Werner Enterprises, Inc.

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Werner Enterprises, Inc.

14507 Frontier Road
Omaha, Nebraska 68145-0308
U.S.A.
(402) 895-6640
(800) 228-2240
Fax: (402) 894-3927
Web site: http://www.werner.com

Public Company
Incorporated: 1956
Employees: 7,521
Operating Revenues: $772.09 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: WERN
SICs: 4213 Trucking Except Local

Werner Enterprises, Inc., headquartered in Omaha, Nebraska, is the fourth largest trucking company in the United States. Founded by Clarence L. Werner in 1956, it is a publicly traded company led by the Werner family, which retains 40 percent ownership. Werner’s fleet of 5,500 trucks and 15,000 trailers serves the United States and Canada, and the company operates trailer service in Mexico. Werner offers a variety of transportation services, and transports a range of goods that includes beverages and foodstuffs, containers and paper products, lumber and building materials, plastic and metal products, and retail merchandise. In the 1990s, Werner Enterprises had increasingly moved into specialty trucking, including dedicated fleet services. Innovations such as the company’s paperless log system have helped put Werner at the forefront of growth in the trucking industry, and its stock has been a consistently strong performer; however, like other trucking companies, it suffers from a dearth of available drivers.

Beginnings with Just One Truck

The vast Werner Enterprises fleet grew from just one truck. In 1956, 19-year-old Clarence (“C. L.”) Werner sold his car to purchase a truck, which he used to launch his business. Many years later, in 1993, a Fortune magazine write-up on Werner Enterprises noted Clarence Werner’s recollections of the early days and hard times of the trucking company he founded. Werner, the president and CEO of Werner Enterprises in 1993, told Fortune’s John Labate with a chuckle, “There’s a lot of water under the bridge, and I generally was in it.”

Starting in Council Bluffs, Iowa, near the geographical center of the 48 contiguous states, Werner Enterprises was wellsuited to become a leader in the long-haul sector of the trucking industry. By 1965, the company had ten trucks, and it grew steadily throughout the 1970s. But a giant barrier stood between Werner—or, for that matter, most trucking companies—and significant growth: government regulation.

The federal government held control over the operating rights for trucking service between major cities, and it usually accorded such rights to large companies. Thus, when the administration of President Jimmy Carter deregulated trucking in 1980, it was a boon to Werner and others—just as deregulation of the telephone industry later in the decade would provide a boost to MCI and other challengers to the supremacy of AT&T. With the end of regulation, a small carrier such as Werner Enterprises could compete on a level playing field, and its customer base began to grow rapidly.

A Key Player in the Truckload Segment

In 1977, Werner Enterprises had moved its headquarters across the Missouri River from Council Bluffs, to Omaha, Nebraska. In April 1986, when it completed its initial public offering, Werner had a fleet of some 630 trucks. By that time, the company had begun to develop the business philosophy that would propel it to enormous growth in the decade that followed. Its philosophy, as later stated in its 1997 annual report, was “to provide superior on-time service to its customers at a low cost.” To accomplish this objective, the company used premium-class, state-of-the-art tractors and trailers which were less likely to break down, and which assisted it in attracting and retaining qualified drivers.

Werner operated in the truckload segment of the trucking industry, providing its customers with specialized services including van, flatbed, and temperature-controlled trucks. It serviced regional routes, or medium to long-haul routes throughout the lower 48 states, and also provided dedicated fleets—that is, fleets in which all of the company’s trucks were Werner-operated. Werner offered customized service over a broad geographic field, and held impressive claims about the quality of its equipment. In 1993, the company reported that the average age of a Werner tractor was 1.3 years, while the average trailer was only 2.8 years old.

Using its reliable equipment, Werner focused on shippers who valued the broad geographic coverage, equipment capacity, and customized services that were available from a large, financially stable carrier such as Werner. Among its principal customers were the department stores Sears and Target, and food companies such as Kellogg and Frito-Lay. Even with such big-name clients, however, Werner’s customer base remained diversified. In 1997, for example, its 25 largest customers comprised a mere 40 percent of the company’s income, and no one client accounted for more than seven percent of revenues.

