Kevin Knight
Low operating ratio, record earnings, make this one of the best small companies in the U.S.
Forbes magazine has recognized Knight Transportation 10 years in a row as one of the best small companies in the United States.
Kevin Knight will tell you he doesn’t belong in a roundup of truckload pioneers like Werner, Hunt, Schneider and Swift. “I’ve always looked at us like we were more students in the game,” he says.
Forbes magazine has recognized Knight Transportation 10 years in a row as “one of the best small companies” in the United States. Only one company – burger chain Sonic Corp. – has made the list more times.
Kevin, his brother Keith, and his cousins Gary and Randy got their start in trucking through friends of the family – Jerry Moyes and his dad, Carl Moyes, who started Swift Transportation in the 1960s. Today, Swift is the nation’s largest publicly held truckload company. But when the Knights started working there in the early 1970s, Swift was a small company running about 25 trucks, Kevin recalls.
“When you go to work for a small company, you kind of do a little of everything,” he says. “You work out in the yard, you work out in the shop, you dispatch trucks, you deliver a load locally, you do payroll, you do receivables.”
Like many truckload companies, Swift was kept small because of regulation. “I remember wishing we could haul what we wanted,” Knight says. “It was really a very, very different environment [than today]. It kept us from growing very much. By the same token, you got to raise your rates every six months, and when fuel prices got high the ICC told you how much to add to your freight bill. From that standpoint it was good, but it certainly kept us from becoming who we wanted to become.”
Deregulation in 1980 gave Swift the opportunity to start growing the business, and the Knights were there to learn in the new operating environment. By 1984, Swift was up to $25 million in annual revenue.
By 1989, as Swift was preparing to go public, Knight and his brother and cousins decided it was time to go their own way. Knight admits there were some hard feelings, but they have dimmed over time.
“We tried for there not to be [hard feelings], but I would say there were some,” Knight says. “Certainly we’re competitive and certainly the good folks at Swift were very competitive, and it was tough. You know, you wanted the friendship to remain, but at the same time it was difficult. So it’s taken some time for that relationship to heal. I consider Jerry a friend. We enjoy talking to each other, and I think I can say the same about the rest of Jerry’s family and the rest of our family.”
The Knights learned from Moyes and the other truckload pioneers that had come before them. “When we had the opportunity to start our own company, we had this attitude of learning and doing what had worked for others, and trying to build a better model.”
For instance, Knight says, they looked to Heartland Express as a leader in operating ratio and efficiency. Moyes, with his can-do, dynamic entrepreneurial spirit, was another role model. At the same time, Knight says, the partners learned by watching other companies make mistakes.
“We’ve learned a lot of good – and probably some things not to do as we’ve watched the pioneers of the business,” he says.
Over the years, Knight Transportation has gone from being a very small company to being a larger player in the industry. During its first six years, it operated primarily as a West Coast carrier, with its sole terminal in Phoenix. It wasn’t until 1996 that it opened locations in Katy, Texas, and Indianapolis, and three years later locations in Charlotte, N.C., and Salt Lake City.
“In the early days, we had one location and we all reported to the same place and it was easier,” Knight says. “Today we’ve got 17 operating centers spread throughout the U.S.; we’re a bigger business. Our goal along the way has been not to lose efficiency, and we seem to have done a good job there.”
At the same time, the company was going through a gradual transformation from small family business to a family public business (going public in 1994) to more of a public business.
Of their decision to go public, Knight says, “We felt like we had a special company in the making, and it was a good opportunity for us as original stakeholders to improve the liquidity of our investment. And it was an opportunity for our people to participate. Our stock option program has been participated in by all levels of our organization, and you know when you’re growing a business it’s important you create that feeling of ownership. It also really strengthened us from a balance sheet standpoint and put a little gunpowder in the old war chest, if you will. We felt like we’d be a better, more disciplined company by being public, and I think that’s how it worked out.”
At the same time Knight Transportation went public in 1994 with an opening stock price of $2.37 a share, the company also initiated an owner-operator program. By the summer of 1996, Knight was operating 500 tractors company-wide. By 1999, they had reached over $150 million in revenue with more than 1,200 trucks.
Even in the recent downturn, Knight prospered. At the end of 2001, A.G. Edwards analysis Donald Broughton told Investor’s Business Daily that “Knight did one of the best jobs of maintaining its operating margins through a very tough cycle.” He went on to say that “what’s made Knight stand out is very conscientious cost control, accompanied by very high asset utilization, which is admirable.”
Since going public, the company’s profits have increased 766%. At the end of the third quarter 2004, Knight was running more than 2,700 trucks and about 7,000 trailers. At press time, its stock was trading in the mid-$20s. Today Kevin is CEO and chairman of the board, Gary and Randy are also board members (Gary was also president until about a year ago), and Keith is executive vice president but no longer a board member.
There are many reasons for Knight’s success. One is its concentration in short to medium hauls, operating from 17 platforms around the country. That allows the company to optimize its lanes and therefore the entire operation. Before the company picks a new terminal location, it ensures it can “partner up” with customers in cities within about 500 miles of the site. That allows Knight to reduce its deadhead.
In addition to regular truckload service, today Knight also offers dedicated services and refrigerated transportation.
When asked what has helped make Knight Transportation such a success story, Kevin Knight says he can’t put his finger on one thing. “We’re very hard workers, we’re very committed to the industry and very committed to our people. We’ve tried to build a business that creates value for all of our stakeholders. We’ve been good at building the business. We’ve been very deliberate. We haven’t got caught up in growth per se, but we are a grower. We’re steady. We do it on a schedule that makes sense to our stakeholders.”
In other interviews, Knight has cited the experience of the four founders – each had an average of 15 years experience in truck fleet management at the time they started the company – and the company’s discipline in sticking to its plans.
For one example of how the company does things differently, look back to 2002 and the “sky-is-falling” atmosphere among most for-hire fleets in the face of new, largely untested lower-emissions engines. Knight Transportation announced it would not be pre-buying or stretching its trade cycle in order to avoid the new engines, as most other trucking companies were doing. Instead, it entered into a long-term, non-exclusive agreement to buy new Volvo tractors powered by ’02-compliant Cummins and Volvo engines. The deal gave the company access to new tractors under favorable terms for several years, and helped deepen the company’s relationship with Volvo and Cummins. And dealing with the ’02 engines has put the company in a better position for dealing with the next round of low-emissions engines in 2007.
And there’s a final factor that no doubt has something to do with the company’s success: “You know, we really like what we do,” Knight says, “and we take a certain amount of pride in being very good at it. It just gets in your blood. I don’t know how else to describe it. There’s never a dull moment. If you’re passionate about it and you enjoy it, it seems to be contagious. I like the people. There’s just a lot of great people in this industry. I like the challenge of winning business and developing those customer relationships. And our drivers, they’re the heart and soul of this country. All of our competitors, as hard as we compete, they’re some of the best folks you can ever hope to compete against.”
— Deborah Lockridge
