Oak Harbor Freight Lines, Inc.

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Oak Harbor Freight Lines, Inc.

1339 West Valley Highway North
Auburn, Washington 98071-1469
U.S.A.
Telephone: (253) 288-8300
Fax: (253) 288-8301
Web site: http://www.oakh.com

Private Company
Incorporated: 1916
Employees: 1,000
Sales: $96 million (2001)
NAIC: 484122 General Freight Trucking, Long-Distance, Less Than Truckload

With 27 dedicated terminals in five western states, more than 1,000 employees, and several strategic partnerships, Auburn, Washington-based Oak Harbor Freight Lines, Inc. has distinguished itself as one of the elite regional carriers in the competitive Less-Than-Truckload segment of the transportation-trucking industry. Steadfast commitment to a careful and steady growth plan and an unremitting focus on building long-term relationships with both customers and employees have enabled Oak Harbor to adjust seamlessly to the tide of deregulation that has coursed through the trucking world over the last two decades. With 2001 revenues of more than $96 million, Oak Harbor is well positioned to thrive despite the ongoing upheaval in the industry as a whole.

Humble Beginnings in the Early 20th Century

Oak Harbor’s roots date back to 1916, when Ben Koetje established a company called Oak Harbor Transfer in Oak Harbor, Washington. Originally a one-truck operation devoted to hauling manure for farmers, Koetje’s firm branched out into the transport of local agricultural products as well. The trucking industry experienced a sea change in the mid-1930s, when President Franklin Roosevelt—responding to growing concerns about safety and the pitfalls of unfettered competition—signed the Motor Carrier Act of 1935, ushering in an era of extensive regulation. In particular, new entry and rate restrictions ensured that trucking companies were able to operate in a relatively protected environment in which they could make consistent if not spectacular profits. Seizing on this new opportunity, brothers John and Gus Vander Pol bought out Koetje’s company in 1936 for $600 and the assumption of its debt. The following year, their brother Henry joined them in the business, and in 1942, the trio acquired another small transport company called Oak Harbor Freight Lines. The brothers merged the two firms and kept the latter name. Over the next three decades, they slowly expanded Oak Harbor’s delivery area into several counties across western Washington. In 1974, Henry bought out his brothers’ stake in the company, and the same year Henry’s sons Edward and David came to work with their father.

Deregulation in the 1980s

By the late 1970s, the coziness of the trucking industry was being challenged by those who believed that a more “free market” approach would benefit entrepreneurs and consumers alike. Following the momentum created by the deregulation of the airline industry in 1978, Congress passed the Motor Carrier Act of 1980, which President Jimmy Carter signed into law. With barriers to entry reduced and firms more or less free to establish their own pricing and fee structures, a slew of new competitors jumped into the field, while more established firms had to adjust quickly to this brave new world. The initial result of these changes was a period of chaos in the industry. As operating costs soared and profit margins were squeezed, hundreds of trucking companies—both new and old—went bankrupt in the first three years of the 1980s alone. (The industry would never regain its former predictability. Of the 100 largest carriers in 1980, fully 70 of them were to close or merge with competitors over the next two decades.)

Deregulation also led to the bifurcation of the trucking industry, with a split between the “Truckload” and the “Less Than Truckload” (LTL) segments. As the name suggests, the truckload segment encompasses those carriers who transport shipments that generally fill up an entire truck—in other words, the driver need only take the load from point A (the shipper) to point B (the recipient). LTL companies, by contrast, focus on the delivery of smaller loads, which require them to pack each truck with goods for (and from) several different customers. This presents a much more complicated set of logistical challenges and generally requires a more developed infrastructure of networks and terminals. The LTL market, therefore, was comparatively more sheltered from the post-deregulation influx of new market entrants because the nonregulatory barriers to entry in that sector still remained formidable.

