Frozen Food Express Industries, Inc. Business Information, Profile, and History

History of Frozen Food Express Industries, Inc.

Frozen Food Express Industries, Inc. was, in the mid-1990s, the largest temperature-controlled trucking company in North America. The company's temperature-controlled less-than-truckload (LTL) operation was the largest in the United States and the only one offering regularly scheduled nationwide service, including multicompartment refrigerated trailers to carry goods requiring different temperatures. Frozen Food Express also was believed to be one of the five largest temperature-controlled, full-truckload carriers in North America. More than 80 percent of its cargo, such as food products, pharmaceuticals, medical supplies, and film, consisted of temperature-sensitive perishables. The company turned a profit in every year of its first half-century in business.

Frozen Food Express Before 1980

Frozen Food Express was founded in 1945 by two uncles of Stoney M. Stubbs, Jr., joined shortly thereafter by his father. Its main assets were operating rights in Texas and a handful of trucks. Revenues for the first year's operations were less than $100,000. From the beginning the company was a specialist in transporting products requiring refrigeration. Because refrigerated tractor-trailers or "reefers," cost nearly three times as much as regular trailers and burned a good deal more fuel as well, big trucking companies were willing to leave this niche market to smaller operators. The junior Stubbs washed and loaded trucks in high school and earned a business degree from Texas A&M in 1959. He then went back to work for the family enterprise, becoming president in 1979. Eugene O. Weller, his uncle, remained chairman and CEO of the company until 1984, when Stubbs assumed these positions as well.

Frozen Food Express Industries was formed in 1969, at which time the prior Frozen Food Express became its subsidiary. In 1971 Frozen Food Express Industries (hereafter called Frozen Food Express for short) became publicly held through an offering of 350,000 shares of common stock at $15 a share. Half of these shares were sold by existing shareholders. The $2.3 million in net proceeds from the shares sold by the company were applied in full against long-term debt. Revenues increased from $10.8 million in 1966 to $23.7 million in 1971. Net income rose from $232,000 to $1.2 million during this period.

Frozen Food Express expanded rapidly in the late 1960s by taking advantage of the decentralization of the meat-processing industry and the growth in the popularity of frozen convenience foods and fresh produce. By the end of 1971 the company was operating in 23 states, mostly in the Midwest and Southwest but stretching as far west as California and as far east as Ohio and Kentucky. Of 100 motor carriers classified as solid refrigerated carriers filing reports with the Interstate Commerce Commission in 1971, the company was the third largest, based on operating revenue. In that year the company acquired W & B Refrigeration Service Co., a franchised distributor for truck and trailer refrigeration equipment bearing the Carrier-Transicold brand. Made a subsidiary, W & B specialized in keeping refrigerated units, including the parent company's own, in top condition.

At this time large-volume shippers normally used Frozen Food Express's full-truckload (at least 10,000 pounds) service to transport their products to their destinations. This service, almost all under agreements with independent contractors, was nonscheduled and operated over irregular routes within the company's route authority. Small-volume shippers used the company's less-than-truckload service, which consisted of 240 weekly scheduled routes between specified points of origin and termination. LTL service was available between major metropolitan areas within the company's operating territory, including Chicago, Dallas, Houston, Kansas City, Little Rock, Los Angeles, Lubbock, Memphis, Minneapolis, New Orleans, Oklahoma City, Omaha, San Francisco, and St. Louis. Frozen Food Express's main terminal, in Lancaster, Texas, was completed in 1970. The company's full-truckload operations accounted for 58 percent of carrier revenue and 40 percent of net operating profit in 1971; LTL operations for 42 percent of carrier revenue and 60 percent of net operating profit. In all, the company was serving more than 3,000 shippers.

Frozen Food Express was a pioneer in its method of handling full-truckload shipments. The company had established independent contractors from the ranks of its employees, offering to sell them a tractor and the means of financing it. The company provided the trailer and the customers; the contractor provided the second driver and the power unit. Compensation was in the form of a percentage of the revenue generated by the shipments carried. The company founded a driver-training school in 1967 that offered a four-week course. LTL service featured compartmentalized trailers, capable of hauling multiple shipments requiring differing temperature levels.

