Chattanooga’s genesis as a trucking epicenter began with a simple trade.
In 1958, Clyde Fuller was a young used car dealer in Athens, Tenn., with a fiery temper and a love for the deal when he began to import a little-known car called the Volkswagen Beetle. One day he got an offer for a trade that would alter the rest of his life — two Beetles for one tractor trailer.
Fifty years later, the same eager car salesman is remembered as the long-haul trucking industry’s unlikely success, a man who turned a single trade into a multimillion-dollar, coast-to-coast trucking service and pioneered the cross-country, 48-hour team drive.
With his company, Southwest Motor Freight, Mr. Fuller made Chattanooga into a trucking hub. His son, Max Fuller, and step-son, David Parker, built their own fortunes and competing companies on the long-haul strategies they learned from their father.
Both companies were among a throng of trucking firms that burst onto the scene when the federal government deregulated the trucking industry in the 1980s. They aggressively expanded through the 1990s, but in recent years the sagging economy, fuel prices and industry shift upset their growth.
U.S. Xpress, Mr. Fuller’s company, and Covenant Transport, Mr. Parker’s company, were built like book ends on the east and west sides of town, and today are two of the top 15 truckload carriers in the country based on revenue.
As the methods of shipping goods cross-country change, trucking executives have found themselves at a cross-road, torn between a traditional business model and diverse futures.
Some long-haul trucking companies such as U.S. Xpress believe the future of cross-continental drivers is limited. They have cut their drivers’ length of haul, put freight on railways instead of trucks and expanded their regional fleets, with drivers doing shorter routes.
Other companies, Covenant among them, question the decision to abandon a marketplace that has provided well for them over time. Covenant executives believe the speed and service of long-haul truckers will retain prominence again.
TIES THAT BIND
When Clyde Fuller sold Southwest Motor Freight in 1984, the Chattanooga firm was the state’s largest trucking firm. Mr. Fuller left his son, Max Fuller, his stepson, David Parker, and his protégé, Pat Quinn, to work with the company’s new ownership.
But nearly eight months after Southwest changed hands, the three men left the company, suspecting new leadership was engaged in fraud. Southwest’s president at the time, William R. Thiele, served time in prison for using $2 million of the company’s funds to buy vacation homes, according to Chattanooga Times reports.
“We left the guy based on morals and based on what’s right and wrong,” Max Fuller said. “We were like three orphans looking for something to do at that point.”
For six weeks the three men worked on building a business plan. They applied to the federal government to get a logo and buy trucks, and then, without warning, David Parker disappeared, Mr. Fuller said.
When Mr. Parker, then 28, resurfaced after several weeks he said he had been away praying, and both Mr. Fuller and Pat Quinn suspected plans were about to change.
“He had prayed about it and wanted to start his own business,” said Mr. Fuller.
Mr. Parker, an outspoken Christian, said he decided to found Covenant Transport after having a conversation with God at Fall Creek Falls.
“My relationship with the Lord is the most important thing in my life,” he said. “The name is the representation of what happened to me in the mountains of Tennessee. I was just praying, ‘God. I am 28 years old. I’m scared, and Lord, I will work very hard but I got to have your help so let’s make a covenant together,’ and it just became natural. That’s what happened to me.”
Twenty-three years later, the three men don’t like to talk about one another, though Mr. Fuller said he and Mr. Parker talk regularly to discuss the industry or lament fuel prices.
In many ways, Clyde Fuller held the stepbrothers together until his death in 2002. Since then there have been few reunions of the two families, said Rachel Parker, Mr. Parker’s daughter, who works at Covenant.
They may not be close friends, but they are not enemies either.
“A lot of people would like to think we are fierce competitors, (that) we are going to cut each other’s throats, but that is not true,” said Mr. Fuller. “Occasionally we bump into each other, but the market is so big and so fragmented that we don’t have to do each other in.”
RED TRUCKS
“The world is changing,” said Mr. Fuller, falling into a plump leather seat in a large window-lined office in East Brainerd one late afternoon.
The 55-year-old Mr. Fuller, red faced and excited, admitted he hadn’t had much sleep. He had been on the telephone until 3 a.m. the night before working to close a deal.
Mr. Quinn, co-chairman of U.S. Xpress, sat near Mr. Fuller and the two men said it had been a long time since they had been in the same room, their interactions revealing a boyish giddiness.
Analysts and experts say the industry is facing an unprecedented downturn, but Mr. Fuller and Mr. Quinn are the rare optimists.
Eight months ago, Mr. Fuller and Mr. Quinn took U.S. Xpress, a publicly traded company for 13 years, private.
Unlike many companies, U.S. Xpress realized that the trucking industry was undergoing a rapid transformation before the economy turned south, said Thomas J. Malloy, vice president of business development at the Intermodal Association of North America in Calverton, Md.
Ports along the East Coast were growing, distribution centers were sprouting across the country, the railroads were providing better services and the need for long-haul trucking was diminishing, Mr. Fuller said.
In 2005, U.S. Xpress pulled in high profits, but trouble in the economy was emerging. The housing market was beginning to soften, and the trucking companies were among the first to feel the effects.
Decisions to invest in regional and intermodal growth would damage their earnings in the short term but would save the company in the long run, Mr. Quinn said.
“You get crushed for doing that. Wall Street doesn’t reward that,” he said. “There were a lot of handicaps to being a public company.”