Fast Growth with a Cautious Attitude in the 1990s

In 1992, Werner Enterprises greatly broadened its service offerings by expanding into the temperature-controlled, regional short-haul and dedicated-fleet segments of the trucking industry. Also in 1992, the company made strides in improving its technology. In 1993 it was reported that all of the company’s trucks had on-board computers which connected truckers to headquarters via satellite, thus providing both the trucker and the home office with real-time information.

Such technology was the result of a September 1992 agreement with QUALCOMM, maker of advanced communication systems. Under the terms of the $12 million deal, QUALCOMM would provide its OmniTRACS mobile communications system for Werner’s use. According to Jake Wood, Werner’s president at the time of the deal, “After completing a comprehensive cost analysis and field evaluation of the systems available, QUALCOMM emerged as a winner. Our operating strategy is simple—everything we do must help ensure [that] our customers receive the highest level of service possible.”

In spite of fast-paced growth in 1994, Werner was cautious about the company’s future, according to a May 1995 Omaha World-Herald report on its annual meeting. Though Werner had topped its revenues and earnings record for eight years running, stock prices were down from $29 in early 1994, to $21.25 the following year. Vice-President and Chief Operating Officer Robert Synowicki stated that the downturn could be related to a general slowing in the economy, a nationwide condition which Matt Kelley of the Omaha World-Herald wrote “may be making investors nervous about trucking companies in general.” Nonetheless, Werner’s executives expressed optimism about the company’s long-term prospects, particularly in light of its low debt, high equity, and modern equipment.

During a question-and-answer session following the presentation of the 1995 company annual report, Kelley wrote, “One attendee generated the most interest by asking whether the trucking industry was taking steps to counter a recent spate of negative publicity about the industry and overworked drivers.” As Kelley explained, during the previous month, a news magazine program presented on a major television network had featured an exposé on overworked and fatigued truck drivers who created a hazard for others on the highway. In answering the question, Werner executives explained the satellite reporting system, which helps the company to prevent drivers from working beyond the maximum number of hours permissible without a rest. With regard to the negative publicity itself, Clarence Werner said, “We can’t do much about the national news when they go out and pick some screwball driver and do a story.” The important thing, he suggested, was to focus on ways to prevent situations in which fatigued drivers were on the road.

In line with its cautious approach to business, in 1997 Werner Enterprises built a “disaster recovery site” near 72nd and Q streets in Omaha. In light of the many natural disasters which had begun striking the United States with regularity in the 1990s, the company was preparing a second headquarters to use in the event of fire, tornado, or other forms of emergency. “If there were some sort of disaster,” Synowicki told Chris Olson of the Omaha World-Herald, “like a fire or chemical spill on the highway … we could transfer most of the business to the disaster recovery site and continue operating.” The building, which Olson described as a one-story L-shaped structure of precast concrete with 30-foot ceilings, would be used for record storage; but, Synowicki noted, “If the headquarters were damaged, the stored items would be moved out and the building would be used as offices.”

Issues of Growth Near the Turn of the Century

In addition to the construction of the 66,000-square-foot disaster recovery building, in 1997 Werner Enterprises was also building a 140,000-square-foot office building. The latter, on the east side of Nebraska Highway 50, would augment the existing headquarters building of 110,000 square feet on the west side of the highway. “The new building will more than double our headquarters office space,” Synowicki told the Omaha World-Herald. “It should hold us for another five years.”

Company Perspectives:

With strong financials and a commitment to service, we are one of the nation’s top five truckload carriers. Premium equipment, superior technology and talented people help keep us ahead of our competition.

