Company overview and business description
Covenant Transportation Group (CTG) is a truckload carrier that offers premium transportation and just-in-time transport services truckload customers. Generally, CTG is a holding company for several companies that offer transportation services and its customers include retailers, manufacturers, third-party logistic providers, and freight forwarders. The services offered include solo-driver transit services, contract service, hazardous materials, team expedited or transit service, and refrigerated transportation services to freight and food shippers. Other services include critical services for shipping emergencies, defense, and government transportation services, and security for high-values products. Primarily, CTG undertakes its operations in the United States, and some parts of Mexico and Canada.
Business model
CTG’s business segments are divided into brokerage services and asset-based truckload services. The Truckload segment comprises of asset-based operating fleets such as Southern Refrigerated Transportation (SRT), Star Transportation (Star), and Covenant Transport. Similarly, the brokerage service segment provides freight brokerage services either directly or indirectly through freight brokerage agents based on a commission basis.
Mission and Vision
Covenant Transportation Groups’ mission is committed to the provision of solutions to transport problems affecting their customers. This mission calls for passionate dedication in the provision of courteous, safe, and timely service from subsidiary companies within the CTG group. The guiding principles for CTG’s mission lie in upholding integrity and quality from all stakeholders.
Speaking of the CTGs’ mission, the group aims to be a reliable partner in the provision of transparent and true value-added transportation services, community employment, improved cultural performance, and well-maintained transportation services that guarantee the safety and comfort of goods on transit. Additionally, CTG aims to provide above average returns on investment to its stakeholders and maintaining a culture of improved performance.
Company Culture, Leadership, and Governance
A Board of Directors that is responsible for choosing the groups’ top brass manages Covenant Transportation Group. The CEO and top executive officials run the operations of the group while at the same time ensuring that the company remains competent and sticks to the ethical and operational goals of the company. It is also the duty of the top management officials to ensure that employees uphold the groups’ culture and company interests. In order to ensure that the culture of CTG remains strong, CTG directors are expected to develop a focused and proactive approach when executing their duties in addition to setting standards that ensure the group is committed to realizing organizational success through high standards of ethics and responsibility.
Analysis of External and Internal Environments
Competitive Industry Landscape
CTG operates in a highly competitive landscape that comprises thousands of “for-hire’ careers and private fleets. The American Trucking Associations, Inc. estimated the U.S market to have generated $563.4 billion in 2010. The principal means of competition in the industry is based on price and service coupled with the cost and complexity associated with the operation of trucking fleets. CTG’s competitors include FedEx Corporation, Landstar System, Inc., Pacific CMA, Inc., Swift Transportation Co., Inc., US Express Enterprises Inc., and YRC Worldwide Inc.
Five Forces Analysis
Threats of new entrants are low because of high barriers to entry. This can be attributed to the high economic and competitive pressures that might lead to the consolidation of smaller competitors and private fleets. Equally, large and established companies such as the Covenant Group are capable of utilizing their economies to scale to capitalize on opportunities, which in turn leads to high profit margins and expanded market share. Strict regulations from various U.S agencies and Canadian regulation authorities might to be too high for new entrants to comply.
Competitive rivalry is high because of the existence of thousands f “for-hire’ careers and private fleets. The existence of large and established transportation companies increases the level of competition. Speaking of buyer power, seasonality in the industry determines the volume of revenue. As such, buyer purchasing power is high because customers decrease the volume of shipments depending on the season and they can choose the company or core carriers that suit their needs. Supplier bargaining power is moderate because suppliers will set their prices depending on several factors that affect the profitability and these factors include logistic costs, fuel costs, and prices. Finally yet important, the threat from substitute products is moderately high because customers can choose to distribute their products using rails and rail truck movements.
Strategic challenges and SWOT analysis
The company’s strength relies mostly in its ability to upsurge usage rates and enhancing its cost structure alongside proper allocation of resources to markets whereby it can provide value and generate acceptable margins. The company needs to examine the how it allocates its resources for various business operations. This will help in reducing cost, increasing asset productivity, and focusing on future investment. The company also banks its success on recruitment and retention of its drivers
The company is facing increased prices, reduced productivity, and scarcity of financing for new revenue. As a result, its overall earnings and cash flow remains affected. The prices for new tractors have risen subjecting the company to numerous risks. The freight revenue decreased significantly because of the unprofitable freights and agents. Driver retention is also a challenge as turnover is high. Even within the industry, attracting, and retaining drivers is a problem.
The economy in 2012 is expected to be strong providing a perfect opportunity for the company to get back to profitability. The refrigerated solution and specialized team operations offers an opportunity for the company. Debt to capitalization ratio can be improved by several other means including capital decision making.
The company is faced with legal provisions that affect some of its operations. For instance, the Environmental Protection Agency has strict measures that prevent vendors from using unsuitable machines and equipment. The tractors have to meet the strict standards of emissions. Further threat includes the seasonality of the business. There are seasons when the revenue is generally low because the customers shipment needs are reduced. There is also the instability of oil prices due to several geo political reasons.
Key success factors for the industry
An analysis of the strong factors influencing the success of CTG reveals that the CTG depends on several key components in realizing its goals and objectives. The key success factors include investment in the delivery of refrigerated services, increasing the use of owner-operators, improvement of the debt to ratio-capitalization, and implementation of comprehensive marketing and sales approaches. CTG also maintains professionalism in the management of staff and employee planning, enhanced leadership and ability to execute their roles, improving the quality of products and services to customers.
Financial Analysis
CTG has been able to achieve profitability due to strengths in its management factors that include outstanding control of costs from each operating company, improved economy, a strengthened truck market, and improved dedication from employees. Analysis of the company’s 10-Q report shows that it recorded consecutive profitable quarters in a row in 2010. CTG recorded a net loss of $25 million in FY2009, a net profit of $3.3million in FY2010 and a net loss of $14 million in 2011. The net loss in FY2011 can be attributed to increased operating costs, reduced utilization, and deterioration of macro-economic environment and market factors. However, the revenue for FY increased by 0.4% ($2.9 million) as compared to FY2010 results.
Conclusion
Against the background of increased challenges such as high fuel prices, driver shortages, increased prices of equipment, and burdensome governmental regulations; CTG has increased opportunities of making incremental progress and achieving success in the industry. Economic recovery and increasing freight demand in the industry is likely to create a conducive environment for improving freight selection and as well, in improving the volume of revenue generated per mile. The net profit in FY2010 should not be overlooked and the net loss in FY2011 should not act as an obstacle. Dedicated management and the board of directors must be capable of analyzing the challenges and implementing a cost control mechanism to enable the company to control its costs and implement strategies that will enable the company to increase revenue and profitability.
Recommendations
In order to realize its profitability and revenue improvement objectives, CTG most undertake improvements in key areas. First, the organization must increase its fleet and trailer capacity in more highly valued market places and this must be evaluated depending on the availability of opportunities. Second, customer retention is an important aspect and hence, the management should implement strategies that will enable improve loyalty from customers. Third, using sophisticated technologies and competitive alternatives can enable CTG to improve its service delivery, minimize costs, and optimize operational networks. Fourth, the capital intensity of the business is high and hence, CTG must consider lowering down the costs of its fleet through increasing owner-operators, and trading in old trucks. Finally yet important, challenges such as reduced drivers can be overcome by offering safe and rewarding careers for drivers. Safety is paramount to all stakeholders of the company. I believe that the implementation of these goals and objectives will enable CTG to realize its goals and objectives and attain profitability.
