We are the fifth largest traded truckload carrier in the Rio Grande Valley, measured by fleet and revenue. Our primary business is offering a broad range of truckload services to customers throughout the United States and in portions of Canada and Mexico. We also offer transportation, logistics, warehousing, and distribution. We specialize in time-definite and expedited longhaul, regional truckload services and Bonded by U.S. Customs. USI is currently adopting new technologies as a means of reducing cost and providing better service. USI has two key locations in U.S., McAllen, Texas and Laredo, Texas which are the 2 major port entries from Mexico. Our diversified customer base includes many Fortune 500 companies such as Cummins, Caterpillar, Henkel, CalCoustics and Vitro Packaging, each of which has designated USI as their “core carrier”. Generally, “core carriers” are suppliers with which shippers have established alliances for a broad range of transportation services.
The Company has increased its revenues through the expansion of business from existing customers, the development of relationships with new customers and strategic alliances. The Company's strategy for future revenue growth is to continue to establish strategic alliances with its top customers, target high-service market segments, and leverage its technology advantage. The Company also seeks to sustain growth through programs designed to recruit and retain quality drivers for its expanding fleet.
The Company has initiated a strategy to enhance profitability and sustain growth by improving efficiency, reducing costs and introducing technology to improve service. The Company realigned its operations into two subsidiaries to combine various operating, marketing, maintenance and administrative functions thereby reducing costs and improving equipment utilization. The Company has improved the predictability of and further reduced costs by outsourcing some maintenance activities, revising insurance programs, modifying its revenue equipment acquisition strategy and improving fuel economy. These initiatives increased profitability in late 3rd quarter 2008, and management believes that these strategies will have a more significant effect on results of our operations in the future.
The Company is under the adoption of proven new technologies as a means of reducing costs and enhancing customer service. For example, the newly-introduced “People Net”, a fully integrated customer-to-truck communications system, enables customers to trace freight, tender loads and exchange invoice information via the Internet as well as communicate with the Company via e-mail.
The Company's operating and growth strategy is focused on taking advantage of opportunities and evolving trends in the truckload transportation industry.
These strategies include:
Positioning the Company as a premier high-service provider. The Company's services have attracted customers across many industries, particularly those that operate just-in-time manufacturing and distribution systems. A large portion of the Company's growth has been attributable to providing services that are differentiated from other truckload carriers. The Company was one of the first in the industry to establish time-definite pickups and deliveries as a standard for service quality. In addition, the Company is one of the few truckload carriers to provide expedited service throughout the continental United States and in parts of Canada and Mexico. This is particularly important to shippers that operate multiple, geographically-separated facilities. The Company is utilizing proven new technologies that provide value to customers, such as the newly-introduced “People Net” system that enables USI and customers to trace freight, tender loads, exchange invoice information and perform other functions through the Internet.
Expand core carrier relationships with shippers. Through its service capabilities, the Company is positioned to act as a core carrier to major shippers. The Company provides longhaul and regional truckload service, expedited and time-definite service, dedicated fleets and services to third party logistics providers. In seeking customers, the Company emphasizes its commitment to flexibility, responsiveness, analytical planning and information systems. The Company's top 500 customers, most of which have designated the Company as a core carrier, include Cummins, Caterpillar, Henkel, CalCoustics and Vitro Packaging, and accounted for approximately 46% of revenues in fiscal 2007.
Emphasize driver-friendly practices. The Company focuses significant resources and attention on the successful recruiting, hiring, training and retention of qualified professional drivers. Hiring and retaining drivers is an essential element of the Company's continuing growth and profitability. The Company has implemented a number of ongoing initiatives to retain and recruit drivers, such as handling driver-friendly freight, adopting attractive compensation and benefits packages, providing equipment with desirable driver amenities and emphasizing a Company-wide culture of support for drivers' needs.
Continuing to emphasize our relationships with logistics providers. As shippers continue to focus on their core competencies and outsource their transportation needs, shippers' use of logistics providers is increasing. The Company believes that its service capabilities and high quality service will result in additional business opportunities with these logistics providers. The Company has established close working relationships with a number of leading third party logistics providers, such as Schneider Logistics, J.B. Hunt Logistics and Penske Logistics.
The Company provides six principal services: time-definite service, expedited service, regional service, service to third party logistics providers, dedicated fleets and floorcovering logistics.
