Max Fuller and Pat Quinn were both well known and respected in the motor carrier industry when they joined forces in 1985 and founded U.S. Xpress, Inc.. Since then, the Chattanooga-based transportation company has grown steadily and become recognized as a leader in the industry. Today, U.S. Xpress Enterprises, Inc. is currently the fifth largest publicly traded truckload carrier in the United States. The company has been recognized as a leader in efficiency, diversification, state-of-the-art technology, customer service and safety. Annual revenues now consistently exceed $1 billion, and the company operates more than 7,000 tractors and 14,000 trailers. Its complement of employees exceeds 8,000.
In 2000, U.S. Xpress received an award for innovation from the Smithsonian Institute. It has been honored with a top ranking in overall value by Logistics Management & Distribution Magazine - annual Quest for Quality Awards. In 2004, Fleet Owner magazine recognized U.S. Xpress as the For-Hire Fleet of the Year. This year, Forbes Magazine named U.S. Xpress to its Platinum List as one of America’s 400 Best Big Companies.
Fuller, the company’s chief executive officer and co-chairman of the board, is a native of Athens, Tennessee, and a graduate of the University of Tennessee. He serves on the board of directors of SunTrust Bank, Chattanooga, N.A, as well as the board of directors of Enterprise Center, and he is a past member of the Chancellor’s Roundtable at the University of Tennessee at Chattanooga.
Mr. Quinn, president and co-chairman of the board, holds a law degree from the University of Nebraska. He currently serves as chairman of the American Trucking Associations and is a past chairman of the Truckload Carriers Association. He is also active with the National Surface Transportation Policy and Revenue Study Commission, having been appointed by then-Senate Majority Leader Bill Frist (R-Tenn.). He is a member of the board of directors of Erlanger Medical Center and the Chattanooga Area Chamber of Commerce.
Prior to departing for extended business trips to Asia, Mr. Fuller and Mr. Quinn visited with CityScope writer Mike Haskew, discussing the past, present and future of their company, as well as market trends, and issues facing the transportation industry.
CS: U.S. Xpress has grown from humble beginnings to a company with revenues in excess of a billion dollars. To what do you attribute its success?
Fuller: There was a need for us to develop more income, and we were highly motivated. We have been fortunate enough to hire good people, and we have surrounded ourselves with people who are very knowledgeable and have a desire to make a difference in the world, and they have for this company. We also adopted satellite communications on our trucks, and were the third large company to do so, in 1987. We were early in utilizing satellite communications and developed a lot of processes our competitors use today.
We have just implemented a new system that is going to help us to leverage ahead again. A lot of our success has come from being able to do things our competitors couldn’t do, especially while the industry was going through big change, from regulation into deregulation. Now, we see new changes taking place and can capitalize on some of those things again. Since 2000, there has been a big structural change in transportation throughout the world, a lot more products coming from Asia and a lot more products being moved by rail. We used to be a long haul carrier, and today our average length of haul is around 480 miles. So length of haul has been brought down tremendously.
Quinn: We started with 50 trucks, and the answer is it wouldn’t support two wives and six kids. There is probably a lot of truth to that. The other side of it is that we came into the business at a time when there was a need for the kind of service we could provide. We foresaw what was happening and provided it.
CS: What kinds of challenges did you experience in the beginning?
Fuller: The biggest challenge was that the growth was so fast we had to slow down to let the financing catch up. There have only been a few nights in this company that I haven’t slept, and that was because we were growing so fast we couldn’t finance the growth. So, we had to figure out how to slow it down. We had the momentum, so it kind of hurt to stop it. But, if we didn’t slow down in the late 80s, especially 1989, the company couldn’t survive at the pace we were going. I guess that was the most difficult time we have ever had in our history. We had customers and demand and drivers, and everything was aligned but our finances couldn’t keep up.
Quinn: When you have something running downhill and try to slow it, that is a bit difficult. I think we had to balance supply and demand so they were kept roughly in line with each other. That is day to day business, but if you don’t have the money to grow while you are balancing that increase in need, then you have a problem.
CS: What challenges have you experienced during the company’s growth and expansion?
