Knight Transportation (NYSE: KNX) is a trucking firm that ships consumer goods, food and beverage, and paper products. As a truckload carrier, Knight Transportation contracts an entire trailer-load to a single customer, as opposed to less-than-truckload firms who consolidate freight from several customers in one trailer-load. Knight concentrates on the short-to-medium haul dry van market (contents are non-perishable), with an average haul length of 470 miles. The company temperature-controlled truckload carrier services, which transports refrigerated goods. Knight Transportation's regional approach allows it to achieve greater freight volumes since ~80% of all truckload freight moves in the short-to-medium lengths of haul. In addition, shorter routes mean more regular maintenance checkups and fewer equipment breakdowns. To complement its primary trucking business, the company provides brokerage services (5.7% of revenue) for customers with shipments that don’t fit the company’s offerings.
Knight Transportation’s management minimizes operating costs by employing late model equipment (the company's tractor fleet has an average age of 1.6 years), which ensures less breakdowns and delays. The firm also pays careful attention to efficient asset utilization (e.g. not letting a tractor sit under a trailer to be loaded or unloaded for long periods of time). The advantages of the short-to-medium haul market and Knight’s emphasis on cost reduction have helped the company generate one of the best operating ratios in the industry.
The firm's ability to efficiently coordinate customer freight movement lets Knight Transportation drivers typically spend three nights a week at home, compared to two nights or less for drivers of other regional-haul trucking companies. Knight is also one of only two trucking firms in the nation to offer its drivers stock options. These factors explain why the company's driver turnover rate averages 50% at a time when the industry average is well over 100%.
As a transportation company, Knight Transportation’s earnings are closely tied to the overall health of the economy. In a sluggish economy, the demand for goods decreases, and when that happens, the need to freight items falls. Trucking companies like Knight Transport suffer from these economic pressures. In 2009, the company's net revenue fell 15% due to lower freight volume.
Knight’s trucking operations focus on the short-to-medium haul dry van market. The advantages of this regional approach and Knight’s emphasis on cost reduction have helped the company generate one of the best operating ratios in the industry, averaging ~83% over the last five years.
As a transportation company, Knight relies on a healthy economy to keep goods moving about the country. A slowing economy and low consumer demand causes a total volume drop in shipments that hurts Knight’s earnings. In 2009, the company's net revenue fell by 15% due to lower freight volume. Additionally, many customers use a bidding system, which tends to keep prices fairly competitive. For instance, when Wal-Mart Stores (WMT) needs freight shipped, it asks several shipping firms to submit how much payment they are willing to accept. The lowest bid usually wins the contract. When shipping volume decreases in a weakening economy, small competitors bid down prices in order to win loads so that they can cover the cost of their tractors.
The driver market is the tightest it has been in 20 years, with turnover rate exceeding 100% in some large trucking companies. According to the American Trucking Association, the trucking industry faced a national shortage of 20,000 drivers in 2007, a number that will swell to 111,000 by 2014. In such an environment, Knight Transportation's emphasis on driver retention helps the firm attract experienced drivers. The company's concentration on local and regional trucking means shorter routes and higher job satisfaction because drivers spend less time on the road and are able to stay closer to their families. And thanks to the firm's ability to efficiently coordinate customer freight movement, Knight Transport drivers typically spend three nights a week at home, compared to two nights or less for drivers of other regional-haul trucking companies. Knight Transportation is also one of only two trucking firms in the nation to offer its drivers stock options. These factors explain why the company's driver turnover rate averages 50% at a time when the industry average is well over 100%.
Knight Transportation competes with a range of regional and national transportation and logistics companies. The trucking industry is highly fragmented because of low barriers to entry. There are roughly 360,000 trucking companies (96% operate fewer than 28 tractors and 82% operate fewer than 6). Knight Transportation's most direct competition is with Heartland Express (HTLD), a truckload carrier that also operates in the short-to-medium haul dry van market. Other key competitors in the truckload segment include:
Knight Transportation also competes with numerous less-than-truckload firms who consolidate cargo from several different customers in one trailer-load. They include: