General Freight Trucking Business Plan

Mike's Trucking Service

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Market Analysis Summary

4.0 Market Analysis Summary

Mike's Trucking has an opportunity to entrench its competitive position in the regional transportation market by selectively focusing its target market on the food industry. The company has already had experience in servicing such clients and it believes that there is a growing demand for reliable transportation solutions in this customer segment.

4.1 Market Segmentation

There are several potential customer segments that we will provide our transportation services to. Major customer segments include the food industry, PC and semiconductor manufacturers, and retailers. The chart and table below outline the current market size and growth estimates for these customer segments in Texas.

Large established companies in the afore-mentioned segments (especially in the food industry) have their own truck fleets, while smaller players outsource the transportation function. The latter vary in the scale of their operations, but have a steady demand for reliable transportation solutions. We will actively solicit such customers.

Market Analysis (Pie)



Market Analysis

Market Analysis
Potential Customers	Growth	2000	2001	2002	2003	2004	CAGR
Food Industry	3%	3,000	3,090	3,183	3,278	3,376	3.00%
Computer Industry	5%	1,500	1,575	1,654	1,737	1,824	5.01%
Retail Industry	2%	1,500	1,530	1,561	1,592	1,624	2.01%
Other	2%	500	510	520	530	541	1.99%
Total	3.17%	6,500	6,705	6,918	7,137	7,365	3.17%

4.2 Target Market Segment Strategy

Mike's Trucking will focus its marketing budget on a selected industry niche. A narrow-served market focus will help strengthen the company's reputation of a reliable transportation services provider and will generate favorable referrals.

The major customer segment the company is focusing on is the food industry. Companies in this segment have varying needs, and Mike's Trucking has already gained valuable experience serving such customers. The company management believes that by increasing its truck fleet it can capture additional clients and provide better service to existing clients.

4.3 Service Business Analysis
Market Description Industry: Trucking, except local

Establishments that are primarily engaged in furnishing "over-the-road" trucking services or trucking and storage services for freight generally weighing more than 100 pounds. Such operations are principally outside a single municipality, group of contiguous municipalities, or municipality and its suburban areas.

Market Size Statistics

Estimated number of U.S. establishments	48,117
Number of people employed in this industry	812,712
Total annual sales in this industry	$139 million
Average employees per establishment	17
Average sales per establishment	$3.6 million

Standard & Poor's estimates that the U.S. commercial freight transportation market had aggregate revenues of $436 billion in 1998. In other words, five cents of every dollar of U.S. gross domestic product that year was spent on transportation.

Industry trends

While a driver shortage continues to plague the TL sector, the LTL carriers have adapted to changing market conditions in order to capitalize on growth opportunities. Intermodal shippers also stand to benefit from market trends. And the evolution of electronic commerce stands to intensify competition among all carriers.

Truckers Dominate Freight Market

Based on value of service, trucking (excluding warehousing and logistics) accounted for 79%, or some $344 billion, of U.S. commercial freight revenues in 1998, but only 45% of total ton miles. This is because products transported by truck tend to be lightweight, manufactured goods that move short distances, rather than the heavy, long haul, bulk commodities that travel by rail and barge.

Motor carriers specialize in higher-value freight that moves 750 miles or less and for which delivery is required within three days. Some 36% of truck freight (measured by shipping cost) never crosses state lines. Examples of this type of freight are food and consumer staples delivered locally, and manufactured goods shipped between commercial establishments or delivered to consumers or retail outlets.

Truckers have the largest share of the freight market. Unlike railroads, pipelines, or water carriers, they don't face geographic limits caused by physical constraints, and can offer door-to-door service. They also pay relatively little to use the nation's highway system. Railroads, by contrast, must build, maintain, and police their rights-of-way.

The trucking industry consists of two broad segments: private and for hire. In turn, for-hire truckers fall into two broad categories: truckload and less-than-truckload carriers.

4.3.1 Business Participants

Trucking

With some $344 billion in 1998 revenues, the trucking (or motor carrier) business claimed 79% of the U.S. commercial freight transportation market. This total was divided among two sectors: private carriage and for hire.

Figure 2. Commercial Freight Distribution

Transportation	Billion $	% of Total
Trucking, Total	$344	63.6%
Private, Interstate	$115	21.3%
Private, Local	$85	15.7%
Truckload	$65	12.0%
Local For-Hire	$40	7.4%
LTL, National	$9	1.7%
LTL, Regional	$11	2.0%
Package/Express (ground)	$19	3.5%
Railroad	$36	6.7%
Pipeline (oil and gas)	$26	4.8%
Air Freight, Package Domestic	$17	3.1%
Air Freight, Heavy Domestic	$6	1.1%
Water (Great Lakes/rivers)	$7	1.3%
Transportation Total*	$436	80.6%
Logistics Administration	$35	6.5%
Distribution Total	$105	19.4%
Total*	$541	100.0%

*Excluding $ 5 billion in international cargo.

Sources: Standard & Poor's, Data Resources, Inc., and Cass Information Systems.

Private carriers

Although private carriers comprise the largest component of the motor-carrier industry, financial information isn't available for them. However, the industry is estimated to provide services valued at some $200 billion annually (or 58% of motor carrier revenues in 1998).

The American Trucking Association (ATA) estimates that there are more than three million trucks operated by private fleets transporting 3.5 billion tons of freight annually.

For-hire carriers

The for-hire category generated $144 billion in 1998, or 42% of the industry total. Of that $144 billion, some $105 billion (73% of the sector's business) came from truckload shipments, and $39 billion (27%) was from less-than-truckload and package/express delivery.

• Truckload (TL). The national for-hire truckload segment had total revenues of $65 billion in 1998. The TL sector has historically been mostly privately owned, with the exception of the top ten publicly-owned companies (For this reason, we focused on the LTL sector in this survey). Schneider National Carriers was the largest TL operator, with revenues of $2.8 billion in 1998, followed by J.B. Hunt Transport Services ($1.8 billion), and the Landstar family of truckload-carriers ($1.3 billion). Of the 50,000 truck load carriers, perhaps 95% had annual revenues of less than $1 million.

• Less-than-truckload (LTL). The ATA estimates that the less-than-truckload market garnered $20 billion in 1998. Of this amount, the fast-growing regional segment accounted for slightly more than the national market.

The largest national LTL carrier was Roadway Express Inc., with $2.32 billion in LTL revenues in 1998; the company's total revenue of $2.55 billion includes TL freight. Yellow Freight System (a unit of Yellow Corporation) was close behind, with $2.25 billion (out of $2.46 billion total). Consolidated Freightways Corporation was third, with $1.95 billion in LTL revenues.

In the regional LTL market, Con-Way Transportation (a unit of CNF Transportation Inc.) was the largest player, with $1.5 billion in LTL revenue in 1998. Second place belonged to US Freightways, whose family of five carriers generated some 41.4 billion in LTL revenue. American Freightways Corporation was third, with $928 million in less-than-truckload revenues.

4.3.2 Untitled

Although there are major players in each of the commercial carrier market segments, the market remains highly fragmented. According to the Dallas Yellow Pages, there are numerous companies providing different kinds of the trucking services. Major competitors for Mike's Trucking are those companies who have comparable truck fleets and are also targeting the food industry.

Market research shows that customers in the food industry are price sensitive, and they value on-time deliveries, special handling capabilities, and less-than-truckload orders. Customer referrals and carrier's reputation are believed to strongly influence the buying decision.

4.3.3 Risks

The company recognizes that it is subject to both market and industry risks. The two primary risks to the company are:

• Industry concentration risk. The company is mainly focused on food industry businesses in the United States. This position is favorable since the industry is fairly stable. Any slow down in the food production would have negative repercussions for Mike's Trucking. To mitigate this risk, the company is looking at diversifying its trucking business to include other industries as well.

• Operational risk. Mike's Trucking recognizes the fact that there is an inherent risk in transporting cargo. Any damage to cargo may undermine the profitable of the company. To reduce this risk, the company maintains all necessary insurance.