Werner Enterprises – SWOT Analysis

Werner is a transportation and logistics company engaged in hauling truckload shipments of general commodities in both interstate and intrastate commerce.Through its large size and superior market position, the company is in a favorable position to effectively meet competitive pressures. However, increasing fuel prices would put pressure on the company’s operating margins.

Strengths

Weaknesses

Strong market position Technology advantage Wide portfolio of services

Weak financial performance Overdependence on the US

Opportunities

Threats

Growing global logistics sector

Rise in shippers’ preference for dedicated

contracts

Growth in the US logistics sector

Rising oil prices

Regulations

Slow down of US economy

Strengths

Strong Market Position

Werner is one of the five largest truckload carriers in the US.The company’s truckload fleets operate throughout the 48 contiguous US states pursuant to operating authority, both common and contract, granted by the United States Department of Transportation (DoT) and pursuant to intrastate authority granted by various US states. Werner also has authority to operate in the several provinces of Canada, and provides through trailer service in and out of Mexico.Werner has a fleet of 8,250 trucks, of which 7,470 were owned by the company and 780 were owned and operated by owner-operators (independent contractors). Fleet Truck Sales, a wholly-owned subsidiary, sells Werner’s used trucks and trailers and is one of the largest domestic Class 8 truck sales entities in the US.The Fleet Truck Sales network currently has 17 locations. Werner operates 24,855 trailers. This total is comprised of 23,109 dry vans; 501 flatbeds; and 1,245 temperature-controlled trailers. Strong market position enhances its brand image and ena
bles the company to attract large customers. In addition, strong market position gives the company competitive advantage over its peers.

Technology Advantage

Werner’s is recognized for its technical excellence and innovation. The company leverages its services with the proprietary web-based, user-friendly technology. Werner offers Systems

Management and Resource Tracking (SMART), a secure, web-based application to provide complete supply chain visibility from original vendor to the final store shelf. SMART combines analysis, optimization, supply chain visibility, information exchange, reporting/data mining and mapping in one transportation management system. It is one of the first companies to adopt and embrace truck satellite tracking technology. Werner’s integrated satellite applications are extremely useful for time-sensitive shipments. Werner’s entire fleet of trucks is equipped with the latest satellite communication devices and engine monitoring systems to provide the most reliable and efficient technology on the road.Werner’s technologies help its customers upgrade their distribution network in today’s market. The company’s technology advantage helps it to attain a competitive edge over its peers.

Wide Portfolio of Services

Werner’s provide a wide portfolio of transport and value added services. The company provides on-time service to its customers at a competitive cost.The truckload transportation services include transportation of a variety of consumer, nondurable products and other commodities in truckload quantities; comparable truckload van service within five geographic regions; time-sensitive truckload services; and truckload services for products with specialized trailers. Truckload segment provides specialized services to customers based on their trailer needs (such as van, flatbed and temperature-controlled trailers); geographic area; time-sensitive nature of shipments (expedited shipments); or conversion of the private fleet to the Company (dedicated services).

Werner’s VAS segment offers transportation and logistics services for individual customers. VAS services include truck brokerage, freight management, intermodal, load/mode and network optimization and international.The VAS international services include site selection analysis, vendor and purchase order management, full container load consolidation and warehousing, door-to-door freight forwarding and customs brokerage. The company offers these services on a local, regional or North American basis. Broad product portfolio enables the company to provide end-to-end solutions and tap high value customers.

Weaknesses

Weak Financial Performance

The company has recorded weak financial performance in 2007.Werner’s revenue decreased from $2,080.6 million in 2006 to $2,071.2 million in 2007, a decrease of 0.5% compared with 2006. The decrease in revenues was due to increasingly weaker freight demand, record setting high fuel prices, a slowing domestic economy and the lingering effects of the 2006 truck pre-buy.

Werner’s also witnessed significant decrease in its net and operating profits for the same time period. The net profit decreased from $98.6 million in 2006 to $75.4 million in 2007. The operating profit of the company decreased from $164.5 million in 2006 to $136.5 million in 2007. Weak financial performance does not provide financial stability to the company and limits its growth avenues in the future.