Fuller: Two big issues. One is personal. You always feel you can do any job better than anybody else, and we found that as the company grew we couldn’t do all the jobs. The second issue is finding the best talent. First, you realize you can’t do all the jobs and finally let go, and then finding that really competent person is a challenge.
Quinn: Sometimes you find the person but you aren’t quite ready for them and you need to get them anyway. Then, sometimes you wait a long time to find the right person, and you needed them much earlier. We are constantly on the lookout for good, quality talent. What you find as the company goes through various stages of growth is that it requires a different level of sophistication, infrastructure, support, and talent. Also, with the growth is the expansion of the services we have. We started with long haul services, and today we have 15 different offerings that we provide.
CS: How do you complement one another, from a standpoint of strengths and weaknesses, in managing the company?
Fuller: If you look at the talents the two of us have, they are almost totally different, Pat with his legal background and me with my entrepreneurial background. I tend to be highly aggressive and want to move fast. Pat says let’s get the facts straight and cross the T’s and dot all the I’s. It has been a good counter-balance.
Quinn: We don’t particularly overlap each other and certainly participate in all the decisions about the direction of the company, but a lot of partnerships haven’t worked, I think, because perhaps they both came out of it as former owner operators and all their skills or talents were exact duplicates of each other. We certainly have overlap, but it is probably in the 15 to 20 percent arena rather than an 80 percent overlap and a 20 percent differential. I think that is good for the company and a key to the success of the partnership. We are not doing the same thing that one would be doing if the other one wasn’t there.
CS: U.S. Xpress has diversified somewhat in recent years. Is it a transportation company or a trucking company?
Fuller: Today, we have become more of a total transportation company. For example, we have an intermodal rail service that places our trailers on rail flat cars aboard expedited trains. This service has earned more than $200 million in revenue for the past two years combined. We have also moved pretty strongly into other transportation services as well. We actually have a brokerage operation that we started last year and continue to evolve into a total transportation business. We expect a lot of growth in the rail business over the next two to three years again. At the same time, we think there are opportunities around the world, doing things internationally.
So, you will see us doing a lot of things differently from the past. Looking at our mission and what we do for our customer, we are transportation because we aren’t looking at one mode for the solution. We look at multiple modes. In 2000-2001, we were a full truckload carrier running long haul primarily coast to coast. That is when we had 5,000 assets placed in that market. Today, we probably have 500 assets in that same market. We converted a lot of that long haul over to rail, which is more efficient for us and the customer. We have moved trucks into dedicated roles where our trucks are running like they are in the customer’s own fleet. Then, we set up another operation called Xpress Direct. When people can’t find capacity, they call Xpress Direct, an on demand type program. We have 2,100 trucks that run through multiple regions, which we call Xpress Truck, and one group of probably 300 trucks or so that run the I-5 corridor on the West Coast. Then, we have the Midwest and Southeast regions. We have been able to do acquisitions of other companies like Arnold Transportation in Jacksonville, Florida, which had operations that are almost a direct complement to what U.S. Xpress is doing.
Quinn: This is not reinventing yourself, just naturally evolving from one stage to the next as the market changes and it becomes more of a world economy. We are a solution provider for whatever the customer’s needs are, but still fundamentally a trucking company. That is what the assets do. Many of our customers are putting distribution centers much closer to where their stores are and their customer base is. This trend has moved nationally from a single source to getting closer to a customer. Wal-Mart wants its distribution centers within 100 miles of their stores. So, that creates a need for a much shorter length of haul and more timely delivery. However, it may go back again. Shippers may find it real expensive having 35 distribution centers around the country and go back to four or five. Who knows? I would not have thought it would change twice like it has in our careers.
CS: We all know about rising fuel costs and the impact on every phase of the economy. Can you talk about some of the costs that are unique to the trucking industry and how you meet those challenges?
Fuller: You normally recover about 80 percent of your fuel cost through fuel surcharges. Normalized diesel costs in our industry are about 18 cents per mile. We have seen costs per mile as high as 27 or 28 cents per mile. Engine changes (federally mandated for emission control) are a big issue as well. You will not recover all costs related to these engine changes. More fuel is burned to make everything a lot hotter in the engine to burn off the particulate, so engine life is about half what it was in 1998.
Quinn: Fuel is a principal cost, but a surcharge program was established a number of years ago using the Department of Energy’s average weekly price for diesel fuel. The fuel surcharge does not cover everything, but it assists in covering the huge fluctuations for the shipper and for the carrier. The surcharge applies to your loaded miles when the customer is paying a freight bill. The empty miles you run are not covered through the surcharge, nor is the time that engines are idling. Fuel is our second greatest expense behind payroll.
CS: U.S. Xpress has invested heavily in technology through the years. What is the benefit of such an investment?
Fuller: There is an economic benefit obviously. You can leverage your business ahead of your competition tremendously. Your trucks can operate safer. Your drivers can be a lot more comfortable. We have been able to leverage numerous points of technology and make the whole equation here at U.S. Xpress better.
Quinn: We pride ourselves on being on the cutting edge of proven technology.
CS: What is the current state of the transportation industry in the U.S.?
Fuller: The industry right now is in a major transition, partially because long haul stuff is being moved back into a regional operation, and a lot of manufacturing has moved off to Asia. We have additional regulations coming back from Washington. There are regulations such as EPA engines, and there are higher fuel prices. Hours of service regulation has seen two changes, and a third is in the wind. That has already adversely affected utilization of trucks by about 12 percent. All of this is a compounding problem. With the 2007 engine technology, just the truck alone costs $10,000 more than it cost before, not counting maintenance being about 25 percent more. In 2010, it will be about $15,000 more. So you are talking about a $90,000 truck that becomes a $100,000 truck and then a $115,000 over about a three-year period.
So, part of what drove the rail industry to take over a lot of the long haul market was that truckers’ costs have gone up because of fuel, EPA engines, hours of service, and anything else they can throw at us. All of these factors have substantially driven our costs up as an industry. When you include the fuel surcharge program, our rates have seen double-digit percent increases from where they were three years ago. We are not alone, as the rest of the industry has also seen costs increase. Historically, rates in our industry have gone up about two percent a year. So, it is understandable customers are going to look for any alternative they can.The rail industry has taken over much of the long haul market, and that is the reason we made the move to diversify the way we did d in 2001 and 2002. Multiple problems are hitting the industry. It will consolidate, and relatively quickly we think.
Quinn: During the first 22 years after deregulation, I don’t think rate increases exceeded two percent per year. Presently, you have a big slowdown in the housing and building market, and there are a lot of carriers who depend on hauling building materials. You also have a slowdown in automotive. When those two segments are slower than the rest of the economy, those carriers that traditionally haul those commodities come and play in our backyard and it creates a glut. That is a short-term thing, but it creates some difficulty right now. We are probably near the bottom of that cycle, and those segments will come back.
CS: How vital is the health of the industry to the economy of our nation?
Fuller: I think it is basically your lifestyle. The whole American lifestyle can be at risk if transportation continues to have higher costs and infrastructure issues such as congestion continue. Pat is on an infrastructure committee, appointed by Senator Frist, to look at the nation’s infrastructure and make recommendations about what needs to happen over the next 50 years. The interstate highway system was built to be a 50 to 55-year system and it is getting to the end of its term. It will still function, but you have got to take a lot of cars and trucks off the highway. The population keeps expanding, but we are not expanding highways fast enough -- and do you want highways everywhere. For rail to double capacity, it will take 15 years minimum to build the infrastructure and over $100 billion in costs which the rail companies want the federal and state governments to participate in funding, and then the politics have to be aligned. At the end of that 15 years, they will still handle the same percentage of the GDP (Gross Domestic Product) that they handle today.
Quinn: Even if you could take some of those vehicles off the road, you still have the problem that trucking moves 69 percent of the tonnage in the United States and is projected to grow by 31 percent over the next 20 years. Rail will double during that same period, and you still have that same kind of increase on the nation’s roads and stress on the infrastructure. What if the projection is off two or three points? The rail industry is important and will continue to be important and it will grow, but still 80 percent of the communities in the country are not served by rail and rail has never made a delivery to a retail outlet. Goods get there by truck.
CS: What do you see in the future for U.S. Xpress and for the industry as a whole?