With a goal having been set to grow its business by 15 percent yearly, Werner’s facilities were expanding quickly as well. “We had about five acres when we first moved to this headquarters site,” Synowicki stated. “Now we have more than 200 acres and are still growing.” Its growth had an increasing effect on that of Omaha itself: as Steve Jordon of the Omaha World-Herald reported in June 1997, the expansion “would be a key to opening a new industrial development area south of Interstate 80 and east of Nebraska Highway 50.” In 1998 or soon thereafter, according to Werner Enterprises Executive Vice-President and General Counsel Richard S. Reiser, the company’s trailer shop and later its body shop would move to the east side of the highway, leaving room for the headquarters building to expand into what was a parking area.

With so much growth taking place, one of the problems faced by both Werner Enterprises and its competitors was finding enough capable drivers. In February 1997, John Taylor of the Omaha World-Herald reported that Green Bay, Wisconsin’s Schneider National, Inc., the number-one trucking company in the nation, had come to Werner Enterprises’ backyard to recruit 125 drivers. Officials at Werner refused to comment on the Omaha recruitment effort by its competitor, but they did say that the company had been forced to turn down business due to lack of drivers. “Some trucking industry analysts,” Taylor reported, “have said there is no shortage of people qualified to drive trucks; instead, they say, potential drivers don’t seek work because they don’t like the wages, hours, working conditions and the fact that they have to be away from home.” For this reason, “Trucking companies like Werner have boosted pay in recent years.” Although Taylor did not provide figures for Werner, he reported that at Schneider, new drivers could expect to earn as much as $36,000 a year, while drivers with three years’ experience could earn up to $50,000.

In line with its continued growth as a company, in 1993 Werner Enterprises had moved into intermodal transportation, which combines trucking and rail transport. In April 1997, it signed an agreement with Hub Group, the largest intermodal marketing company in the United States, to market each other’s services to customers. It had also created a division to handle logistics in 1995.

One of Werner Enterprises’ most significant customers in the late 1990s was retailer Dollar General, for whom it began providing dedicated trucking services in 1996. In September 1997, Werner began handling a number of services for Dollar General distribution centers in Oklahoma, Virginia, Kentucky, and Georgia. In February 1998, Werner signed an agreement with Dollar General whereby it would handle all trucking operations at the four distribution centers. Thus, the Dollar General dedicated fleet soon grew from 150 to 400 trucks.

In December 1997, Werner Enterprises announced a plan to buy back as many as two million shares of its common stock, presumably to drive up the value of what its leadership believed were undervalued certificates. In the following month, January 1998, the company reported record earnings for 1997. Revenues for the fourth quarter, for instance, had increased to $206 million, marking a 22 percent increase over fourth quarter revenues in 1996. Furthermore, profits grew by 23 percent, to almost $14.2 million for the quarter.

At that point, Werner Enterprises was solidly in fourth place among trucking companies in the United States. Schneider, with $2.5 billion, was still far ahead of the pack, with J.B. Hunt and Landstar also ahead of Werner as billion-dollar corporations. Werner reported that it expected to hit the $1 billion mark in 1999. These four companies—along with Swift Transportation, completing the “Big Five”—each experienced 15 to 20 percent growth every year. Moreover, the big were only going to get bigger, because consolidation was increasingly becoming the rule in trucking just as in other types of business.

In June 1998, Werner Enterprises—which had long emphasized information technology and the use of the latest advancements in communication—got a jump on its competitors when it introduced a “paperless log system.” According to a company press release, Federal Highway Administrator Kenneth Wykle had come to Omaha to sign an agreement with Clarence Werner whereby Werner Enterprises would be the first national trucking company to make use of satellite logging technology rather than paper logbooks to follow truck movement and truckers’ work hours. Drivers’ hours and activities would automatically be recorded throughout the day on a computer keyboard unit located in their trucks, which would then transfer the information to Werner’s computer system in Omaha. According to Clarence Werner, Werner Enterprises had worked three years to create the paperless log system, but “the long-term benefits for our customers, the general public, and Werner Enterprises far outweighs the significant investment of resources.” And thus, the company moved into the end of the century much the same way it had been operating for years—successfully integrating new technologies and ideas into its daily operations for the good of its customers and its own growth.