As a company that traditionally had dealt with smaller loads, Oak Harbor came down on the LTL side of the divide and thus was relatively better positioned to weather the industrywide storm in the 1980s. The firm had another advantage as well. Throughout its existence, Oak Harbor had devoted itself to nurturing long-term relationships with its customers, catering to their particular needs, and striving to provide the highest possible level of service. Thanks to the strength of many of these relationships, the company was able to set its deregulated prices at a level high enough to ensure the company’s continued viability, without fear that its entire customer base would desert it in favor of cut-rate carriers. This stability allowed Oak Harbor to pursue a conservative but steady growth strategy throughout the 1980s, seeking out new customers and bases of operation in the Pacific Northwest region while always remaining grounded in its rural Washington roots. This approach worked well, as Oak Harbor’s sales rose from $8 million in 1984 to $25 million in 1990, and its workforce grew to 300 employees.

Growth and Expansion in the 1990s

Oak Harbor entered the 1990s with high hopes. Its revenues had continued to increase despite the softening of the American economy in the late 1980s, and it anticipated further growth in the wake of the Persian Gulf War of 1991. That same year, Oak Harbor expanded its operations beyond the West Coast when it opened a new terminal in Caldwell, Idaho. The four employees there allowed the company to offer next-day delivery service between the Boise area and markets in Seattle, Portland, and other parts of the Pacific Northwest. The move proved to be a sound one, as company revenues climbed to nearly $34 million by 1992 and to more than $38 million the following year.

In an effort to expand its reach still further, Oak Harbor entered into a strategic partnership with Southeastern Freight Lines, Inc., in 1994. Based in Columbia, South Carolina, Southeastern handled shipments within eight southern and southeastern states, including such large markets as Florida, Georgia, and Virginia. Under the terms of the agreement, Southeastern would deliver shipments in its service area that had originated from Oak Harbor’s terminals, and Oak Harbor would perform the same service in the Pacific Northwest for shipments originating from Southeastern’s territory.

Not long after aligning with Southeastern, Oak Harbor partnered with Preston Trucking, a regional subsidiary of industry titan Yellow Corp., which served markets in the Northeast and upper Midwest. Buoyed by these linkages, Oak Harbor’s 1994 revenues exceeded $45 million.

The trucking industry continued to change rapidly during the mid-1990s. In 1995, Washington, along with many other states, deregulated its intrastate trucking market. (The Motor Carrier Act of 1980 had only reached those trucking operations that crossed state lines.) Previously, carriers wanting to make deliveries solely within Oak Harbor’s home state needed to jump through a series of regulatory hurdles to be permitted to do so. With deregulation, the presumption shifted in favor of access—a firm could be denied an operating permit only on safety grounds. Having thrived in the wake of interstate deregulation in the 1980s, Oak Harbor was unfazed by this shift. “You’ll see some smaller [carriers] go away,” Oak Harbor co-president and co-owner Edward Vander Pol told the Seattle Post Intelligencer, “the ones who are not very profitable or serve a small geographic area[.]” Oak Harbor fell into neither of these categories. Indeed, after teaming up with another regional carrier, Central Freight Lines, Inc., whose delivery area encompassed eight southern and southwestern states, including Louisiana, Texas, New Mexico, and Colorado, Oak Harbor’s reach was virtually nationwide. The company’s 1996 revenues topped $55 million.

Continued Growth: Late 1990s and Beyond

The trucking industry was not isolated from the great leaps in technology that were driving so much of the U.S. economy in the second half of the 1990s. From tracking software that allowed customers and shipping firms to pinpoint the location of a particular shipment at any point along its route to algorithmic programs that calculated the most efficient way to route LTL deliveries to multiple customers, technological advances had become a key to turning a profit in the trucking industry. The consequences of failing to keep up could be devastating, as evidenced by the collapse of the Spokane, Washington-based regional LTL carrier Silver Eagle Trucking Co. in 2000. Despite 70 years in the business, Silver Eagle had run into serious computer problems in 1998 and was never able to recover. (Oak Harbor stepped in to pick up much of Silver Eagle’s business.)

Company Perspectives:

Our mission at Oak Harbor Freight Lines is to be the premier transportation services company. We are committed to providing timely, accurate, and reliable service, remaining profitable to ensure stability, being recognized for integrity, and generating complete internal and external customer loyalty.