Overdependence on the US

The company has operations in the US, Mexico, China, and Canada with its operations being concentrated in the US.The company derives about 89.6% of its revenues from the US. Majority of the sales offices sales offices, brokerage offices and trailer parking yards are located in US. Overdependence on one geographic region makes it susceptible to changes associated with the economic and political situation of the country.Thus, a higher dependence on the US market may prove to be an obstacle in the company’s efforts to boost its topline.

Opportunities

Growing Global Logistics Sector

The global logistics sector has witnessed strong growth in recent years and the trend is likely to continue in the future. In 2010, the market is forecast to have a value of $725.5 billion, with an anticipated CAGR (2005-2010) of 4.2%. Future growth in the American market is likely to be motivated primarily by the retail segment. Drop in interest rates and increase in consumers’ disposable income is creating demand in this market. The company’s strong presence in logistics sector provides a significant opportunity for the company to boost its top line growth.

Rise in Shippers’ Preference for Dedicated Contracts

Due to the tight capacity situation in TL segment, a large number of shippers have shown an increased preference for entering into dedicated contracts with transportation companies. Dedicated contracts guarantee freight levels and serve as a hedge during an economic downturn.This could be seen as a significant opportunity for the company to increase the number of its dedicated contracts, subsequently benefiting from additions to its revenue base.

Growth in the US Logistics Sector

The US logistics sector has witnessed strong growth in recent past. Despite the poor condition of the infrastructure in the US including road, rail and air transportation links, the logistics market has performed well in recent years, with positive growth rates year-on-year posted consistently since 2001.The US logistics market is expected to reach a value of $221.7 billion by the end of 2010.This representing a CAGR (2005-2010) of 3.8%. Retail transportation accounts for 70.7% of the US logistic market value. The company provides a wide range of logistic services. Hence the company is well positioned to capitalize on the growing logistics market.

Threats

Rising Oil Prices

Rising oil prices have increased the logistics costs dramatically in recent years. A major challenge for land transportation continues to be the increase in costs.The rise in oil prices has an immediate impact on carrier or internal fleet operating costs and fuel surcharges. Crude oil is the raw material that is refined to produce gasoline, diesel, jet fuel and many other petrochemicals.WTI (West Texas Intermediate) averaged $126.5 per barrel in May 2008 compared to $64.93 per barrel in May 2007. Higher fuel prices are likely to have a direct impact on the company’s margins as increase in fuel costs will cause a rise in operating expenses of the company, which would be disproportionate to its sales volume.

Regulations

The company is regulated by the US Department of Transportation (US DoT) and the Federal Motor Carrier Safety Administration (FMCSA). In addition, the company’s operations are subject to various environmental laws and regulations dealing with the transportation, storage, presence, use, disposal and handling of hazardous materials, discharge of storm water and underground fuel storage tanks.

The company may also become subject to new or more comprehensive or restrictive regulations relating to fuel emissions, ergonomics or other issues regulated by the US Environmental Protection Agency (EPA). EPA mandated a new set of more stringent engine emission standards for all newly manufactured truck engines. These standards became effective in January 2007. To delay the cost impact of these new emission standards, in 2005 and 2006 the company purchased significantly more new trucks than it normally buy each year. This allowed Werner’s to delay purchases of trucks with the new 2007-standard engines until 2008.

A third and final set of more stringent emissions standards mandated by the epa will become effective for newly manufactured trucks beginning in january 2010. The change in regulations and the subsequent purchase of new trucks to comply with it would lead to an increased cost burden for the company. These regulations may have an adverse impact on the company’s operations.

Slow Down of US Economy

According to the IMF world economy outlook, the real GDP growth of the US and is expected to slowdown in 2008. The GDP growth of the US economy is forecasted to slow down from 3.3% in 2006 to 2.8% in 2008. United States, Werner’s largest geographical market, accounted for 89.6% of the total revenues in the fiscal year 2007. Revenues from United States reached $1,855.7 million in 2007. Therefore, a weak economic outlook for US may put pressure on the revenues of the company.

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