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Marketing Strategy of ABF Freight System

Marketing Strategy of ABF Freight System

Discuss Marketing Strategy of ABF Freight System within the Marketing Management forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; ABF Freight System, Inc, or simply ABF was established in 1923 and was originally called Arkansas Motor Freightways. ABF is ...

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Marketing Strategy of ABF Freight System
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Anjali Khurana
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Marketing Strategy of ABF Freight System - December 10th, 2010

ABF Freight System, Inc, or simply ABF was established in 1923 and was originally called Arkansas Motor Freightways. ABF is a subsidiary of Arkansas Best Corporation[3], and was listed by Forbes in 2005[4] as one of the “400 Best Big Companies in America.”

Statistics:
Public Company
Incorporated: 1966 as Arkansas Best Corporation
Employees: 18,459
Sales: $1.43 billion (1995)
Stock Exchanges: NASDAQ
SICs: 6719 Holding Companies, Not Elsewhere Classified; 4213 Trucking Except Local; 4731 Freight Transportation Arrangement


Company History:

Parent company of one of the leading truckers in the United States, Arkansas Best Corporation (ABC) ships general commodities both nationally and internationally through its motor carrier subsidiaries. During the mid-1990s, ABC operated as a less-than-truckload and truckload carrier, deriving nearly 70 percent of its annual revenues from its largest subsidiary, ABF Freight System, Inc. ABC was also involved in truck tire retreading and new truck tires sales through its 46 percent owned subsidiary, Treadco, Inc.

1966: A New Beginning

The formation of ABC in 1966 marked a new beginning of sorts for both the individual selected to lead the company and the 31-year-old trucking concern that spawned its creation. ABC, incorporated in May 1966, was organized to acquire Arkansas Best Freight System, Inc. (later renamed ABF Freight System, Inc.), a $32 million-a-year trucking concern based in Fort Smith, Arkansas that had been established in 1935 as Arkansas Motor Freight. Selected to lead the new parent company was the former finance director of the regional carrier, H. L. Hembree, who spent his childhood in Fort Smith growing up together, so to speak, with the company that would employ him as an adult. Hembree had joined the company in 1958, seven years after his boss, Robert A. Young, Jr., had been named the company's chairman. By 1966, after Hembree had risen to the position of finance director, Young still served as the company's chairman, a position he would continue to hold when he directed the formation of ABC and named Hembree its president. Together, Young and Hembree, serving as chairman and president, respectively, composed the senior leadership of the new company formed in 1966 that, paradoxically, was already in the middle of its thirty-first year of business.

In the months leading up to the formation of ABC, Young and the rest of ABF Freight's management had decided to diversify into business areas other than trucking, resolving to acquire interests that would move the company into business areas not regulated by the Interstate Commerce Commission, the federal regulatory organization responsible for supervising the railroad and carrier industries. This the company quickly did, completing its first major acquisition seven months after ABC was incorporated. In December 1966, the company purchased Riverside Furniture Corporation and Twin Rivers Furniture Corporation, both of which had been established in 1946. The next acquisition moved ABC farther afield, both geographically and in business scope. In June 1968, ABC purchased a 64 percent stake in a Dallas, Texas-based financial institution, National Bank of Commerce, adding financial services to the company's widening roster of business interests. With these new additions rounding out ABC's major business interests, the company's management embarked on their new course, intent on applying their business skills to engender optimum profitability in the disparate business interests they maintained.

Within a few short years, ABC's management team had earned a solid reputation in the minds of analysts, drawing praise from nationally distributed publications that characterized the young cadre of managers as "ambitious, goal-oriented, and alert to opportunities for corporate growth." Heading this group and in charge of the day-to-day operations of the company was Hembree, who governed the company much like a former finance director would, with an emphasis on profitability and sound fiscal performance. "If you don't watch your costs," Hembree would explain later to a Forbes reporter about managing a trucking concern, "you can run up and down the highway with full loads and still go broke." Hembree, in the years ahead, would keep his eyes on costs, as they applied not only to ABF Freight, but to the three new additions as well. His was a perspective that placed a premium on profitability and gave ABC, which was described simply and accurately by industry pundits as a "management company," the task of stewarding each of its business segments in the right direction.

