OTR's maintenance supervisor, Mark Hirshman, routinely goes over invoices with the drivers, reminding them which parts of the country have lower labor rates or where parts can be bought under warranty. "Our drivers used to buy four to five tires a day on the road," says Bill Ward. "Now that number is down to three per week." Such small decisions, he adds, are not, in the aggregate, insignificant, since last year OTR spent $3 million on maintenance.
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Dan Bearth, a staff writer at Transport Topics, based in Alexandria, Va., one of the few industry trade journals that focus on trucking management, believes OTR Express is one of a kind by dint of its strategy. "We're not aware of any other single company that does business this way, because no one else has gone into the business the way it has," he says.
Jon Braatz, an analyst with the Kansas City, Mo., office of brokerage firm Fahnestock & Co., who follows the company, echoes Bearth. "All trucking companies now use the computer intensively," he says, "but when OTR's managers started the company, they said, 'We're going to adopt a different approach that will make the computer fit well with the use of our heavy equipment.' " Braatz says that while other trucking companies almost invariably start with the same core technology, the truck, and then adapt other technologies to its service, OTR began with computers and an attendant passion for programming to best determine how it would then use its trucks.
Braatz says that for now OTR Express is so small and so unorthodox that it will likely draw little attention from large competitors. That should favor the company. "I think there's a big niche out there for this type of company, if it can execute." So far OTR has executed. In the past five years sales have risen from $5 million to an estimated $22 million as of year-end 1992.
OTR's future hurdles will relate more to questions of finance and management, an assertion Bill Ward does not deny. The company, like many others in similarly capital-intensive industries, is highly leveraged. "They'll need to bring in some more fresh equity in the next 18 months," says Braatz. "The other issue is whether or not they can roll the concept out. Is it viable with 800 trucks instead of 200?"
One thing seems clear judging by OTR's numbers: as Bill Ward asserts, "We've never been restrained by limits on freight." In other words the company has continued to find an increasing amount of business. Less well appreciated, Ward adds, is how OTR's proprietary software, crafted over an eight-year stretch, has created substantial barriers to entry. In theory, OTR's operation should grow more efficient with time, because the more observations the computer can make, the truer the data it will produce, and the better it will be able to guide the operation of OTR's fleet.
Looking back, Ward sees OTR's technology-driven strategy and consequent success less as a function of deliberation and more as one of ideas converging to produce a company. "It has been an evolution for us, really," he says. "Dick Walpole and I were both salesmen, so we were very much used to looking at marketing as a challenge. On top of that, I had a background in data processing. So we just kept brainstorming, always asking ourselves, What can we do to give us an edge?"
OTR has that edge and is now off and running with it.
OTR EXPRESS: DEPARTING FROM THE NORM
OTR Express's approach differs from the norm in the trucking industry in many ways: its pursuit of the spot, or "intermittent," market; its use of proprietary computer programs to pinpoint the most profitable load; and its treatment of each truck as a profit center. So, by the numbers, how does OTR compare with the rest of the industry?
OTR Express Trucking industry
Net profit margin 3% 2%-5%
Trucker's annual up to $50,000 up to $30,000compensation
Trailer/tractor ratio 1.2:1 2.5:1(1:1 is optimal)
Employees/tractor ratio 1:6 1:3(lower is more efficient)
Percentage of total miles 6.05% 10%traveled that are "dead" (that is, by an empty truck)
Average haul 1,451 miles 700 miles
Accidents per million less than 1 3miles driven
TRUCKS AS PROFIT CENTERS
OTR Express treats each of its trucks as an individual profit center and each driver as a manager. The following is a profit-and-loss statement for a single truck for the period from November 1, 1992, to November 30, 1992:
% of total Year to % of total
Current revenues date revenues
Total revenues $6,957.50 100.00 $73,963.77 100.00
Operating expenses
Principal payment $654.16 9.40 $6,995.20 9.46
Claims and accidents $0.00 0.00 $1,016.63 1.37
Fuel $1,389.00 19.96 $14,447.00 19.53
Insurance $400.00 5.75 $3,600.00 4.87
Licenses and permits $320.00 4.60 $2,880.00 3.89
Road expenses $0.00 0.00 $978.38 1.32
Wages $2,370.72 34.07 $24,928.50 33.70
Payroll expenses $336.79 4.84 $2,718.38 3.68
OTR distribution $0.00 0.00 $626.48 0.85
Manager distribution $0.00 0.00 $626.48 0.85
Tractor oil $0.00 0.00 $63.00 0.09
Tractor maintenance $110.67 1.59 $1,226.45 1.66
Tractor washing $0.00 0.00 $183.00 0.25
Tractor parts $0.00 0.00 $15.14 0.02
Trailer expenses $460.00 6.61 $4,140.00 5.60
Trailer maintenance $100.00 1.44 $900.00 1.22
Management fees $372.08 4.70 $3,497.60 4.73
Health insurance $75.00 1.08 $412.50 0.56
Total operating $6,543.42 94.05 $69,254.74 93.63expenses
Operating income $414.08 5.95 $4,709.03 6.37
Interest expenses $461.54 6.63 $4,153.86 5.62
Net income ($47.46) (0.68) $555.17 0.75