Frozen Food Express's main truckload routes were from Texas northward carrying frozen foods, meats, meat byproducts, margarine, fresh produce, and bakery products; from Chicago and the surrounding Midwest to the southwestern states and California carrying meats, meat products, yeast, bakery products, dairy products, and frozen foods; and from the Gulf Coast-area ports to the Midwest carrying imported bananas and other fruits. The company also carried most of these products and biscuits, milk-chocolate drinks, and salad dressing on short or intermediate hauls between points in Arkansas, Louisiana, New Mexico, Oklahoma, and Texas. Nonfood items such as blood plasma were transported to California, and resin was transported from California into the Midwestern states.

The number of shippers using Frozen Food Express passed 4,000 in 1974 and 5,000 in 1977. By the end of 1977 the number of weekly LTL runs had reached 390. Revenues increased from $30.6 million in 1973 to $54 million in 1977. Net income rose from $1.4 million in 1973 to nearly $2 million in 1976, then slumped to $1.9 million in 1977. Revenue from full-truckload shipments grew faster than that from LTL shipments during this period, accounting for 66 percent of the total in 1977.

Deregulation in the 1980s

Prior to 1980, interstate trucking was tightly regulated by the federal government. Along with regulated rates, companies were issued permits by the Interstate Commerce Commission for specific routes. A permit almost guaranteed profits for the average trucking company. But the deregulation of the industry created price wars that, even during this period of high inflation, cut freight rates almost in half. Of the 45 publicly owned trucking companies listed before deregulation in the industry's leading trade journal, 33 were gone by 1987.

Full-truckload operations were particularly vulnerable to rate cutting, and so, although 60 percent of Frozen Food Express's annual revenue still was being generated by its full-truckload fleet in 1979, the company sold its full-truckload equipment between 1980 and 1982 and used the proceeds to repay about $7.1 million in debt. In 1982 the company began offering to transport nonperishable cargo, with the exception of explosives, household goods, and commodities in bulk. Between 1983 and 1986 it acquired the operations of four regional less-than-truckload companies and thereby began providing service in all 48 contiguous states. Since all four were losing money at the time, Frozen Food Express's net income (before extraordinary items) fell from $1.7 million in 1983 to $1,000 in 1985. But in 1986 the company reported $1.1 million in net income, with revenue from the LTL operation reaching $59.9 million--more than the company's total revenue in 1983.

Frozen Food Express began 1988 with only 22 company-operated, full-truckload units, supplemented by about 200 owner-operators, but it had begun an ambitious program to field a new fleet of company-owned trucks. Some 109 such trucks were operating by the end of 1988, 440 by the end of 1989, and 660 by the end of 1990. Another 300 trucks were independently contracted in 1989. About 70 percent of the company's LTL operations were still being conducted by independent contractors in 1990.

In 1988 Frozen Food Express acquired certain assets from Lisa Motor Lines, Inc. of Fort Worth, Texas, for $4.6 million. These included operating rights, 32 tractors, 132 refrigerated trailers, and a tank trailer. Company revenues reached $102 million that year, compared to $56.7 million in 1982, and net income was $3.7 million, compared to $1 million in 1982.

Further Growth in the 1990s

By 1991 Frozen Food Express was the nation's largest publicly owned, nationwide full-service motor carrier of perishable commodities in the United States. In 1992 the firm made Forbes's list of the 200 best small companies in America and for the first time attracted serious interest from Wall Street investors.

That year Frozen Food Express purchased the less-than-truckload division of Temperature Controlled Carriage Inc., a refrigerated-truck company based in Nashville, Tennessee, thereby gaining a $12-million-a-year business with 60 trailers, 15 tractors, and terminals in Nashville and Cincinnati. Consolidating this division's freight with Frozen Food Express's terminals in Chicago, Atlanta, and Memphis was "another way we can capture new revenue with very little incremental cost," Stubbs told a Nashville Business Journal reporter.

Stubbs added that Frozen Food Express was planning to expand its distributions to area grocery stores, food brokers, and drugstores from the newly acquired terminals. "The food business is moving to just-in-time inventory control faster each year," he said. "For the customer, it means less warehousing expense and inventory carrying costs." Frozen Food Express confirmed that its primary cargo was prepared foods and meats. By 1992 revenues--only $84.6 million in 1987--had risen in excess of 18 percent annually for the last five years. The company had sales of $195 million and net income of $7.1 million, both records for the third consecutive year.

Frozen Food Express credited a company efficiency program for sharply higher profits since 1990. This effort called for scheduling more loads per week per truck, with schedulers trying to arrange that trucks would have loads to pick up near the site of their most recent delivery. For 1993 the company had net income of $9.4 million on revenues of $227.4 million, both records.