By the time the dust had settled from the acquisition of the National Bank of Commerce in June 1968, ABC already was recording success in managing its new furniture business, having organized the Twin Rivers Furniture Corporation as a subsidiary of its Riverside Furniture subsidiary. By far the parent company's most important business, however, was its trucking concern ABF Freight. By the late 1960s, ABF Freight was covering 12,500 route miles, transporting food, textiles, apparel, furniture, appliances, chemicals, and machinery, along with a host of other goods, with no single type of commodity accounting for more than three percent of the company's total traffic. The nearly 40-year-old trucker hauled its freight through a 14-state area, servicing major commercial hubs throughout the Midwest and the southern United States, stopping throughout much of its service territory at company-owned terminals that were operated by another ABC subsidiary, Arkansas Bandag Corp., which also retreaded tires under a patented German process.

ABF Freight's service territory expanded before the end of the decade, moving into Pennsylvania and New York after ABC acquired Fast Freight, Inc. in November 1969. Although ABC collected roughly 80 percent of its annual revenues from its trucking business, the most promising segment of its business, at least in terms of financial growth, was its newly acquired furniture company. Riverside Furniture, which generated approximately 18 percent of its parent company's annual revenues during the late 1960s, manufactured popularly priced wood occasional tables, exposed wood living room furniture, and rocking chairs, marketing its products through the efforts of more than 50 salespeople. With roughly 5,000 wholesale and retail accounts and permanent showrooms in North Carolina, Los Angeles, San Francisco, and Seattle, Riverside Furniture ranked as one of the five largest table manufacturers in the United States, an enviable market position that was expected to grow stronger as the company benefited from the "ambitious and goal-oriented" management of ABC.

Early on, ABC's management was credited with staging two dramatic turnarounds, the reports of which educed financial analysts to recommend the company to prospective investors. Riverside Furniture recorded $9 million in annual sales in 1968, 26 percent more than the previous year's total. More impressive, however, was the growth achieved by National Bank of Commerce. Ranking as the fifth largest bank in Dallas County, Texas, National Bank of Commerce posted net operating earnings of nearly $850,000 in 1968, which represented an increase of 104 percent from the total recorded in 1967, giving senior management in Fort Smith every expectation that all three of their primary businesses would flourish during the decade ahead. As Hembree and the rest of his team prepared for the 1970s, plans were being made to bolster ABC's interests in each of its three major businesses, as the company searched for acquisitions in the transportation, consumer products, and financial services industries.

During the first few years of the 1970s, ABC followed through on its plans to grow through acquisitions, purchasing Flanders Manufacturing Co. and Coffey Furniture Industries, Inc., both of which were merged into Riverside Furniture's operations. The company also added to its trucking service territory by acquiring Youngblood Truck Lines, which extended ABF Freight's presence in the southeastern United States from 16 to 19 states. After this initial spurt of acquisition activity to start the decade, the company was enjoying encouraging success, with nearly every facet of its business demonstrating vibrant growth. By the end of 1973, ABC's furniture segment was accounting for roughly 30 percent of the company's total yearly sales, up from the 18 percent it contributed five years earlier, while the profits derived from furniture manufacturing had registered a greater leap, jumping from 12 percent to 32 percent during the five-year span. ABF Freight, meanwhile, had exhibited a vitality of its own, consistently ranking as one of the most profitable operations in the trucking industry. The thirty-first largest trucking concern in the country in terms of total revenues, ABF Freight now operated in a 19-state territory, bounded by Wisconsin, Ohio, Indiana, and New York on the north, Kansas, Oklahoma, and Texas on the west, Louisiana, Mississippi, and Georgia on the south, and North and South Carolina on the east.

Conspicuously absent from the series of acquisitions during the early 1970s were any additions to ABC's financial services segment. Despite increasing its net income two-and-a-half times in its first five years as a partly owned ABC subsidiary, National Bank of Commerce had proved to be an ill-advised acquisition. The bank, as one company observer noted, had "serious collateral problems in its loan portfolio," but Hembree did not become aware of such problems until 1972, four years after he had invested in the bank. Once alerted to the problem, Hembree disposed of ABC's interest, explaining that "autonomy was the problem with [National Bank of Commerce]. It was also the only subsidiary in which we had less than 100 percent interest." After writing off $22 million over a three-year period, Hembree had learned a valuable lesson, vowing "we will never make that mistake again."