Fuller: In U.S. Xpress today we have numerous different businesses. You will probably see us continue to acquire other businesses, particularly since we are in a consolidating industry. Most of the companies we acquire are successful companies with good management teams. We keep those management teams intact and the companies intact, so they are still under whatever brand name they ran under. There are reasons why drivers and customers are dealing with those companies, and we may not be smart enough to understand all those reasons. So why make changes? In a typical acquisition in this industry, you lose 30 to 40 percent of the drivers and customers, so you don’t get what you pay for. The way we have done acquisitions is low risk, and we have kept the customers and the employees.
Quinn: The other thing is that the growth in GDP from imports, which is supposed to be 24 to 30 percent over the next 10 years, is pretty enormous as to what that will do for transportation. There will be a lot more opportunities because most of that will involve a truck type of movement. Both of us will be in China in the next 30 days, and you can’t ignore what is happening internationally. More and more trucking companies are establishing third party relationships over there.
CS: Mr. Quinn, being chairman of the American Trucking Associations is quite an honor. Can you talk about the experience? Also, can you discuss the work of the Department of Transportation commission? Why is the future of our infrastructure so important?
Quinn: It has been a real opportunity to travel around the United States and meet different transportation groups and shipper groups and trucking schools and everything else that you get to do. We were recently in Alaska with the Alaska Tucking Association, learning how they do transportation there. We are also hoping to have some influence in shaping industry policies and things that need to be done. Hopefully that is being accomplished in one form or another -- but never as fast as you want it to be.
The infrastructure commission is a daunting challenge when you try to figure out what our transportation needs are today and what they are going to be over the next 50 years and develop a plan to finance and pay for that. We have obviously neglected infrastructure. We haven’t devoted to it what we need to. The federal fuel tax hasn’t been raised since 1993. We have to focus on regulations while not infringing on the rights and protections of individuals. It is also important that you don’t get three or four different lawsuits on the same issue with different governmental agencies. They should be consolidated and dealt with one time, which can shorten that process. That could make transportation projects a little more efficient in the way we implement them. We have to think outside the box with different technologies, and you are probably going to see freight corridors separated from passenger cars and other things, but these solutions are a long time out -- not today.
CS: What actions can be taken locally to attract other large companies to Chattanooga?
Fuller: Fuller: I can tell you we have in (Hamilton County Mayor) Claude Ramsey a guy there who understands and works to attract those companies. (Chattanooga) Mayor Ron Littlefield has also been working hard on this issue since he took office. I think the state of Tennessee has done a pretty decent job of trying to support the efforts of local politicians to bring business into this area. (Congressman) Zach Wamp (R-Tenn.) is focused, and (Senator Bob) Corker (R-Tenn.) is focused. As everyone knows, Enterprise South holds great potential for future business growth. Seeing the automotive interests, who were considering Enterprise South, choose other sites was disappointing. At the same time, I believe those efforts to recruit automotive manufacturers opened the eyes of other industries. As we move forward, I think you are going to see a variety of industries consider locating and/or relocating their businesses in Chattanooga. The opportunities will be there, and the politicians are dead on with this issue.
CS: What are your thoughts on the workforce in the Chattanooga area? Is it well trained? What enhancements may be needed?
Fuller: I think there are issues with the workforce. There are plenty of people that could be hired here, but there is also an issue with the education system. That is reflected in the quality of the applicants we get. Since we pay a lot higher, almost double the average income in Hamilton County, we get to look at a lot of applicants, but the flip side is that there are some skills missing.
Quinn: Geography is not taught today, and it is still the core of the transportation business. If you don’t understand geography, how can you plan a driver’s route and know the time and the distance? It is being addressed, and that is the good thing. I think if there is a point of pride for both of us it is that the vast majority of jobs created by U.S. Xpress are not minimum wage jobs.
CS: How has the local community contributed to the success of U.S. Xpress?
Fuller: We are highly appreciative of the local community and the people and businesses in the area for the support we have had in building the company. It has taken thousands of people and their support to get the company to this size, and it would be wrong of us not to tell people that we appreciate that.
CS: U.S. Xpress is firmly established as a leader in the transportation industry. Its history of success and prominent role in the future direction of such a vital segment of the national and global economy will ensure that the Chattanooga-based company continues to set and to achieve high standards of performance.