Frozen Food Express began full-truckload, refrigerated service to and from Mexico in 1990, in alliance with a Mexican trucker who picked up goods at the company's new Laredo, Texas, terminal. This business grew at an annual rate of more than 30 percent and, in 1993, the company began offering less-than-truckload refrigerated service to Mexico as well. One special reason for Frozen Food Express to seek this two-way business was that western Mexico's growing season begins in November, during the trucking company's slack season. Full truckloads of Mexican-produced frozen vegetables were being hauled by Frozen Food Express drivers to U.S. processing and packaging plants.

By the spring of 1994 Frozen Food Express's trailers were making regularly scheduled stops every week in more than 7,000 cities and towns. The firm was picking up business from companies like RJR Nabisco and Coors Brewing that were choosing to eliminate their own refrigerated vehicles in order to save on capital and overhead. Frozen Food Express was converting its mainframe computer to a PC-based system, allowing customers to place orders and pay bills electronically. It was installing a satellite tracking system in its trucks at $4,000 per unit to allow dispatchers and customers to find the exact location of a shipment and to relay pickup and delivery times, weather and road information, route and fueling directions to truckers, who could communicate shipment status and other information electronically to dispatchers by means of a keypad.

Frozen Food Express had record sales and profits in 1994 for the fourth straight year, with revenues of $274.6 million and net income of $11.9 million. In 1995 it entered a comprehensive sales and marketing arrangement with Alliance Shippers, a railroad-based intermodal transportation-service company, for temperature-sensitive shipments through the United States, Canada, and Mexico. "Alliance has the high-volume agreements with the railroads and the intermodal expertise," Stubbs told Distribution. Alliance, with about 400 refrigerated containers and trailers, gained access to Frozen Food Express's 2,100 reefers. In return, Stubbs' company gained access to Alliance's extensive sales force.

In 1995 Frozen Food Express's net income dipped to $9.3 million on revenues of $292.3 million, but it eliminated its long-term debt of $9 million. In 1996 net income dipped again, to $8.5 million, on revenues of $311.4 million, of which full truckloads accounted for 60 percent. Management blamed industrywide trucking overcapacity for decreased productivity and downward pressure on full-truckload freight rates. The devaluation of the Mexican peso in December 1994 significantly reduced the flow of consumer products from the United States to Mexico because they became more expensive. And fuel costs, though relatively stable during 1995, increased by 11 percent in 1996.

Frozen Food Express in 1996

At the end of 1996 Frozen Food Express had a fleet of 1,202 tractors that were company-owned and 703 provided by owner-operators. There were 2,998 company-owned trailers and 20 provided by owner-operators. Owner-operators normally provided both tractor and driver to pull the company's loaded trailer, receiving a percentage of the revenue from each load. The company had contractors for 443 owner-operated tractors in its full-truckload divisions and 266 in its less-than-truckload operations.

Frozen Food Express, through a subsidiary, was a franchised distributor in 1996 for Wabash trailers and Carrier Transicold-brand truck-and-trailer refrigeration equipment. This subsidiary was engaged in the sales, service, and rental of trailers and a variety of refrigeration and air-conditioning equipment. Such operations accounted for 7.5 percent of the parent company's revenues in 1996.

Frozen Food Express owned corporate offices in Dallas and its primary terminal and maintenance facility near Dallas, on about 60 acres in Lancaster, Texas. Lisa Motor Lines and its divisions, Middle Transportation Co. and Great Western Express, were using a terminal, offices, and a repair shop owned by the parent company in Fort Worth, Texas. Frozen Food Express also owned a cold-storage LTL terminal in Bridgeview, Illinois, near Chicago, and terminals near Orlando, Florida, and Avenel, New Jersey. The company was leasing a terminal or office facility at 26 locations. Some 27 percent of the company's shares of common stock were held by employees. The daughters of Edgar O. Weller held 17 percent and Stubbs 8.35 percent. The company had no long-term debt.

Principal Subsidiaries: Compressors Plus, Inc. (inactive); Conwell Cartage, Inc. (inactive); Conwell Corporation; FFE, Inc.; FFE Transportation Services, Inc.; Frozen Food Express, Inc.; Lisa Motor Lines, Inc.; Middleton Transportation Company (inactive); W & B Refrigeration Service Company.