Robert A.Young III
Another perspective: how one LTL carrier survived deregulation.
When deregulation gave truckload carriers nationwide, all-commodities authority, the newcomers aggressively went after the truckload freight being hauled by the big LTLs.
Fort Smith, Ark.-based ABF Freight System is one of North America’s largest LTL carriers. It’s also one of the few big LTLs that survived deregulation, and it continues to prosper in an industry now dominated by truckload carriers.
ABF got its start in the mid-1930s. P.C. Motor Freight Lines had authority between Fort Smith southward to Texarkana, Ark. In 1935, it acquired Arkansas Motor Freight, giving the company authority northward through Fayetteville, Ark., to Kansas City and across to St. Louis. Over the next 17 years, a series of acquisitions expanded the company’s authority from a small intrastate carrier to one with authority in 11 states. In 1957 – following the acquisition of Best Motor Freight – the name was changed to Arkansas-Best Freight System.
More acquisitions and purchases and leases of other companies’ operating rights in the 1960s and 1970s expanded ABF’s authority even further. By the eve of deregulation in 1979, with the acquisition of Navajo Freight Lines, the company was the ninth largest among the nation’s regulated interstate motor freight carriers.
Then deregulation hit.
“If you go back and look at the 50 largest carriers in 1975, there are just four of us left,” says Robert A. Young III, who today is chairman and CEO of Arkansas Best Corp., parent company of ABF. “You had former LTL carriers going out of business damned near every month.”
That’s because deregulation essentially spawned a new industry – the truckload industry. “If you look at truckload prior to 1980, the operating authorities that you had to have in those days were very specific,” Young says.
“Their authority might read something like, ‘Gypsum wallboard and lumber products from the International paper plant in XYZ location to points north and east of Highway 75, not to include something else.’ They were very specific rights. So you just didn’t have truckload carriers other than those hauling exempt commodities prior to 1980.”
When deregulation gave truckload carriers nationwide, all-commodities authority, the newcomers aggressively went after the truckload freight being hauled by the big LTLs.
“In the regulated environment, about half our business was truckload,” Young says. “When deregulation came along in 1980, we began to lose the truckload business at about 25% a year, on a smaller base every year. It largely went away after about seven or eight years, but it was a big hit right away.”
There were two main reasons ABF and other LTLs, lost the truckload business so quickly to the new entrepreneurs competing under deregulation: Their rates were too high, and the terminal method of hauling freight was inefficient for truckload freight.
“We were overcharging for [truckload service] under the rate bureau approach,” Young admits. “It probably subsidized to some extent the LTL. And the truckload carriers had a better model for handling truckload business. We relay freight – always have – and that doesn’t work as well in the truckload environment. There’s too many circuitous miles to relay truckload freight. It generally needs to go the most direct route, and that didn’t fit our operating plan very well.”
Anticipating deregulation, ABF had put a team together in the late ’70s to try to estimate the impact on the company.
“They came back to top management and said we either needed to become a dominant regional LTL carrier or a nationwide LTL carrier, and if we were somewhere in between, that was going to be a very difficult position to sustain,” Young recalls. “And if we were not going to become a dominant regional carrier or a nationwide carrier, then we probably needed to sell.”
The company was already inter-regional, so going backwards to become a dominant regional carrier didn’t make sense to management. So in the 1980s, while many companies were struggling to survive, ABF was opening terminals at the rate of one a week to flesh out its nationwide coverage.
When deregulation hit, “you had humongous additional competition right away, and carriers that wanted to continue doing business they way they had always done business just didn’t make it,” Young says. “You had to change rapidly.”
For ABF, one of those changes was removing the person in charge of pricing. “We knew the people in the traffic department who did all of the work with the rate bureaus and collectively set rates were going to be a detriment to us under deregulation, because they didn't know how to independently set rates,” he says. “Their mindset was based on 20 to 30 years of doing it the old way. So we put somebody in that job that didn’t know how to do it the old way.”
Another factor in ABF’s survival was the fact that, prior to 1980, they had developed a cost system that worked well. Because trucking companies had to set their own rates for the first time, there was a lot of pricing done without considering costs, Young says. “People didn’t know what their costs were. The key is not that our prices were lower or higher than another carrier. It’s knowing the freight that fits our trucking company the best that’s important. If you did not understand your costs and decided to compete on price, that was a sure recipe for disaster.”
Their strategy worked. ABF’s revenues increased from nearly $419 million in 1985 to more than $783 million in 1991. The 1990s saw major expansion into the international market, opening service centers in Canada and entering an alliance that allowed ABF to ship cargo to 45 countries.
Since 1993, ABF has maintained an alliance with Mexico’s largest motor carriers, giving it single-bill service to major points south of the border.Today, ABF operates 5,000 power units and 18,000 trailers.
Truckload freight makes up less than 10 percent of its business.
— Deborah & Evan Lockridge
