Getting Ready to Hit the Road with Magnum

Magnum LTL, LTD and Logistics all use the same sales force.

This is an example of how this usually works. Say I am a shipper in Fargo, ND and I have 2 pallets to go to Minneapolis, 6 truckloads going to Charlotte, NC and 4 truckloads from a supplier in Dallas, TX coming back to Fargo, ND. The 2 pallets would go with LTL and the 6 truckloads will go with LTD. However, if Magnum only happens to have 2 trucks in Dallas, TX, then Magnum Logistics will broker the final 2 loads to another carrier (sometimes my company) to provide good service to the customer. So brokerage is like the 'overflow valve' when LTL and LTD can't provide the service.

All companies of Magnum's size will protect their brokerage at all costs. That way they don't have to deadhead a truck from Kansas City to Dallas to cover the load. If the customer calls in a load in that picks in Dallas on Monday that has to be in Fargo on Wednesday, that shipment needs to be brokered for the sake of service if Magnum doesn't have any trucks around. You never want say no to your customer if you can avoid it. A brokerage gives a carrier incredible flexibility in servicing their customers. This is the 'proper' reason for having a brokerage.

This concerns me about the overall health of the company because the brokerage is the almost always the cheapest division to run and has the best profit margin. Most trucking companies that have a brokerage division will let the truck side go bankrupt and spin off the brokerage side and keep it operating.

Again, I don't work for Magnum, and their setup may be different. I'm just using the industry norm and speculating about Magnum off of that.

 

I guess, ultimately, it would mean there is a cash shortage somewhere. It could be unexpected capital expenditures, rapidly rising operating expenses, increased competition, perhaps they're having difficulty securing a credit facility, or they could be having difficulty collecting from shippers. Hard to know what's going on with the other companies, since it is privately held, unless someone could pull a DnB. But based on what you've said, I would assume the problem to be in the TL or LTL division. Incidentally, I know Con-Way's LTL division lost a fair amount of money last year.

 

Conway lost boatloads last year, but they are publicly traded and might have an easier time raising cash. Also, the Conway brand has a longer track record of great success than most.

I have no doubt that it is a credit issue for Magnum. They are an expanding company and it is hard to manage growth in tight credit markets. Lack of credit was what sunk Mid-States. As bad as the truckload segment in trucking is right now, the LTL segment is a bloody mess. With all of those terminals and all of that overhead, I can't see how any of them are making it right now.

 

You are correct, a friend of mine has 20-25 trucks, and a brokerage. 2008 was the worst year of trucking, and the best year for brokering. And didnt rip anyone off.

 

The fuel spike and subsequent drop in 2008 really benefitted brokers, because their operating costs weren't fluctuating, but there was still an oversupply of trucks. So the rate paid to the truck didn't move in line with fuel.

Diversification is another reason to have both kinds of authority. I have found that most brokers who have their own trucks give better rates than the briefcase brokers (R-M) because they have to use brokers, too.

 

Sure will. I didn't mean to paint the sky black, but I know you are a level- headed guy and that you want to know as much as possible. I've been rooting for you since you started posting and have been following your posts closely.

If Magnum loses thier brokerage authority, they will still be able to take loads from brokers to get you where you need to be, they just won't be able to broker their own loads to other carriers.

I feel for all of the Magnum people right now. Between the flooding up there and the uncertainty of the company, those people must be in pretty low spirits.

 

That's a good point about running LTLs; lots of overhead. I read through Con-Way's 10-K a few weeks ago, and they do have plenty of credit available and have restructured. I'm sure they'll weather the storm. I can definitely see where a smaller/growing company like Magnum could have an issue in this environment.