J.B. Hunt - Driven to WinBy Sean Gallagher | Posted 2001-12-10 Print
Trucking giant J.B. Hunt tries to track its trucks as they criss-cross the nation, in an effort to boost efficiency and profits. So why are its drivers still getting lost?
One night last summer, David Modine was driving to his stone dealership in Rockville, Md. As he drove up a narrow stretch of residential road, he suddenly found himself stuck behind a tractor-trailer jackknifed at a tight intersection. The truck bore the bright yellow logo of J.B. Hunt, a freight carrier based in Lowell, Ark.
Later in the month, the scene played itself out again—same intersection, same problem, same J.B. Hunt logo. And then again, as Modine was rushing one night to respond to a burglar alarm at his business. Frustrated, Modine went onto a trucker's Internet newsgroup and asked,"Does J.B. Hunt teach its drivers how to read road signs?"
The Hunt drivers, several truckers replied, had probably just been following directions—directions passed to them from a computer by way of San Diego, Calif.-based Qualcomm's satellite communications system.
Hunt is the largest publicly traded player in the over-the-road hauling business, pulling full loads of freight to specific destinations. The company is second overall in its industry, trailing privately held Schneider National of Green Bay, Wis.
Hunt and its competitors in the trucking business have been trying for years to use wireless and satellite technology to control their far-flung rolling assets.
Now Hunt is trying to leapfrog its competitors with a new tracking technology that can tell it where its trailers are and what their status is, whether they're at a customer's loading dock or jackknifed on a country road. The goal is to squeeze more efficiency—and more revenue—out of the use of its fleet of more than 11,000 trucks and more than 25,000 trailers.
There are risks associated with being a first mover. Schneider National had also committed to a trailer-tracking technology from Qualcomm—only to have the vendor pull its service off the market because of the deterioration of the nationwide analog cellular network, upon which the system was based. "Qualcomm felt that the analog network is going to decay much more rapidly than previously thought," says Paul Mueller, CIO of Schneider. "We're reevaluating our options."
All the viable choices left for Hunt depend on the same analog technology. And aside from Qualcomm, there are few financially stable vendors in the market.
But Hunt sees the technical edge—and its potential financial returns—as outweighing the risk. If the company can improve its operating margins by even one-half percentage point because of more-efficient use of its fleet, the impact could be an additional $10.8 million in annual operating income. That in turn, after taxes and interest, could boost last year's net income of $36.1 million by roughly $7.4 million, or 20%.
The Qualcomm OmniTRACS system and others like it have become an integral part the trucking world, helping squeeze efficiency out of a line of business that is only barely profitable in the best of times; the industry's net profit margin has hovered between 1% and 3.5% for the last 25 years. Even with record industry revenues of $76 billion in 2000, the trucking industry as a whole managed a margin of only 3.44%—and Hunt's $36.1 million of net income equates to just 1.7% of its $2.2 billion in annual revenue.
These satellite- and radio-based tracking systems provide companies with an invisible tether to the truck, letting them know where drivers—and trucks—are. The system can even monitor the performance of the truck and driver, and report back when either falls outside of the accepted norm.
At Hunt, the Qualcomm system also ties trucks and drivers directly to the company's e-commerce systems and Web sites, sending drivers order data and passing truck locations back to customers who are tracking shipments. This allows customers to monitor the progress of their shipments, and get advance notice of their arrival so they can unload faster—which is especially important for those who run their companies on "just in time" inventory.
It also saves Hunt on manpower. "The Qualcomm system is completely integrated into our workflow," says George Brooks, VP of IT applications at Hunt. Hunt's dispatching systems are capable of taking an electronic request for a shipment from a customer using the company's Web portal or the TransPlace.com logistics exchange and transmitting orders to a driver without dispatchers ever touching them. "It doesn't usually happen that way," admits Brooks, "but it can."
Unfortunately, running the wireless system is not a completely hands-off process. Trucks may be tracked properly, but that doesn't mean they go where they're supposed to. That's because the system still relies on data— directions—to be accurate in the first place.
Kay Palmer, CIO of J.B. Hunt, says the company processes hundreds of corrections and clarifications to directions in the company's proprietary database every month, collected from customer surveys and driver messages. But even so, with more than 11,000 trucks out on the road, even the smallest data quality problems can lead to unexpected consequences—like the three stranded rigs in Rockville. "One set of bad directions is too many," says Palmer.