Mr. Fuller and Mr. Quinn felt that while they could make small adjustments, they couldn’t redirect the publicly traded company fast enough.
“What we saw going on in the marketplace is that the industry is changing and changing fast,” said Mr. Fuller. “How often do you see elephant dance? Well, we had an elephant here and it needed to dance.”
U.S. Xpress has changed dramatically in the last five years, said John White, president of U.S. Xpress Inc.
Many miles once run by truckers are now run by trains, he said.
Six years ago, the company did no business with the railroads, but today 10 to 15 percent of its freight goes on rail. In the last 10 years the company’s average length of haul has dropped 44.6 percent, from 1,128 miles to 625 miles.
For solo drivers, the dip is just as dramatic. The average length of haul for solo drivers has gone from 806 miles in 2003 to 521 miles in 2008.
In the next five years, Mr. White expects to see the amount of business done with the railroads double. And as more long-haul freight shifts to rail, the company is focused on growing shorter routes close to home.
Regional routes already have grown 60 to 70 percent in the last five years, he said.
Mr. Fuller will not reveal the company’s recent earnings, saying U.S. Xpress no longer is required to report financial figures. But outside of fuel costs, the company is reaching record levels of profitability, he said.
The decision to overhaul U.S. Xpress is rooted in Mr. Quinn and Mr. Fuller’s belief that to exist in the marketplace businesses must be willing to put on a new face.
“A lot of people that aren’t willing to change, they are getting crushed and it hurts and it hurts bad,” said Mr. Fuller. “The only constant is change. Keeping a company this big that nimble is not easy. I can tell you after going private, this elephant can dance.”
“We could be on Dancing with the Stars,” Mr. Quinn added, the two men laughing.
Attitudes are different across town.
BLUE TRUCKS
Every weekday at 5 a.m., David Parker runs his body through a two-hour exercise regime, climbs to the third floor of the Covenant building on the west side of town and closes his office door.
Before work begins at 9 a.m., he spends two hours in devotional with God. Lately, with Covenant’s stock trading for around $3 or $4 a share, $13 dollars lower than four years ago, Mr. Parker asks for guidance and strength.
“Covenant isn’t doing well,” said Rachel Parker, Mr. Parker’s daughter.
In the first quarter of 2008, Covenant Transport lost $7.8 million, or 56 cents per share. Covenant was one of five publicly traded truckload carriers to report a loss in the first quarter, Mr. Parker said.
Covenant is due to report its second quarter earnings later this week and most analysts expect the company to again report a loss, although smaller than the second quarter deficit a year ago.
As many companies begin to use railways to carry freight for the long-haul, Covenant leadership has resisted. Ms. Parker attributes her father’s unshakable commitment to the long-haul business to the belief it was entrusted to him by God.
“It’s not fake or for show,” she said. “When there are layoffs, I have seen him on his knees crying. He has such a trust and faith in God.”
Like U.S. Xpress, the average length of haul for team drivers at Covenant Transport has decreased in the last five years, from 1,600 miles in 2003 to 1,450 miles in 2008, and those miles will continue to shrink, said Joey Hogan, senior executive vice president of Covenant Transport.
The number of teams at Covenant also has decreased 20 percent in the last five years, though Covenant added 194 teams this year, he said.
Mr. Parker doesn’t look to railroads as the solution.
“We are more in line of staying with what we know,” he said. “It has been true to me for 25 years and maybe I have had a couple years where it is not true, but I believe that it comes back.”
Some executives believe the railroads will come to own the long-haul marketplace, but Mr. Hogan said the rails still fall short on service.
While the railways are offering faster and more reliable service than they did 10 years ago, capacity is constrained, even if rail companies triple deck freight and build more lines, he said.
Bill Graves, president of the American Trucking Association, said it is understandable for long-haul truckload carriers to resist moving freight on railroads. When relying on trains, a company can loose control of delivery times.
At the same time there is no denying that trucking is changing, requiring companies, ready or not, to expand regional service, Mr. Hogan said.
Covenant Transport began to dabble in regional routes in 1999 after its purchase of Harold Ives Trucking, a regional trucking business based in Little Rock, Ark. But Mr. Hogan said the faster pace of loading and unloading in the regional marketplace proved a rocky start.
“We struggle with that transition almost nine years later,” he said. “It’s a culture change.”
In 2006, Covenant Transportation Group, purchased Star Transportation, an established Southeastern regional carrier, for $80 million and furthered its investment in regional growth. CTG also has cultivated a brokerage business since 2005, which has pulled in a little more than $50 million in revenue this year, said Jerry Eddy, senior vice president of operations at Covenant Transport.
“It says we are focuses on finding alternative ways to service our customers,” Mr. Eddy said. “Just because we don’t have a Covenant truck available doesn’t mean we can’t service the customer’s needs.”
As thousands bow out of the trucking industry, Covenant is financially sound, Mr. Parker said.
Mr. Parker said the company cut $20 million in expenses last year by cutting down on truck idling time, empty miles and reducing the speed of trucks to around 65 miles per hour.
If the company can withstand its current financial difficulty, Covenant could be one of the last giants standing, Mr. Parker said.
“You just got to wait it out,” he said. “You keep working and doing things to the best of your ability, trying to be as smart as you can and hope that in 35 years of doing this you haven’t gone dumb in two years. And you keep going doing the same thing you have always done.”
