In Bulk Trucking, Chemical Leaman Is Rolling Toward The Top

Posted: June 16, 1986

With a single, quick, surprise move earlier this month, a Philadelphia-area trucking company put itself in position to become the nation's biggest revenue producer in its highly specialized business.

If Chemical Leaman Corp., based in Lionville, Chester County, does take over the number-one position in the bulk-commodity hauling industry, it would do so by taking over the equipment and facilities of a failed Ohio trucking company.

The move could enable Chemical Leaman to displace another area company, Matlack Inc., a division of RLC Corp. of Wilmington. Both companies are specialists in hauling liquid and dry commodities in bulk, mostly in tank trucks.

In its climb toward the top, Chemical Leaman in recent years endured an era of continual, wrenching upheaval in the trucking industry, in which hundreds of small, new companies have been competing with bigger, well-established firms.

Since entry into the industry, authority to operate over different routes and rates for shipping were deregulated by Congress in 1980, some companies have learned to prosper, and some clearly have not.

THE ROLE OF INSURANCE

And in the last year or so, trucking has become an industry, like many others, in which the sharply higher cost of insurance is playing a big role in deciding who stays in business and who doesn't.

Chemical Leaman, a 73-year-old company, took the big step toward expansion June 1 by agreeing to lease virtually all the terminals and equipment of Coastal Tank Lines Inc. Coastal's 460 employees and the 175 independent truckers that work for the company will continue to operate the equipment and facilities, working as subcontractors for Chemical Leaman.

Coastal, based in Akron, Ohio, last year ranked as the country's seventh- largest bulk-commodity trucking company. The company and its parent, Coastal Industries Inc., both filed petitions June 3 in Akron for protection under Chapter 11 of the Federal Bankruptcy Act.

With U.S. Bankruptcy Court approval, Chemical Leaman's plan is to eventually acquire all the assets of Coastal, which has been in precarious

financial shape for several years, said Robert Shertz, president of Chemical Leaman Tank Lines Inc., the parent corporation's major subsidiary.

Coastal finally was driven to seek Chapter 11 protection when it could not afford liability insurance, which shot up an average of 800 percent in the last three years for U.S. tank-truck companies.

PREMIUMS EXPLODE

For Coastal, the increase in its insurance costs was even more astronomical. For a $50 million liability policy that took effect June 1, 1984, Coastal had paid a premium of $442,611. For a one-year policy, with a liability limit of $10 million, starting June 1, 1985, the premium shot up to $1.8 million.

Then, this year, the only quote Coastal could get was for a policy with a $5 million limit and a premium of $4.5 million.

The group of banks that had provided Coastal credit refused to lend any additional money to pay the higher premiums, Shertz said.

For tank-truck operators everywhere, insurance "is now a seller's market," said Al Rosenbaum, vice president of National Tank Truck Carriers, a trade organization. The insurance companies "say if you don't want to pay that price, go somewhere else. But there's nowhere else to go."

There were about 50 insurers for tank trucks in 1983, but there now are only 15 to 20 companies writing policies, Rosenbaum said. Coastal was the largest of four or five tank-truck companies - of about 200 nationwide - that have gone out of business when they got their most recent insurance bill, he said.

If Chemical Leaman succeeds in keeping virtually all of the business that Coastal was doing, it could move ahead of Matlack as the largest bulk- commodity trucker in terms of revenue.

MATLACK RESULTS PRIVATE

Matlack does not report its financial results separately from those of RLC, but the parent company reported revenues of $204.7 million from bulk trucking in its fiscal year ended Sept. 30.

Chemical Leaman, in the 1985 calendar year, had revenues of $163.1 million while Coastal had revenues of $51 million, for a total of $214.1 million.

For both Matlack and Chemical Leaman, revenues and profits have fluctuated in recent years as they struggled to cope with deregulation and the mixed fortunes of chemical companies, their major customers.

According to Shertz, Coastal approached Chemical Leaman only in the last few weeks, as its financial situation became increasingly perilous. Virtually all other major bulk-commodity trucking companies were also approached, but most wanted only to break off pieces of Coastal rather than operate the whole system, he said.

Matlack, which already has Interstate Commerce Commission authority to operate in all of the 48 contiguous states, plus the right to operate in a number of states where chemical-hauling is a highly regulated business, was not interested in buying the Coastal system, a spokeswoman for Matlack said.

NEAR-PERFECT FIT

For Chemical Leaman, though, the Coastal system was a near-perfect fit, with established routes and terminals in a number of places where Chemical Leaman had been planning to expand for some time, Shertz said.

He specifically cited Canada, Illinois and Ohio, a state that has a highly regulated tank-truck industry.

"The opportunity to expand into Canada, and getting some of the state authority (operating rights) had been on our drawing boards," Shertz said. ''This seemed like a very effective way to do it. . . . It helps fill in the map."

Chemical Leaman's decision also should help it improve relations with a number of Coastal's customers, who were worried about continued service when word got out that the company was about to file for bankruptcy-court protection, Shertz said.

Getting service when you're a shipper of chemicals, perishable liquids or other wet and dry products that move in bulk quantities in specialized tank- truck equipment is usually more difficult than finding plain trucks to move general freight, he said.

"Often we're the last step in the marketing of their product," said Chemical Leaman vice president Alan Montgomery. "We're the package. If we're not there, they don't get delivery."

comments powered by Disqus
|
|
|
|
|