Preston `OK' until lender pulled plug

Famous trucking name goes belly up, leaving many wondering why

An arcane, risky business

August 01, 1999|By Robert Little | Robert Little,SUN STAFF

Everything seemed fine at Preston Trucking Co.

Sure, the company had some problems in the past. It was sold twice in six years, and workers took a pay cut once to keep it afloat.

But the last few months the terminals were busy, revenue was creeping upward and the new owners were enthusiastic. The company had a veteran work force, terminals all over the Northeast, a 67-year history and a recognized name. And as recently as a year ago it was completely debt-free.

"We thought everything was OK," said Noah Outlaw, a 25-year employee. "We were sure the problems were turned around."

Everything was not OK. Preston Trucking announced the layoff of all 5,000 employees last week and said it will be out of business by mid-August. Most workers were dropped immediately, and the company plans to sell its assets to pay them.

Company officials declined to discuss Preston's abrupt and spectacular failure in detail, saying only that revenue didn't cover costs and that lenders wouldn't give them more cash.

But industry observers say Preston's demise might be rooted less in the way it was managed than in the evolving nature of the service it was trying to provide.

Preston Trucking staked its fortunes on a narrow fringe of the freight transportation business called "less-than-truckload" hauling, a trade that has driven three large companies into bankruptcy in less than a year.

Preston Trucking wasn't a lousy company, industry authorities say, it was just a regional "LTL" hauler trying to find its groove. And as such, it didn't stand a chance.

"Companies like that have been struggling to survive for at least 10 years, and a lot can't," said Walter Thompson, head of the Maryland Motor Truck Association. "They're trying to do things cheap, but they're in a business where nothing's cheap."

In its purest form, the business of trucking requires little more than a truck, a driver and a customer with something to haul. Business expenses include a salary, fuel, vehicle maintenance and administrative costs. But the only trucking companies that approach that level of simplicity are the "truckload haulers." They ship freight only by the truckload, directly from the sender to the receiver.

Truckload haulers account for two-thirds of the for-hire trucking industry, and enjoy a growing, thriving segment of the business.

Less-than-truckload companies like Preston don't have it so good. They cater to customers whose shipments won't fill a whole truck, and will deliver goods in virtually any quantity. One truck might carry 50 or more different shipments -- all with different origins and destinations.

Collecting and distributing those shipments requires a sophisticated distribution network. One driver collects shipments and brings them to a warehouse, a second driver takes them to another warehouse and a third driver delivers them to their destination. Workers at the warehouses pack and unpack the trucks.

Besides the cost of moving goods on the highways, less-than-truckload haulers must pay for terminal operations and a bevy of employees who handle shipments.

And the costs keep going up -- labor rates and vehicle maintenance, especially. Yet competition is so keen, the rates the companies charge rarely rise dramatically.

"It's very labor intensive, and there's a lot of competition for the business," said John Trimp, operations manager for Superior Transfer Inc. in Linthicum, which left the less-than-truckload business several years ago.

"The truckers are beating each others brains out driving the rates down, and their costs keep rising. Why would you invest money in that kind of a losing situation?"

A lot of businesses have decided not to. Preston's lenders told the company's owners July 24, that they'd had enough. They denied the company further credit, and Preston folded two days later.

For the mid-Atlantic economy, the loss of Preston Trucking, based on the Eastern Shore, meant the loss of more than 5,000 well-paying jobs. In Maryland, about 700 jobs were lost. Preston was one of the largest employers in rural Caroline County.

For the trucking industry as a whole, however, Preston was just another addition to the growing scrap pile of regional LTL carriers.

In December, ANR Advance Co. in Milwaukee folded after a three-week strike by its drivers and yard workers. The employees, represented by the International Brotherhood of Teamsters, had demanded higher wages, but ANR officials said the company couldn't bear the costs.

Colorado's NationsWay Transport Service Inc. declared bankruptcy in May, saying that rising costs were outpacing revenue.

Several less-than-truckload carriers remain profitable, and among them are some of the largest haulers in the country -- companies like Roadway Express, Consolidated Freightways and ABF Freight System. But those transcontinental haulers have a luxury that the regional and sub-regional carriers don't -- their customer bases are so large that they can fill up a lot of trucks.

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