Oak Harbor invested heavily in information technology throughout the latter part of the 1990s. The company made sure that all of its new truck engines were equipped with a full range of electronic controls and monitoring devices to ensure that its drivers adhered to efficient driving speeds. “Though some drivers would like it otherwise,” Oak Harbor’s director of maintenance Jack Morris told the electronic newspaper Transport Topics, the company’s vehicles “are programmed not to exceed 60 miles per hour. Any time you go over 60 miles per hour it costs you money.” The company also installed IBM-based dispatch software to allow customer service representatives to transmit orders directly to paging systems in individual trucks, thereby speeding the pick-up and delivery process. Other software allows Oak Harbor personnel to keep close track of delivery times to ensure that drivers do not delay shipments to attend to personal matters. Using the software, “[w]e might see a truck that sat mysteriously for two hours 337 miles into a trip,” Morris told the Commercial Carrier Journal. “Hey, isn’t that right about where the driver’s girlfriend lives?”

This sort of attention to detail helped Oak Harbor achieve a nearly 99 percent on-time delivery record, an essential attribute for profitability. “If you aren’t faster, better, quicker and providing the value the marketplace is looking for,” Oak Harbor regional sales manager Parker Powell cautioned on the company’s web site in the summer of 2001, “the market will be looking elsewhere.” Oak Harbor did not have that problem, and the company’s 1997 revenues climbed to $65 million. The year 1997 also saw the beginnings of the company’s efforts to reach more deeply into the massive California market, with the opening of a terminal in Oakland to serve the San Francisco Bay Area. At the same time, the company expanded its presence in the eastern Washington-Idaho panhandle area with the opening of a dedicated terminal in Spokane, Washington. (Oak Harbor traffic in the region had been handled previously by Spokane-based Grimmer Transfer & Storage.)

Oak Harbor’s regional partner Preston Trucking, however, was unable to keep up with the competitive demands of the trucking industry and went out of business in the summer of 1999. To bridge the gap opened up by Preston’s demise, Oak Harbor partnered with the Elizabeth, New Jersey-based New England Motor Freight, Inc. (NEMF), to ensure its continued access to the East Coast. NEMF, the fastest-growing trucking company in the northeastern United States, had a service area encompassing 11 eastern seaboard states from Maine to Maryland, including such powerhouses as New York and Pennsylvania. Oak Harbor Vice-President for Sales and Marketing Steve Hartmann lauded the agreement to Traffic World. NEMF’s “culture matched ours,” he said. “We’re both privately held. The way they approach the customer is the same as ours. We both have very low turnover in our companies. We believe low turnover allows you to have long-term relationships with customers.” Oak Harbor’s 1999 revenues topped $75 million.

The year 2000 was one of strong growth for many of the large players in the trucking industry, as the booming U.S. economy generated an unceasing demand for the shipment of raw and finished goods. For smaller firms, however, that year’s spike in the price of diesel fuel after a long period of stability was difficult to overcome. Nearly 3,600 companies across the industry declared bankruptcy that year, even as the largest 100 trucking companies saw their revenues rise by an average of nearly 8 percent. To remain healthy, Oak Harbor boosted its shipping rates and tacked on a fuel surcharge. Its customers proved understanding, and Oak Harbor continued to thrive, expanding its facilities in the San Francisco Bay Area and southern and central Oregon.

With the U.S. economy slumping, 2001 proved to be a trying year across the industry. Fuel costs remained high, and the terrorist attacks of September 11 led to increased carrier expenses in the form of higher insurance premiums and the need to implement enhanced security measures. Although the driver shortage that had plagued the industry through much of the late 1990s was beginning to abate, upward pressure on labor costs remained, and the need to keep up with advances in information technology required significant capital outlays. Oak Harbor, however, was undaunted. Early in the year, it had partnered with Aurora, Illinois-based Mid-States Express, Inc., expanding the company’s reach into 11 midwestern and plains states, including Ohio, Illinois, and Nebraska. Reflecting its confidence and strong business prospects, Oak Harbor also expanded its operations in Sacramento, California; Salem, Oregon; and Lewiston, Idaho, that year. The company now had nine Oregon terminals, to go along with two in Idaho, one in Nevada, ten in Washington, and three in California. Revenues for the year reached $96 million.

