Celadon Group Inc.

views updated

Celadon Group Inc.

One Celadon Drive
Indianapolis, Indiana 46235
U.S.A.
(317) 972-7000
(800) CELADON; (800) 235-2366
Fax: (317) 890-8099
Web site: http://www.celadontrucking.com

Public Company
Incorporated: 1986
Employees: 2,323
Sales: $229.9 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: CLDN
NAIC: 484121 General Freight Trucking, Long-Distance, Truckload; 484122 General Freight Trucking, Long-Distance, Less Than Truckload; 481112 Scheduled Freight Air Transportation; 483111 Deep Sea Freight Transportation

Celadon Group Inc. is the largest transporter of truckload freight to and from Mexico. The company offers van truck-load services of long-haul time-sensitive materials, full truckload services of goods primarily over 10,000 pounds, and flatbed services for larger materials. Its fleet of about 2,100 tractors and 6,000 trailers is managed by a computer satellite system, Qualcomm, which provides instant contact with drivers regardless of their location. Celadon services its customers through four major subsidiaries: Celadon Trucking Services, Cheetah Transportation, Gerth Transport Limited, and Transportacion de Jaguar. Celadon Trucking Services, the largest unit of the company, provides van service from points within the United States and Canada to Mexico. Cheetah Transportation provides flatbed service and Gerth Transportation Limited provides van transportation for Canadian customers. The company’s Mexican subsidiary, Transportacion de Jaguar, offers customers border transfer services in and out of Mexico. While Chrysler is Celadon’s largest customer, the company has over 4,500 other accounts, including Volkswagen, Fisher Price, and Pier 1. Celadon benefited greatly from the influx in trade created by the North American Free Trade Agreement (NAFTA) passed in 1995. Since its inception in 1986, Celadon has crossed the border into Mexico more than 800,000 times. The company is bonded in the United States, Mexico, and Canada.

Meager Beginnings

Celadon cofounders Stephen Russell and Leonard Bennett had neither employees nor equipment when they started the Indiana-based company, but they did have one major contract—to transport automotive parts to a new Chrysler plant in Mexico. Russell and Bennett named their new company Celadon after reading about celadon pottery, an ancient green-glazed stoneware dating back to the Koryo dynasty (918-1392 A.D.). They hoped their company would be distinctive like the pottery—and it was. Celadon did $8 million in business during its first year and was considered a pioneer of the commerce trail between the United States and Mexico. Russell and Bennett, however, were stymied with their company’s success and were unsure what route to take to ensure its future.

By 1990 they had purchased Randy International, an international freight-forwarding company. Freight-forwarders arrange for door-to-door transportation of cargo. They typically buy warehouse space at international locations for wholesale prices and fill that space with consolidated goods from several different customers, who pay retail prices for the space. To pay off expenses related to its expansion into freight-forwarding, Celadon went public in 1994. The IPO put 36.3 percent of the company up for sale and raised about $30 million. After going public, Celadon further expanded its freight-forwarding through a partnership with Jacky Maeder Limited, and in 1995 through the acquisition of U.K.-based Guestair.

Pioneer of the NAFTA Trail

The passing of the National American Free Trade Act in 1995 was a major break for Celadon, which was in a position to capitalize on the explosion in trade between the United States and Mexico. According to the original NAFTA, trucks from Mexico could enter the United States and move freely within the states bordering Mexico, and even as far north as the California-Oregon border. However, the United States blocked NAFTA just as it was about to go into effect. While the United States contended it had “safety concerns,” critics claimed the move was politically connected to the powerful Teamsters Union, which worried that allowing low-paid Mexican truck drivers into the country would threaten U.S. jobs. NAFTA was eventually passed, but drivers were prohibited from hauling their loads to their Mexican destinations. Instead, they had to hand off their loads at border-town interchange points, and Mexican truck drivers took over for the final leg of the run.

Celadon quickly adapted to NAFTA’s provisions. It cultivated its relationships with over 15 Mexican trucking companies and allowed these companies to drive its trucks to their destinations within Mexico. Many in the industry feared Celadon’s trucks would be confiscated in Mexico, but Celadon hauled shipment after shipment without incident. It credited its solid relationships with the Mexican trucking companies for its success. Celadon became known as the primary NAFTA carrier. The company later acquired the Mexican trucking company Transportacion de Jaguar to assist with cargo transfer at the Mexican border.