Time-Definite Service. This is the Company's principal service specialty and involves the pickup and delivery of freight on time-specific schedules over distances ranging from 200 to 3,000 miles. Time-definite transportation requires pickups and deliveries to be performed to exact appointment times or within a specified number of minutes without necessarily involving expedited transit times. This service is a key point of differentiation for USI from many other trucking companies that typically provide service only within windows ranging from several hours to a few days. Time-definite service is particularly important to the Company's customers that operate just-in-time manufacturing or distribution systems.
Expedited Service. A substantial portion of the time-definite freight transported by the Company is handled on an expedited basis. The Company's expedited service consists of the pickup and delivery of freight on a prescribed schedule at transit times competitive to deferred air freight service. The Company is able to meet these transit times through the use of team drivers or relays at a much lower cost than deferred air freight.
Examples of this service are as follows:
|| Los Angeles, CA
||San Francisco, CA
Regional Service. The ability to provide regional service is an important factor in obtaining many core carrier accounts. Recognizing the strategic importance of offering regional services, the Company established regional truckload carrier service in Texas. Prior to fiscal 2005, regional service in the Texas was offered by USI on a limited basis as a service to key customers and to reposition equipment. This service is expected to expand significantly as a result of the need for regional carriers.
Services to Third Party Logistics Providers. The Company has established strategic alliances with several major third party logistics suppliers. Logistics providers and air freight forwarders typically manage transportation purchasing, coordination and freight allocation for their customers. As shippers continue to focus on their core competencies and outsource their transportation needs, the use of logistics providers by shippers is expected to increase.
Dedicated Fleets. The Company provides equipment and drivers that are dedicated to specific customers and specific traffic lanes. The Company benefits from its dedicated operations through increased freight volume from key customers and improved planning of equipment requirements while drivers benefit from more predictable schedules and traveling regular routes. As of June 30, 2008, the Company operated 40 tractors dedicated to specific customers or lanes, compared with 20 tractors as of June 30, 2004.
Floorcovering Logistics. USI picks up floorcovering products from manufacturers; consolidates shipments into truckloads bound for specific destinations; contracts with USI and other truckload carriers to deliver the products to USI centers or to contract agents; and delivers or arranges for delivery of the products to floorcovering distributors and retailers throughout the United States and in parts of Canada and Mexico. In addition, USI provides minor warehouse facilities, cutting services and installation supplies to floorcovering distributors and retailers. As a result, USI now operates 2 distribution centers and contracts with others to provide distribution services at 21 other locations.
MARKETING AND CUSTOMERS
Marketing personnel target customers for each of the Company's six major services. The Company's services are marketed on the basis of the Company's commitment to high levels of service, flexibility, responsiveness, analytical planning and high technology information management. The Company's marketing department is primarily responsible for identifying new business prospects and implementing marketing programs to obtain and retain customer accounts. The marketing staff also is responsible for offering the Company's logistics capabilities to existing and new customers and to third party logistics providers.
Mr. Martinez and Mr. Long, the Company's Co-Owners, are directly involved in marketing the Company's services at the national account level and supporting local sales activities. In addition, the Company employs 4 full-time marketing/sales representatives, who are geographically dispersed.
The Company's top 500 customers, most of which have designated the Company as a core carrier include Cummins, Caterpillar, Henkel, CalCoustics and Vitro Packaging accounted for approximately 46% of revenues in fiscal 2007. During fiscal 2007, no single customer accounted for more than 10% of the Company's revenue.
The Company adopts proven new technologies that result in both competitive service advantages and more profitable service to its customers. The People Net system provides direct communication between the Company and its drivers to enhance customer service and equipment utilization. The Company's is currently working on Electronic Data Interchange ("EDI") capabilities provide customers with an efficient means of tendering loads, tracing freight, directly paying invoices and performing other administrative functions. Management believes that this system is a base from which it will be able to provide enhanced customer service and ultimately provide direct connectivity between customers and drivers via the Internet.
The Company is introducing People Net system that enables customers to trace freight, tender loads and exchange invoice information via the Internet and communicate with the Company via e-mail. The system, which is a featured part of the Company's World Wide Web site, is designed to assist shippers in better managing their transportation shipments by providing up-to-date information on the location and status of active shipments as well as historical information on completed shipments. People Net is customer-specific and password protected to guarantee the security of each customer's proprietary information.
