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Earnings Are Up At Classic
Despite that gloomy February report, two-thirds of those decision makers told the International Warehouse Logistics Association that they were cautiously hopeful that business would pick up.
Although Larry Benton wasn’t one of those reporting executives, he could identify with their outlook. He said his warehousing business started slowly this year, just creeping along until the first quarter passed. Then things did get better.
So when 2002 comes to a close in a few weeks, Benton said the year will have been a pretty good one for his firm.
“Our sales are up. We’ve had gradual gains. But, I guess more importantly, our earnings are up,” he said.
Benton is president of Classic Transportation Services Inc., a freight carrier, freight broker and a warehouser in the Wayland-Byron Center area.
“We were experiencing 22, 24, 25 percent growth a year for a while. That has definitely slowed down,” he said. “But we still are seeing modest growth and our earnings are much, much stronger.”
Benton said he wasn’t sure 11 months ago what the year would have in store for his firm, and back then he said it wouldn’t have surprised him if the year’s business didn’t turn out as good as it did. A slow economy and terrorist scares, after all, made almost everyone hesitant to make positive projections for the year.
“But as the year progressed and got out of the first quarter, it became evident that we were looking at a pretty good year,” he said.
Benton attributed the earnings hike that Classic will have for the year to his base of loyal customers and to diversifying the company even further on the freight end. Reorganizing the firm also played a role in pumping up earnings, as he made several staff cuts and continued the restructuring plan he established a few years ago.
As for his outlook about the warehousing business in 2003, Benton’s early indication is that next year will be similar to this year.
“I’m expecting some modest growth again,” he said, “and, hopefully, our earnings will remain strong.”
Classic does public and contract warehousing, builds its own facilities, and has 110,000 square feet of space at its site — including some that is environmentally controlled for goods that are sensitive to temperature and humidity.
As for the freight-hauling side of the business, business has been good enough to allow Benton to add another Kenworth to Classic’s fleet of 42 trucks — something he said he is likely to do during the first quarter of the coming year. He only buys Kenworths and does so every three years.
But Benton also said that the cost of diesel fuel this year has been a real sore spot, for Classic and its clients.
“It’s been brutal, very brutal,” he said.
“Over the past years, we have been able to add fuel surcharges to our customers. This year it has been much, much more difficult to get those. Everybody is saying that they’re slow, that they’re cutting costs, and if we want their business we have to do without a fuel surcharge.”
Classic, however, couldn’t continue to absorb the diesel costs and Benton said he is now getting a fuel surcharge. He said he was able to do that because his firm offers quality services and has a big enough and varied enough fleet to get most jobs done.
Diesel prices were about $1.42 a gallon when the Business Journal spoke with Benton. According to the Department of Energy, that’s up about 20 cents a gallon from that time last year.
Eleven percent of that price goes for refining, another 11 percent goes for distribution and marketing, the cost of crude accounts for 45 percent, while taxes make up a third of the per-gallon price.
On top of that, Michigan adds a surcharge of 12 cents for every gallon, the firm paying that amount quarterly instead of at the pump.
Benton thinks that diesel prices will creep up a bit next year, and that means he will likely need to tack on a fuel surcharge because his contracts can’t meet the rising pump prices.
“Most carriers haven’t had rate increases in several years, and our rates are basically predicated on paying anywhere from 89 to 94 cents a gallon. Now we’re faced with a $1.45 a gallon,” he said.
“Labor is our highest cost. But now, very closely behind that is fuel,” he pointedly added. “It definitely is attacking our earnings in our trucking sector.”