Despite economic uncertainty, Oak Harbor strode confidently into 2002. To start the year the company announced a marketing partnership with Molerway Freight Lines, Inc., to begin overnight service between Seattle and western Montana. On its web site, Oak Harbor touted the move as allowing the company to “[p]rovide the most comprehensive coverage of any carrier in the entire Northwest—thereby minimizing unloading and loading time on all shipments by reducing the number of carriers required to reach the Northwest communities.” In March, the two companies joined forces again to inaugurate overnight shipments between Oak Harbor terminals in Reno and Boise and Molerway destinations in and around Salt Lake City, Utah.

Key Dates:

1916:: Ben Koetje founds Oak Harbor Transfer in Oak Harbor, Washington.
1936:: Brothers John and Gus Vander Pol buy Oak Harbor Transfer.
1937:: Vander Pol brother Henry joins the company.
1942:: The Vander Pols acquire another small carrier named Oak Harbor Freight Lines, merge it with Oak Harbor Transfer, and retain the Oak Harbor Freight Lines name.
1974:: Henry Vander Pol buys out his brothers’ shares of Oak Harbor; Henry’s sons Edward and David join the company.
1980:: Passage of the Motor Carrier Act of 1980 heralds the deregulation of the trucking industry; Oak Harbor begins to expand its operations across Washington State and further in the Pacific Northwest.
1984:: Company revenues top $8 million.
1991:: Oak Harbor opens a terminal in the Boise corridor.
1994:: Oak Harbor partners with Southeastern Freight Lines, Inc., expanding its geographical reach.
1995:: Washington State deregulates its intrastate trucking industry.
1996:: Company revenues hit $55 million.
1999:: Oak Harbor partners with New England Motor Freight, Inc.; revenues climb to $75 million.
2001:: Partnership with Mid-States Express, Inc. expands Oak Harbor’s reach in the Midwest; revenues top $96 million.
2002:: Oak Harbor makes a major push into the California market with its Rolling Out California initiative.

More significant, Oak Harbor spent the spring and summer of 2002 implementing its Rolling Out California project. With this three-phased effort, Oak Harbor intended to offer its customers direct service across virtually the entire state of California, thereby improving transit times between that key state and the rest of Oak Harbor’s service area. The kick-off came with the opening of a new terminal in Fresno, California, in April of 2002. The Fresno facility allowed Oak Harbor to inaugurate daily direct service to and from much of California’s fertile central valley, as far south as Bakersfield. In mid-July, Oak Harbor expanded its presence in coastal northern California, when it began direct overnight service from many of its Oregon terminals, as well as Olympia, Washington, to the cities of Crescent City, Arcata, and Eureka, California. Finally, and perhaps most significant, Oak Harbor opened a terminal in Los Angeles in August, enabling the company to institute direct service between southern California, including Los Angeles, San Diego, Long Beach, Palm Springs, and Santa Barbara, and its longstanding bases in Washington, Oregon, and Idaho.

This expansion project left Oak Harbor well positioned to take advantage of the collapse in September 2002, of the nation’s third largest LTL shipper, Consolidated Freightways, Inc. Consolidated was forced to suspend operations after an insurer refused to extend a surety bond in light of the company’s precarious finances. The Vancouver, Washington-based firm had been losing money since 1998, as it could not raise its rates high enough to offset its operating costs. “This is a $2 billion revenue opportunity that hasn’t been seen [in this industry] in some time,” Standard & Poor’s analyst James Corridore told the Seattle Times. Consolidated’s customers included such giants as Home Depot, General Electric, Costco Corp., and the United States Postal Service. While much of the traffic was expected to go to industry heavyweights such as Yellow Corp. and Roadway Corp., regional carriers like Oak Harbor expected to benefit as well.