Transit Technologies. The Pre-Pass(TM) and Advantage 75(TM) technologies enable a tractor to stop at one weigh station and receive clearance for travel on participating highways. After the truck conducts an initial visit to a weigh station, information regarding the truck and its contents are downloaded onto a transponder located on the tractor. Thereafter, a sensor located along the highway reads the information contained in the transponder and allows the truck and its contents to be electronically cleared without the delays associated with multiple weigh station visits. The Company equips all of its tractors with these systems as of June 30, 2005. The Company has begun to implement a similar technology to expedite movement through toll plazas. These technologies enhance fuel economy, improve equipment utilization, improve transit times and reduce accidents.
As of June 30, 2008, USI employs 74 drivers. Recruiting, training and retention of qualified drivers are all essential to support the Company's continued growth and to maintain high equipment utilization. The Company has implemented a number of ongoing initiatives to retain and recruit drivers, such as handling driver-friendly freight, adopting an attractive compensation and benefits package, providing equipment with desirable driver amenities and providing a Company-wide culture of support for drivers' needs.
Recruiting. The Company's recruiting efforts include targeted advertising and recruitment by Company drivers. New driver candidates are carefully screened on the basis of prior driving experience and safety records and are required to pass mandatory drug tests. The Company also maintains a "quick response" system that investigates prospective drivers' credentials and driving histories and in many instances qualifies drivers for hiring within one business day of application.
Training. All new drivers, regardless of experience, are trained under strict guidelines. The Company provides a two-day orientation program to inform drivers about the Company, its equipment and its expectations. The orientation program also stresses safety instruction and proper operation of the tractors and trailers used by the Company.
Driver Managers. Each Company driver is assigned a driver manager who is responsible for all aspects of driver satisfaction, including miles, home time and resolution of work-related issues. Driver managers' performance is evaluated based on equipment utilization, driver turnover, driver miles, on time service and driver safety performance. The driver managers communicate with drivers daily through the satellite communications system and by telephone when personal communication is warranted.
Driver-Friendly Freight. The Company focuses much of its marketing effort on customers with freight which is driver-friendly in that it requires minimal or no loading or unloading by drivers and minimizes waiting time for drivers while trucks are loaded or unloaded.
Compensation and Benefits. Company drivers are compensated primarily on the basis of miles driven, with base pay per mile increasing with a driver's length of employment. Drivers also earn additional mileage pay through safety and mileage incentive bonuses. Employee benefits include paid holidays and vacations, health insurance, pre-paid telephone calling cards that contain 30 minutes of free calling time per month. The Company recently increased its driver pay an average of $.02 per mile in order to provide a competitive wage.
Driver Amenities. The Company's late-model, conventional tractors are designed for driver comfort and safety. In 2008, the Company began purchasing Light weight tractors, containing additional driver amenities, such as double sleeper bunks, extra large cabs, air-ride suspensions and additional storage for personal items. The Company also has developed specific satellite communications applications that enable drivers to remain in touch with their families and receive information about pay and expense advances, directions to customer locations, weather updates and load assignments.
As of June 30, 2008, the Company operates 70 conventional tractors and 150 dry van trailers. All of the trailers are 53' x 102" high-cubic capacity vans, many of which include air ride suspension. During fiscal 2005, management implemented a program designed to reduce the Company's trailer to tractor ratio as a part of its cost reduction strategies.
Growth of the Company's tractor and trailer fleets is managed based on market conditions and the Company's experience and expectations with respect to equipment utilization levels. The Company determines the specifications of equipment purchases based on such factors as vehicle and component quality, warranty service, driver preferences, new vehicle prices and the likely resale market. Because the fleet is standardized and has warranty maintenance agreements with original equipment suppliers, the Company has reduced parts inventories and maintenance costs.
Tractors are typically replaced every 36 – 42 months, generally well in advance of the need for major engine overhauls. This schedule can be accelerated or delayed based on trade-in values of existing revenue equipment. The Company has negotiated favorable arrangements from its primary equipment vendors for its scheduled purchases of tractors, which reduce the Company's risks related to equipment resale values. The Company has begun purchasing composite plate trailers from Wabash. The air ride suspension trailers provide a more comfortable ride for the drivers and allow the Company to haul sensitive freight such as electronic equipment. The lighter Wabash composite trailers reduce fuel consumption and increase capacity.
