| The outlook for Greatwide Logistics does not look | | | | seen this movie before. It never ends pleasantly. |
| good. It pains me to say that because I know | | | | Consolidation in other industries might yield cost |
| several very talented managers who work there. | | | | savings, but trucking has never enjoyed noteworthy |
| Yes, I know Greatwide has over 5,000 owner | | | | economies of scale. Sure, a company like Greatwide |
| operators. And I know it generates a billion plus in | | | | might save a few bucks by combining functions such |
| revenue. And I also know that Greatwide last ranked | | | | as personnel, marketing and risk management across |
| 23rd on the Transport Topics list of top 100 carriers. | | | | its subsidiaries. Still the two biggest costs for every |
| Still as truckload carriers go Greatwide is no J B Hunt | | | | trucking company are fuel and driver wages. (In |
| or Schneider. Those companies became behemoths | | | | Greatwide's case payments to owner operators |
| through incremental growth achieved over much time. | | | | essentially encompass these items.) These costs do |
| In contrast, Greatwide Logistics rose onto the | | | | not decline with size. Diesel costs X amount per gallon |
| trucking scene like a pre-fabricated phoenix. The | | | | whether you fill-up one truck or a thousand. The |
| company is actually an amalgamation of several | | | | same goes for driver wages. In fact trucking |
| trucking companies glued together with debt and | | | | arguably suffers from diseconomies of scale. Does a |
| re-packaged under a new name. There's nothing | | | | large trucking company with an elaborate home |
| incremental about it. | | | | office, huge corporate staff and multi-state terminal |
| The lure of creating the next J B Hunt or Schneider | | | | network enjoy a cost advantage over the guy who |
| National in a fraction of the time must have a very | | | | eats and sleeps in his truck? Likely not, unless it has a |
| strong appeal. We see deals like Greatwide Logistics | | | | very talented management team, which of course is |
| come along every couple of years. The investors in | | | | always the first thing cut in deals like Greatwide. |
| these companies generally do not drive trucks or run | | | | Greatwide Logistics is less a trucking company than a |
| trucking companies. They come from the financial | | | | financial transaction. The investors behind this deal |
| community - a savvy lot - but apparently less so | | | | never set out to haul freight. They set out to get |
| when it comes to grasping the economics of trucking. | | | | rich. But no one gets rich in the trucking business |
| The theory behind Greatwide goes something like | | | | without paying major dues. Now in the midst of |
| this: buy a bunch of companies on debt, consolidate | | | | arguably the worse freight hauling environment in |
| their revenues, and let everything else fall magically | | | | thirty years, the debt that fueled Greatwide's |
| into place. After all, consolidation also means cost | | | | meteoric rise has turned into a life threatening |
| savings, extra cash and the ability to service debt. No | | | | avalanche. The margins in the trucking business have |
| doubt, the Power Point presentation made it all look | | | | never accommodated excessive debt service. History |
| very logical - particularly the mouth watering last slide | | | | shows that almost every highly leveraged deal in |
| highlighting the IPO. Unfortunately, there is nothing | | | | trucking has failed. |
| logical about the economics of the trucking business. | | | | Sadly for the employees, suppliers and other |
| In trucking no amount of revenue guarantees a profit | | | | stakeholders, all the perfunctory efforts in |
| - especially if a company holds a lot of debt. Think | | | | bankruptcy to trade out Greatwide's debt for equity |
| back to AmeriTruck, Trism and Transit Group to cite | | | | will surely prove too little too late. |
| just a few of the forerunners to Greatwide. We've | | | | Thanks for checking in... |