For those in transportation/freight/logistics coverage groups...
The long haul trucking business is one of the lowest margin industries (~5%). How can we take a 5% margin business and make it a 10-15% margin business? Where are there high margin add-ons?
I'm currently working with a client looking to consolidate smaller trucking and niche logistics companies into a new type of network that takes advantage of today's technology to provide services not adequately available in the market today.
What's the best way to approach this? Thoughts/Ideas?
in the spirit of high risk high reward, transport coke, corpses or chemical weapons.
I'm a SA for an analyst covering logistics/freight forwarders. There's a different analyst in the office who covers truckload though. I would just ask them your question but the truckload analyst is busy with earnings, and my analyst is out of town.
You're going to have a hard time increasing gross margins over any short period of time because there are so many regulations on the trucking industry that companies have to keep up with or they go out of business/get shut down. Just recently there were some new regs passed in California (can't remember specifics right now) which tightened compliance on how old your truck/engine can be, what kind it is, etc. There are a number of Mom and Pop shops that are simply going to go out of business now because they can't afford to keep updating their fleet. That's just one reason though.
I can send you an industry primer if you'd like.
"I'm currently working with a client looking to consolidate smaller trucking and niche logistics companies into a new type of network that takes advantage of today's technology to provide services not adequately available in the market today." --> You're going to need to figure this part out yourself since I don't have any clue as to what you're specifically talking to by mentioning today's technology (like what specifically are they doing here to improve). The usual would probably be having a better data set to improve something like time operating / time in usage.
I'm not familiar specifically with the trucking industry, but the railroad industry which has sustainable competitive advantages is able to pass on fuel prices.
Maybe you could have synergies in buying power due to scale. I doubt this will contribute materially to the degree you'd like though.
Maybe ask some individual customers what would make them want your service more / pay more. Essentially, you need to find out how to deliver value/differentiate in a highly commoditized market (I'm assuming) at an inherent disadvantage to substitutes. You may have to recommend shutting down lines in competitive markets and only operating in "niche" areas as a result.
Also, I doubt you can cut corners on driving hours and weight since the companies seem to already be doing that (at least according to one former trucker I spoke to).
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