SAFETY AND RISK MANAGEMENT
The Company is committed to ensuring that it has safe drivers. The Company regularly communicates with drivers to promote safety and to instill safe work habits through Company media, safety review sessions and ethics and responsibility training. These programs reinforce the importance of driving safely, abiding by all laws and regulations such as speed limits and driving hours, performing regular equipment inspections and acting as good citizens on the road. The Company's accident review committee meets weekly to review any new accidents, take appropriate action related to drivers, examine accident trends and implement changes in procedures or communications to address safety issues.
Management's emphasis on safety also is demonstrated through its equipment specifications, such as, automatic engine brakes, electronic engines, special mirrors, conspicuity tape and the implementation of the nitrogen in the tires to reduce the number of blow outs. The Company is looking to change all existing units to Eaton Automatic to relieve the driver of fatigue and bring up the rest of the drivers to a more consistent fuel mileage.
The Company requires prospective drivers to meet higher qualification standards than those required by the DOT. The DOT requires the Company's drivers to obtain national commercial driver's licenses pursuant to the regulations promulgated by the DOT. The DOT also requires that the employer implement a drug-testing program in accordance with DOT regulations. The company's program includes pre-employment, random, reasonable cause, post-accident and post-injury drug testing.
The primary claims arising in the Company's business consist of cargo loss and damage, vehicle liability (personal injury and property damage). The Company currently purchases primary and excess coverage for these types of claims in levels which management believes are sufficient to adequately protect the Company from significant claims. The Company also maintains primary and excess coverage for employee medical expenses and hospitalization, damage to physical properties and equipment damage resulting from collisions or other losses.
As of June 30, 2008, the Company employees 92 persons, including 74 drivers at USI. The Company considers relations with its employees, all of whom are non-union, to be satisfactory.
The Company entered into an arrangement with a third party, under which the Company out-sourced administration of payroll, benefits, unemployment insurance and workers' compensation. Under this arrangement, the Company pays the third party for its services a fixed amount per employee. The Company believes that this arrangement enables it to achieve cost savings on personnel benefits and insurance premiums.
The trucking industry is highly competitive and fragmented and includes numerous regional, inter-regional and national truckload carriers, none of which dominates the market. The Company also competes with logistics providers and alternative forms of surface transportation, such as intermodal transportation, railroads and air freight carriers, particularly in the longer haul segments of its business. Historically, this competition has created downward pressure on the truckload industry's pricing structure. Competition for the freight transported by the Company is based on service, efficiency, the ability to meet shipping deadlines and freight rates. Prolonged weakness in the freight markets or downward pressure on freight rates could adversely affect the Company's results of operations or financial condition. Some truckload carriers and many railroad companies do have greater financial resources, operate more equipment and transport more freight than the Company.
The Company, as a motor carrier, is subject to rules and regulations promulgated by the DOT and by various laws and regulations enforced by state agencies. These regulatory authorities have broad powers, generally governing activities such as authority to engage in motor carrier operations, accounting systems, certain mergers, consolidations, acquisitions and periodic financial reporting. Subject to federal, state and provincial regulatory authorities, the Company may transport most types of freight to and from any point in the continental United States and in parts of Mexico and Canada over any route selected by the Company. The trucking industry is subject to possible regulatory and legislative changes (such as increasingly stringent environmental regulations or limits on vehicle weight and size) that may affect the economics of the industry by requiring changes in operating practices or by affecting the cost of providing truckload services.
The Company has recently just added aboveground storage tanks for diesel fuel at its Pharr, Texas location. As a result, the Company is subject to regulations promulgated by the EPA governing the design, construction and operation of aboveground fuel storage tank from installation to closure. The Company believes all of its tanks are in substantial compliance with EPA regulations.
Most of the Company's offices and terminals are leased. The Company's headquarters are located in Pharr, Texas. In addition to the headquarters locations, USI operates another terminal facility in Laredo, Texas and co-operates 21 distribution service centers.
Each of the Company's terminals and service centers is headed by a terminal or service center manager. Both terminals include maintenance facilities. In June 2008, a remodeling of the USI office and dock facility in Pharr, Texas was completed, and expansion of the USI yard and maintenance facility will begin in the late 4th quarter. The Company believes that its current facilities are adequate for its present needs although the Company may consider moving to a much larger facility in the next two years. The Company also periodically seeks additional locations and facilities and has not encountered any significant difficulty in locating additional facilities.
The Company is routinely a party to litigation incidental to its business, primarily involving claims for worker's compensation or for personal injury and property damage incurred in the transportation of freight. The Company maintains insurance which covers liability in excess of retained amounts for personal injury and property damage claims.