If managing truck fleets is hard, managing the trailers they haul has been almost impossible. While most of J.B. Hunt's capital investment goes into its trucks, the company's capacity is directly tied to the availability of its 25,000 trailers (and nearly 20,000 containers) to haul cargo. And while OmniTRACS can tell managers where trailers are while they're en route, managing trailers once they've been unhooked from trucks has always been something of a cloverleaf mystery.
Which is why J.B. Hunt is now placing a big bet on the emerging technology of trailer-tracking. "If you know where your equipment is, you can manage it more effectively, " says J.B. Hunt Treasurer David Chelette.
That includes being able to get trailers turned around more quickly. Hunt charges customers for "detention" of trailers—usually tacking on a percentage to shipping fees or taking it out of any discounts the customer was due for volume shipments. These fees, which across the industry can work out to $75 to $100 per day, encourage customers to unload the trailers and get them back into use. "It helps turn over trailers, and helps eliminate customers hoarding your trailers," says Chelette.
If Hunt could have trailers report not just their location but their status as well, the company would have the data needed to bill accurately and get trucks to empty trailers more quickly. That would result in not only greater efficiency for Hunt but also savings in the long run on detention charges and "empty miles"—the cost of getting a trailer to a pick-up point—to Hunt's customers.
The main measure of success for trailer-tracking, according to Chelette, will be more "box turns"—loads carried per trailer, per month. In Q3 of this year, Hunt's trucking division averaged four loads per month, with revenue of about $860 per load; the addition of one more load per month for each of the division's 19,820 trailers would mean another $204 million in revenue per year, a boost of 9.5% over last year.
Palmer says Hunt also hopes the tracking system will reduce losses from theft. This could reduce the company's insurance and claims costs, which were $39 million in 2000.
Then there's the newly charged issue of security. "These companies are being forced to monitor exactly where their equipment is," says John Barnes, an analyst at Deutsche Banc Alex. Brown. "The last thing you want is someone stealing a Hunt truck, driving it into an airport and blowing it up."
Security concerns aside, there are other substantial gains that Hunt hopes to achieve by knowing exactly where all its trailers are. Currently, Hunt has to keep nearly three trailers in its fleet for every truck in order to guarantee it has enough capacity available to haul its freight. That means two trailers sit unused at any given time for each that is on the road hauling cargo. By reducing that ratio of idle trailers by even a fraction, says applications VP Brooks, "it translates to millions in savings each year."
It took four years to identify a tracking system that could fit the bill. In May, after a year of testing, J.B. Hunt announced a deal with trailer-tracking-system manufacturer Terion, worth an estimated $10 million.
So far, 5,000 trailers have been configured with the company's FleetView system, with the goal of installing 17,000 total—covering 85% of J.B. Hunt's trucking division fleet and a small percentage of trailers for Hunt's biggest accounts.
There were three factors behind Hunt's choice of the Terion system. First, since each cellular connection can use all of the bandwidth available to it, the software can be upgraded in the field. Second, Terion offers an acoustic sensor system that can detect if a trailer is loaded. And because Terion hosts the application through a secure Web site, deployment is fast.
At this point, Hunt execs are uncertain of the exact impact that FleetView will have. "It's going to take getting acoustic sensors on all of our equipment," says Elaine Chaudoin, Hunt's VP of operational services. "It will probably be six months before we can come up with a good set of numbers."
So far, the project has had little discernible impact on the trailer-utilization metrics Hunt watches. But there are some early promising signs. "We've been able to prove that we are utilizing the trailers equipped with Terion better," says CIO Palmer. In September, the company recorded its fewest "empty miles"—miles driven between loads—in over a year (though Hunt would not provide numbers to support this claim).
FleetView has also already had an impact in preventing losses."We were able to get to a trailer before (hijackers) were able to empty it out," says Chaudoin. "We've also found that other carriers were using our trailers."
Occasionally, when customers know a trailer will be sitting empty for a prolonged time, they put it to other use, including hooking it up to another company's truck to haul a load, essentially "borrowing" Hunt's hauling capacity (something for which Hunt should be compensated). Now, Hunt can bill for that.
Hunt can use all of the billable items it can find. As the economy has slid over the last two quarters, Hunt and other truckers have been hit hard. Hunt's earnings for the first three quarters of the year are down 58% from $25.2 million in the first three quarters of 2000, because of lower freight volumes and higher costs. In the end, the best gauge of the success of Hunt's trailer-tracking effort will be how quickly the company bounces back from the slump.
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