Bennett, Celadon’s cofounder, president, and chief operating officer, had been an adviser to both the United States and Mexico during the NAFTA negotiations. He considered NAFTA as a work-in-progress. In Directions in Transportation he explained how Celadon intended to view NAFTA: “You can anticipate the worst or try to visualize the best. Bear in mind that this is a trade agreement, not a transportation agreement. In terms of transportation, we’ll learn as we go.” Bennett became an expert on NAFTA and gave many speeches on business in a post-NAFTA environment.

Celadon’s post-NAFTA progress was not without setbacks, however. In early 1995, the company suffered on Wall Street as investors reacted to the devaluation of the Mexican peso in 1994. The devaluation made U.S. goods 20 to 30 percent more expensive in Mexico. The company reacted by pulling some of its tractors and trailers off its Midwest-Mexico routes and picking up more domestic business.

In 1995 Celadon became a flatbed transporter when it purchased Cheetah Transportation, based in Mooresville, North Carolina, for $5.1 million. Cheetah was a $25 million flatbed carrier operating since 1984. Cheetah flatbeds, which operated mainly in the Southeast, hauled mostly heavy equipment, building materials, and wire cable. Russell, Celadon’s chief executive officer, believed the flatbed industry held a lot of growth potential. In Transportation and Distribution, he explained that flatbeds captured only a small portion of the truckload business and that no one company in the flatbed industry had a large percentage of that business. He hoped Cheetah would fill that niche.

While Cheetah proved successful, the freight-forwarding portion of the company’s business was losing money. The cost of the merger with Jacky Maeder Limited coupled with a slump in the industry caused Celadon to post losses in 1995.

A Major Acquisition in 1996

In March 1996, Celadon acquired the bankrupt Burlington Motor Holdings in Daleville, Indiana, and became a giant in the truckload industry. Burlington was primarily a domestic carrier, so it opened up new territory for Celadon, which acquired nearly 1,400 tractors and 4,000 trailers from the acquisition. The deal made Celadon one of the ten largest truckload carriers in the United States.

Also in 1996, Bennett left the company to form a distribution and logistics firm in Florida called Enfield Logistics, Inc. Russell and one of Celadon’s major stockholders, Hanseatic Corporation, bought most of Bennett’s 913,000 shares of Celadon stock. Bennett’s $10 million buyout was part of the company’s plan to restructure its management and refocus on trucking instead of freight-forwarding. In the Tribune Business News, Russell admitted the company “took its eye off the ball” with its expansion into freight-forwarding. He explained that the company planned to refocus on being a truck line into Mexico. Celadon sold the U.S. portion of its freight-forwarding business Harper Group and its South American logistics business, Celsur, to Bennett.

In April 1996, Celadon relocated its corporate headquarters from New York to Indianapolis to consolidate some of its operations that had been scattered around the country. The new headquarters also benefited Celadon’s drivers; it included a driver’s dormitory, and state-of-the-art truck-washing and fueling facilities.

Company Perspectives:

Our strategy is simple. We focus on a niche market and provide truckload services between the United States, Canada, and the Mexican border. Our service is enhanced by a high tractor-to-tractor ratio, the use of well-maintained late model tractors and trailers and round-the-clock dispatch and reporting services.

We have also invested in the area of technological applications to provide a strong platform for enhanced service and future growth. In particular, a satellite communications system that provides competitive advantages in the areas of customer service, driver satisfaction, and reduced maintenance costs. While the long-haul trucking market remains competitive, our strategy is to provide a full-service approach to managing, tracking, and reporting on the transportation of goods across the borders, which allows customers to rely on us to provide many services that were previously performed internally.

General Electric in 1997

By 1997 Celadon’s missteps into freight-forwarding had taken their toll on the company, which had posted losses for four of the past five years. In an effort to turn the company around, Celadon purchased General Electric Transportation Services (GETS), a unit of General Electric Company, for $8.5 million. The Fort Wayne, Indiana company had sales of about $75 million and operated 170 tractors. GETS was eventually merged with Celadon Trucking Services, Celadon’s largest subsidiary.