Change of Focus in the Mid-1970s

While the National Bank of Commerce was being divested, ABC continued to strengthen its trucking concern's business, completing a string of acquisitions during the mid-1970s that gave ABF Freight the operating authority to service a larger territory. By 1977, however, the value of gaining the operating authority to operate in additional territory was becoming questionable. The U.S. Congress was beginning to talk about deregulating interstate trucking, which would open routes to any interested trucking company and render ABF Freight's ever-growing portfolio of operating rights meaningless. Mindful that federal intervention would dramatically alter the dynamics of his company's mainstay business, Hembree knew a decision had to be made about the future course of ABF Freight and ABC if the government did indeed deregulate the trucking industry. For help, Hembree turned to his four full-time economic forecasters for advice on what the company should do in the event of deregulation.

Hembree's economic forecasters and their computers came up with three possible options: scale back expansion and become a regional trucker in the Midwest, sell the company to a larger competitor, or buy another trucking company and make a bid to become a major national carrier. In Hembree's mind, the first two options assured survival, but as he later explained to a Forbes reporter, "I didn't want to be just a survivor--makes it sound like you're going to a funeral. I wanted to achieve." Accordingly, he adopted the third option as the company's strategy, deciding that before deregulation opened the floodgates to the trucking industry ABF Freight would become a major national competitor.

The first step toward national prominence was taken in 1978, when Hembree authorized the acquisition of Denver-based Navaho Freight Line for roughly $15 million. The move immediately transformed ABF Freight from the country's 22nd largest trucking company into the eighth largest concern, representing a prodigious first step for the Fort Smith company. Next, the company acquired East Texas Motor Freight, Inc. in 1982, an acquisition that represented another important boost to ABC's stature. Once these acquisitions were fully digested, ABF Freight was a considerably larger company, serving nearly 90 percent of the nation's major metropolitan markets. Still the major engine driving ABC's growth, ABF Freight contributed the bulk of what its parent company declared in annual sales, a figure that had grown exponentially between the mid-1970s and mid-1980s, soaring from roughly $150 million to more than $500 million.

Deregulation in the 1980s

The U.S. trucking industry, as expected, had become deregulated early in the decade, making the operating rights ABC had obtained through more than 30 acquisitions over a 45-year period essentially worthless. The passage of the 1980 Motor Carrier Act also precipitated another change in ABF Freight's business, one that would change the way in which the company operated and opened the doors to a flourishing segment of the carrier market. The number of licensed trucking companies doubled in the first few years after deregulation; then, just as quickly, a majority of the new entrants fell into financial ruin. The rising number of bankruptcies created more than $1 billion worth of extra business for those who survived, with the biggest profits going to those companies that operated as less-than-truckload (LTL) carriers. Aware of the shifting dynamics in its industry, ABC changed from being a truckload operator to an LTL carrier, ranking by the mid-1980s as one of the five leading competitors in the lucrative industry niche market.

Growth in the LTL segment pushed ABC forward throughout the remainder of the 1980s, as the company approached the $1 billion-in-annual-sales plateau. Despite the divestiture of its long-held furniture manufacturer, Riverside Furniture, which was sold in 1989, ABC was recording steady sales growth as it entered the 1990s. By the end of 1993, ABC could rightly call itself a $1 billion company, generating by year's end $1.009 billion in sales and posting more than $50 million in operating income.

With the addition of WorldWay Corporation, which was acquired in 1995, ABC was rapidly heading toward the $2 billion sales mark as it prepared for the late 1990s. Annual sales in 1995 reached $1.47 billion, but once WorldWay was fully absorbed by the company sales were expected to near $2 billion. As the company prepared for the late 1990s and the beginning of the 21st century, Robert A. Young III, the son of ABC's founding chairman, was leading the way as chief executive officer, hoping to continue the robust growth that had transformed the company's mainstay business from the 48 largest trucking company into the country's fourth largest.

Principal Subsidiaries: ABC Treadco, Inc.; ABF Cartage, Inc.; ABF Farms, Inc.; ABF Freight System, Inc.; ABF Freight System Canada, Ltd.; ABF Freight System de Mexico, Ltd.; Advertising Counselors, Inc.; Arkansas Underwriters Corp.; Best Logistics, Inc.; Clover Insurance Co., Ltd.; Data-Tronics Corp. Integrated Distribution Systems, Inc; Land-Marine Cargo, Inc.; Treadco, Inc. (46%).
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