Carrier survival demands diversification
May 1, 2002 12:00 PM, Editorial By Charles E Wilson
THE CHIEF executive at a large southern tank truck carrier recently said that his company would have made no profit in 2001 if it weren't for non-trucking business. He added that it is no longer possible to provide solely tank truck service. The money just isn't there.
For this company, tank trucking has become part of a broader range of services that include storage terminaling and barge transport. In fact, the terminaling operation has brought a consistent revenue stream with very good growth potential. Storage rates have remained strong, and demand for the service has outstripped capacity.
Considering the way the tank truck industry in general performed last year, it's not surprising that this company has pursued other revenue opportunities. Modern Bulk Transporter's 2001 Gross Revenue Report shows that tank truck carrier revenues grew by a slim .4%. This is the worst showing for the industry since Modern Bulk Transporter began charting tank fleet revenues. The 2001 Gross Revenue Report starts on page 40.
There is little mystery about the causes of the revenue decline. As far as most tank truck carriers were concerned, the recession extended through most of 2001. Chemical and petroleum volumes were down. On top of that, major shippers initiated new rounds of rate cuts.
Operating ratios worsened for most of the tank truck industry, and much of the blame falls on the steep insurance rate increases that hit carriers. Some carrier executives said the rate hikes totally erased their companies' profits for the year.
A survey by National Tank Truck Carriers Inc found that tank fleets renewing their insurance after October 1, 2001 saw premium increases averaging 130%. Those renewing after January 1, 2002, report increases of at least 146%. Seventy-seven percent of the carriers in the survey said that they had been forced to raise their deductible.
In addition to insurance rates going up, a number of providers have stopped covering tank truck carriers. Many of the remaining insurers withdrew coverage for terrorist incidents in the wake of September 11, 2001.
In the face of these economic pressures, many in the tank truck industry have concluded that diversification offers the best means of survival. Speaking as NTTC chairman, John Groendyke says in an interview that starts on page 52 that it is very difficult to survive as a pure tank truck carrier.
“We're doing storage and inventory management,” he says. “Some tank truck carriers are getting deeper into storage terminal operations. At Groendyke Transport, we're getting more involved with rail transloading. It's what our customers want.”
One of the best examples of diversification can be seen at Grammer Industries Inc, a tank truck carrier based in Grammer, Indiana. Grammer Industries is the cover story this month in Modern Bulk Transporter.
The company has built a diverse operation that includes tank trucks, rail tankcars, transloading facilities, and liquid storage. Each aspect of the business is treated as a separate niche, and various niches are combined to provide customers with very customized services.
“We can handle the entire distribution chain for a variety of specialty products,” says Charles L “Shorty” Whittington, Grammer Industries president. “We tailor our services to customer needs. We don't force them to do things our way.”
While rail or barge service is unlikely to be part of a diversification strategy for most tank truck carriers, storage terminals are another story. In the April Modern Bulk Transporter, Independent Liquid Terminals Association chairman Garland Middendorf predicted a good future for strategically located mini storage terminals, facilities with capacities ranging from 200,000 to 300,000 barrels.
These types of facilities could be an excellent source of new business for tank truck carriers. Provided the storage sector doesn't get overbuilt, these facilities should generate a more satisfying return on investment than is possible on the trucking side today.
While storage terminals may not fit every tank truck carrier, diversification is a must except for the smallest, most niche-focused fleets. As long as freight rates are at bargain basement levels and insurance prices are in the stratosphere, tank truck carriers must be thinking about new ways to generate higher revenues and significantly greater profits. Their very survival depends on it.
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