Trucks, time and technology Featured

7:00pm EDT March 10, 2004
Pitt Ohio Express president and co-founder Chuck Hammel insists that his business is a pretty simple one.

"You pick up stuff here," he says, cupping his hands at one side of his desk, "and you deliver it there," he continues, moving his arms toward its opposite end.

Simple, perhaps, but far from easy.

Pitt Ohio Express, with 2,300 employees, 20 regional terminals and more than $200 million in revenue in 2003, delivers in a competitive, fragmented and fluid industry. Global logistics and transportation company BDP International estimates that 12,000 U.S. trucking companies closed down or consolidated between 2000 and 2003. There are more than 40,000 trucking businesses in Pennsylvania alone, according to the American Trucking Association, and a staggering 500,000 nationally, many operating fewer than 20 trucks.

The industry in recent years has faced a chronic shortage of drivers, even as demand for its services continues. The problem promises to worsen this year, as new hours-of-service rules imposed by the U.S. Department of Transportation, effective Jan. 1, increase the length of rest periods between shifts for drivers.

Pitt Ohio Express competes in the $20 billion less-than-truckload, or LTL, segment of the truck transport industry, going toe-to-toe with industry giants like Yellow Roadway Corp. - the largest in the United States - at one end of the spectrum, and with small, regional carriers with fewer than 20 trucks at the other.

 

Just in time

Hammel and his brother, Robert, started Pitt Ohio Express in 1979 with three trucks in an industry that was, at the time, highly regulated. The Hammels' heritage in the trucking industry goes back to the horse-and-wagon days.

Their grandfather launched a transportation business in 1919, and their father continued with Hammel's Express at a time when the Federal Motor Carrier Act of 1935 gave the Interstate Commerce Commission authority to regulate motor carriers involved in interstate commerce by controlling operating permits, approving trucking routes and setting tariff rates.

Coming along with a wave of deregulation during the 1970s and 1980s, the Motor Carrier Act of 1980 substantially reduced regulation.

"Deregulation basically took away all of the barriers, and ... there was a much greater ease of entry into the industry," Hammel says.

While it promised substantial savings for business customers, deregulation presented both opportunities and potential trouble for truckers already in business. Lower barriers to entry meant more competition in an industry in which regulation previously shielded a few players from any real competition..

"At first it was scary," Hammel says. "We had operating authority for just the state of Pennsylvania that was worth $1 million one day, (then) worth zero the next day."

Pitt Ohio Express' value might have evaporated compared to what it had been in the old order, but it had developed a model that the changing landscape of business was prepared to embrace.

"Where we kind of gained our foothold in the industry was to do what other carriers either wouldn't or couldn't do," says Hammel.

Pitt Ohio Express' advantage was in offering customers next-day delivery, a service that a lot of other trucking companies, gone flabby in a regulated environment that by its nature restricted competition, wouldn't find easy or desirable to take on. Before deregulation, standard service from Pittsburgh to Philadelphia, Hammel says, was three days, so trimming that convention by two-thirds seemed a monumental leap forward.

But as business began to embrace just-in-time practices to streamline processes and cut inventory costs, shorter delivery lead times loomed as an attractive way to control costs.

Innovators, of course, inspire imitators, and it didn't take long for the industry standard in the LTL world to become next-day delivery, so Pitt Ohio Express couldn't rest on those laurels forever.

"Today, everybody's next-day," says Hammel.

A willingness to invest in technology has been one key to staying at the head of the pack. Pitt Ohio Express invests $8 million a year in IT, from help desk solutions to improve customer service to an enhanced Web site last year that allows customers to obtain instant rate quotes and images of delivery documents online.

While customers continue to press for shorter lead times on deliveries, the focus has shifted to some degree to an expectation of "time definite" delivery. Information about the shipment is as critical to customers now as getting delivery, says Hammel.

Having the capability to knows with precision how much a delivery will cost, where it is at any given time and an accurate estimate of when it will arrive is an advantage for most businesses. A building contractor who knows when the framing lumber will arrive at a job site or warehouse, for instance, has an advantage when it comes to scheduling work crews and coordinating other deliveries.

"Now, it's the information flow that goes along with it that's actually more important than the freight movement itself," says Hammel.

That kind of information access has become the standard, as big players such as UPS have invested heavily in technology and raised the bar for performance.

 

New demands - and opportunities

Seeing an opportunity in managing transportation services for its customers and others, Pitt Ohio Express spun off Keystone Dedicated Logistics, a transportation logistics operation, in 1999.

"That was kind of an answer to what we were hearing five years ago," says Hammel.

Transportation for large companies doing business over long distances can involve several LTL carriers, freight haulers, rail transport and package carriers, and international carriers. Pitt Ohio Express found that customers with complex transportation needs wanted to turn them over to a transportation specialist.

The cost of handling those needs in-house is often prohibitive, so businesses are eager to have someone else handle it. That's made Keystone Dedicated Logistics a success, but Hammel says that as the costs of handling logistics in-house come down, some customers ultimately will find a way to bring the function back into their operations.

Hammel says the market is beginning to show the industry where it wants to go in the future. Some customers are requesting the option of changing the destination of a shipment while it is en route. Others want to be able to merge deliveries in transit, combining shipments from several locations at a single point, then shipping the full load to its final destination. Information technology will no doubt play a pivotal role in bringing those services to the customer.

Pitt Ohio Express expanded last year into Chicago, its 20th market, building a terminal there and expanding next-day service to an 800-mile stretch from Chicago to Jersey City.

Expanding into additional geographical areas is always a possibility, says Hammel, but he prefers to grow the business organically where it already operates, because carving out new markets is costly.

Early on, expanding into entire states worked because Pitt Ohio Express had a jump on the next-day delivery market. With that advantage blunted, one of the few ways remaining to get the attention of potential customers is through price-cutting, a practice that Hammel says can be self-defeating.

Says Hammel: "We don't want to give away a premium service, and we don't think that's the right way to enter a market." How to reach: Pitt Ohio Express, http://works.pittohio.com; Keystone Dedicated Logistics, www.kdlog.com; American Trucking Association, www.truckline.com