Around the same time, Celadon entered into a marketing partnership with West Ex, a Phoenix-based company that provided less-than-truckload (LTL) services in California and the Southwest. Celadon and West Ex hoped to use their LTL services to assist other truckload companies interested in utilizing their fleets more efficiently.

Celadon was back on track once again. In 1997, Russell was elected chairman of the International Trade and Customs Commission of the American Trucking Association. During the same year, Celadon received Carrier of the Year honors from Pier 1, based in Texas, for trucking a significant portion of the company’s wicker and pottery out of Mexico.

An Attempt at Privatization

After several years of answering to the public, Russell considered the IPO a mistake for Celadon. “Being a private company, you can focus on the long term without worrying about specific quarterly earnings,” he explained in the Indiana Business Journal in 1998. Russell also felt Celadon’s stock was “unappreciated” on Wall Street.

In 1998, Larendo Acquisition Company, a subsidiary of the New York Investment firm Odyssey, planned to acquire Celadon for $259 million, but backed out because it was unable to secure financing. News of the deal falling through caused a 32 percent drop in Celadon’s stock.

In May 1998, Celadon purchased Gerth Transport, a Canadian motor carrier specializing in transportation to and from Mexico, for $19.2 million. The purchase was significant for Celadon; with Gerth under its wing, it could now offer its customers transportation from Canada directly to Mexico.

While the Gerth acquisition strengthened Celadon’s market position, driver turnover remained a problem for the company. Celadon tried to improve morale among its drivers with its new “pet program.” Under the guidelines of the program, drivers could take a companion cat or dog on the road. Nancy Morris, Celadon vice-president of operations, explained why drivers need companionship in the Indianapolis Business Journal: “In many cases, their truck is their home. We want to allow them to have the comforts of home when they’re traveling.” While Celadon realized that a portion of its drivers will tire of the road and leave each year, it managed to reduce its driver turnover rate from 140 percent to 90 percent.

Celadon also hired recruiters to entice women into becoming truck drivers. Since the truckload industry was male-dominated, the company believed recruiting women could lessen its shortage of drivers. In 1998, about 300 of Celadon’s 1,500 truck drivers were women—a high percentage compared to the industry in general, where only 5.3 percent of drivers were women. The company also tried to promote women into upper-level management. Nancy Morris’s promotion to vice-president of operations in 1997 made her the holder of the highest executive position attained by a woman in the truckload industry. Morris joined Celadon the previous year as director of operations and program systems. Prior to this, she worked her way up to upper-level management at North American Van Lines, where she had been employed for 12 years.

The year 1998 also marked the introduction of Celadon’s web site, www.celadontrucking.com. Celadon’s Internet tracking service, CelaTRAC, enabled customers to track shipment 24 hours a day by accessing the web site and utilizing a variety of search criteria.

New Business and Recognition in 1999

In July 1999, Celadon won the business of Volkswagen de Mexico, which was expected to average $5 million in sales each year for two years. According to the agreement, Celadon would transport automotive parts between the United States, Canada, and Volkswagen assembly plants in Puebla, Mexico, where the “Bug” and other Volkswagen products were assembled.

Around the same time, Celadon signed a letter of intent to acquire all of the assets of Zipp Express Inc., one of the leading truckload van carriers to Mexico, for an undisclosed amount of money. Celadon planned to make the Indianapolis-based Zipp Express a subsidiary. Zipp Express had revenues of $250 million.

Celadon received the Chrysler Corporation’s Director’s Award in recognition of its excellence in transporting Chrysler products in 1998, and was elected a member of CANACAR, Mexico’s trucking association, in 1999. In 1999 Celadon was awarded major contracts in Arkansas, Missouri, and the Carolinas and planned to expand its fleet by 550 new tractors and 1,300 new trailers and hire up to 200 additional drivers. As of 1999, the company still hoped to return to private ownership, but had not found a buyer able to raise the capital to make the acquisition.