Trucking Firms Reach a Fork in the Road : Freight: Tentative Teamsters pact allows use of trains for long hauls--a sign of the move to diversify.

By JESUS SANCHEZ

May 31, 1994 12 AM PT

TIMES STAFF WRITER

After enduring a 23-day strike by the Teamsters union last month, some of the nation’s largest trucking firms tentatively won the right to ship more goods--by train.

On the surface, it may seem that the trucking companies are giving away their business. But the union agreement--now being voted on by Teamster members--in fact lets the truckers cut shipping costs by as much as a third by using railroads on distances of 1,000 miles or more, according to industry executives.

“The trains can provide the long-haul move while the trucks will provide the pickup and delivery function,” said Douglas Rockel, a trucking analyst at Merrill Lynch Research.

The arrangement shows how many of the large trucking companies have expanded beyond fleets of classic 18-wheel big rigs to move freight and make money. Faced with slow-growing, mature markets and increasingly demanding customers, many long-haul trucking companies are relying more on trains, planes and even on computer networks as they transform themselves into diversified transportation companies.

Many industry observers expect that companies able to offer a variety of transportation services will come to dominate the industry. Such companies, in theory, will be able to offer customers one-stop shopping for the overnight delivery of a package across town or the transport of a cargo container overseas.

Many see the trucking firms’ fast-growing logistics subsidiaries as linking a network of trucks, trains, planes, delivery vans and warehouses operated by the same company. The logistics firms use sophisticated computer networks to track freight in transit, determine the most efficient routing and delivery schedules and minimize the time shipments sit in warehouses.

For example, computer maker Hewlett-Packard uses Menlo Logistics--a subsidiary of Palo Alto-based Consolidated Freightways--to store and distribute its LaserJet computer printers in the United States. The printers are packaged and stored in a Menlo Logistics warehouse in Fremont, Calif., until they are shipped to stores by Consolidated’s trucking and air freight companies.

That kind of service has become essential to serve corporate customers, who were once content receiving shipments in two or four days but now demand on-time and frequent deliveries to factories and retail outlets.

“It’s the natural evolution of transportation,” said Rockel of logistics operations. “It’s the next step in moving freight from Point A to Point B.”

The changes reflect in part the consolidation of the giant but fragmented trucking and transportation industry.

“There are some huge investments coming along in information technology and all the other things that are required to deliver the level of customer service that people have come to expect,” said Jeff Ward, a consultant in the transportation practice of Chicago-based A.T. Kearney. The smaller carriers lack the financial resources to offer such service and will be forced to merge into larger firms, he said.

But trucking firms have run into problems as they have expanded into new territory.

It took Consolidated Freightways, for example, about three years to recover from the 1989 acquisition of Emery Air Freight Co. Emery finally generated an operating profit last year, but only after a major restructuring and huge losses that dragged its corporate parent into the red.

Many labor leaders also view diversification as a way for companies to expand through non-union subsidiaries. Unions have opposed companies’ efforts to merge union and non-union subsidiaries.

“The unionized industry has to adapt to the future,” said Bernie Mulligan, a spokesman for the International Brotherhood of Teamsters. “(But) the companies have to recognize our needs for job security.”

The speed at which trucking firms have diversified or teamed up with railroads and shipping lines picked up significantly in the early 1980s when the government deregulated the trucking and railroad business, unleashing a wave of rate-cutting competition.

Some trucking companies have teamed up with railroads and oceangoing shipping lines to move millions of containers of freight across the globe. A partnership between J.B. Hunt Transport--one of the nation’s largest long-haul trucking firms--and the Santa Fe Railway shipped more than 125,000 containers on trucks and trains last year.

Other firms, such as Roadway Express, have taken a more aggressive approach. In 1982, Roadway decided to diversify after more than 50 years in the long-haul trucking business.

The freight hauler created a holding company--Roadway Services--and bought several regional trucking firms, started up a small package delivery service, and launched an air cargo company and a logistics business that can handle a client’s entire transportation and warehousing operations. Now, these new operations generate half of the Akron, Ohio-based company’s $4 billion in annual revenue.

“We are looking to become more of a total transportation company,” said Barbara E. Hasenstab, a spokeswoman for Roadway Services. “At this point, we have all the pieces that we feel we need.”

Yet some trucking companies have adopted a much more cautious approach when it comes to diversification. Yellow Freight System, for example, is one of the large trucking companies that could take greater advantage of low-cost rail service under the tentative agreement with the Teamsters. But it has no ambitions to expand beyond its long-haul trucking business.

“We are not offering what you call a grocery store of services,” said Douglas A. Fisher, vice president of international operations for Yellow Freight. “We don’t sell rail and truck. We try to sell a specific service.”

What Trucks Carry

The nation’s fleet of commercial trucks carried more than 2.5 billion tons of freight in 1991. Here’s a breakdown of what they carried, in percent of total shipments by weight. Clay, concrete, glass: 22.7% Food: 19.0 Lumber, wood products: 15.2 Chemicals: 10.2 Petroleum, coal product: 9.9 Paper products: 4.2 Primary metal products: 4.0 Farm products: 3.9 Other: 10.9

Source: Reebie Associates