Managing change is important to any organization. At Chattanooga, Tennessee-based Covenant Transport, it’s all in a day’s work.
Founded in 1986 with 25 trucks and twice that many trailers, David and Jacqueline Parker began their faith-based company with a promise to adhere to their principles of servanthood, empathy, and virtue.
Covenant went public in 1994 and continued to grow, both organically and through the acquisition of other carriers such as Southern Refrigerated Transport, Star Transportation, and LandAir.
“It started out as a team carrier hauling expedited freight from the east coast to the west coast,” shared Covenant Senior Executive Vice President and Chief Operating Officer Paul Bunn. “The company pretty much focused on the team space for the first eight to 10 years of its existence.”
Bunn joined Covenant about 13 years ago as chief accounting officer. He later served as chief financial officer before taking the reins as chief operating officer a year ago.
The company reached a peak of about 4,000 trucks around the turn of the 21st century. As the freight offerings diversified, however, managing for success became more difficult.
“The company was trying to dial it in and decide who it wanted to be when it grew up,” explained Bunn. “There was a refrigerator business, a team business, a regional business, and so on. It went through that period of years trying to really dial in exactly what the business model means.”
The Great Recession of 2007-2009 took a toll, resulting in a loss of equity value for Covenant and prompting some downsizing, as well as leadership changes, to get things on the right track.
“Our board set a target to get back in the black, and we did,” remarked Bunn. “From 2010 to 2015, we really just focused on cost control and being in the spaces that we operated in, which were team expedited and refrigerated; then we started an accounts receivable factoring operation and we invested in a company called Transport Enterprise Leasing in 2011.”
Like many carriers, Covenant also entered the contract logistics business. Parker had repeatedly expressed the desire to “get deeper into the supply chain,” leading the management team to seek opportunities to expand the services offered to customers.
“I don’t want to be a ‘you call, we haul’ carrier,” he said. “We refreshed our strategic plan in 2019.”
And, just as the company’s progress was gaining traction, the COVID-19 pandemic happened.
“Basically, we made the decision to just keep the pedal down on the strategic plan,” added Bunn. “We came out of 2020 with a leaner company that was more focused on the four verticals in which we operate, which are expedited, dedicated, warehousing, and managed transportation.”
The result was a year in which Covenant paid down approximately $250 million in debt. The company entered 2021 poised to prosper.
“What we’ve really tried to do (in 2021) is focus on making sure that the business we’re doing and the customers we’re doing business with, when we come out on the backside of this environment, create a less volatile, more sustainable earnings stream,” shared Bunn.
The company’s 2021 financial report tells the story.
Covenant reported record revenues for the year and a 13% return on average invested capital. The company’s operating ratio (before adjustments) fell from 101.7% to 93.6%. For the first time, the Covenant Board of Directors initiated a quarterly cash dividend for its investors.
“Our profitability in the fourth quarter of 2021 exceeded the aggregate earnings of 2007 through 2014,” remarked Bunn.
Today’s Covenant has slimmed down to about 2,450 Class 8 tractors. All new equipment is equipped with all-wheel disc brakes and ADAS systems for roll stability, collision mitigation, and lane departure, plus forward-facing video cameras. Class 6 and 7 vehicles are used for specific needs.
Approximately 4,450 dry van and 750 refrigerated trailers round out the fleet.
One thing that hasn’t changed at Covenant is the Parker family’s desire to remain a faith-based organization.
“We’re proud to say we are a faith-based publicly traded company,” said Bunn. “What does that mean? It means that our guiding principles are empathy, servanthood, and virtue. We think all those tie back to faith-based concepts.”
The company doesn’t require employees to practice any particular faith.
“We’re not trying to hold ourselves out as ‘holier than thou’ or better than anybody, but we are holding ourselves out to operate in a way that honors Christian principles,” he shared.
Like other carriers, Covenant has been impacted by the constrained tractor market in recent months. The goal is an average age of two years for tractors in the fleet, but the difficulty of obtaining replacements for older units pushes the average age upward.
“It’s starting to negatively affect drivers in a pretty material way right now,” he explained. “Drivers don’t want to drive older equipment. Older equipment means you’re gonna have more breakdowns, and when you go in the shop, it’s a shop that has fewer parts and less labor.”
Bunn anticipates the truck problem becoming worse over the next 12 months.
“Next year is going to be a pre-buy year because of the emission standards changing, so it is going to be a heavy order year,” he predicted.
Trucks powered by electricity are on the horizon for Covenant.
In January, Covenant signed a letter of intent to purchase 50 Tre model trucks from Nikola. The first of these will be battery electric vehicles (BEVs) and are scheduled for delivery during the second quarter of 2022. In 2023, fuel-cell electric vehicles (FCEVs) with a longer range will be delivered.
“We’re strategically looking at placing those in accounts where there’s a short length of haul, where it makes sense,” said Bunn. “It’s going to be a slow rollout.”
The company is also considering incorporating autonomous vehicles into its freight mix.
“We’re actively engaged in discussions with several of the autonomous providers and studying how that might work and how that may affect us,” stated Bunn.
Having settled on the right business mix, Covenant Transport plans to focus on its core as it looks to the future.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.