director of Planning, Ohio Department of Transportation, 2004.
Exhibit 6
73
This document is authorized for use only in Marketing Management, Term - II, GMP 2016-17 by Narasimhan Raj Kumar, Xavier Labour Relations Institute (XLRI) from August 2016 to
November 2016.