To Survive and Thrive under Hypercompetition: An Exploratory Analysis of the Influence

of Strategic Purity on Truckload Motor Carrier Financial Performance

Yao Henry Jin

Miami University

David Swanson
University of North Florida

Matthew A. Waller
University of Arkansas

John Ozment
University of Arkansas

Jin, Yao, David Swanson, Matthew A. Waller, & John Ozment, (2017). To Survive and Thrive
under Hypercompetition: An Exploratory Analysis of the Influence of Strategic Purity on
Truckload Motor Carrier Financial Performance, Transportation Journal, 56 (1), 1-34.

Corrected final copy available via Penn State University Press at:
http://www.jstor.org/stable/10.5325/transportationj.56.1.0001

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To Survive and Thrive under Hypercompetition: An Exploratory Analysis of the Influence

of Strategic Purity on Truckload Motor Carrier Financial Performance

ABSTRACT

Easy access to equipment and low barriers to entry have led to an intensely competitive
truckload industry, in which carriers possess little power to increase prices consistent with
inflation. Yet, the heterogeneous performance among TL carriers indicates that sustained success
in such a hypercompetitive industry is possible. Under the Strategic Purity Framework, this
research adopts a multi-method approach by first utilizing panel of financial and operational data
composed of 828 firm-quarter observations and finds the relationship between a popular industry
metricthe trailer-to-tractor ratio (T2T)and performance is convex. Empirical results are
further explained by interviews with senior executives and industry analysts. This research
contributes to theory and practice by first showing that, consistent with the strategic management
literature, strategy-driven heterogeneous configuration of common assets may increase
performance. Second, we show that strategic purity allows carriers super-normal financial
performance, despite the hypercompetitive environment. Third, as the TL industry becomes
increasingly conscious of competitive strategies, our study shows that the T2T can be used as a
guide for carriers to align their competitive strategy with asset configuration.

KEYWORDS: capacity, hypercompetition, strategic purity, transportation strategy, trailer-to-

tractor ratio

2
 INTRODUCTION

How can firms maintain profitability in hypercompetitive markets? It is an enduring question for

the $83 billion and intensely competitive truckload (TL) motor carrier industry (US Census

2007; Stephens 2013) that serves a vital need in the supply chain by offering cost-effective and

flexible transportation services to facilitate the movement of materials (Frazier 2009). Over

50,000 TL carriers (Stephens, 2016) operate along a broad spectrum of competitive strategies to

cater to various shipper demands (Lambert et al. 1993; Meixell and Norbis 2008). Among the

most common competitive strategies employed is competitive pricing as carriers jostle to

underbid one another to secure freight (Dobie 2005). As a result, many carriers operate in a

tenuous state of financial viability, which in turn undermines the ability for carriers to provide

quality services (Beard 1992; Britto et al. 2010; Cantor et al. 2006; 2009).

Contrary to popular rhetoric, some TL carriers enjoy superior performance relative to the

industry average. For example, Knight Transportations operating profit margin was consistently

above 11% from 1994 to 20141, a level that many other carriers struggled to attain. This

consistent level of profitability suggests that Knight is somehow able to utilize their tractors and

trailersresources common to other carriersin ways different from the competition. Although

strategic decisions about the number of trailers and tractors directly impact a typical TL carriers

service capabilities and financial performance (Bhadury et al. 2006), the service and utilization

metrics of trailers and tractors cannot be evaluated separately because they do not operate

independently. The ratio of trailers to tractors (T2T) had been used by industry as an indicator of

a carriers strategic focus to serve shippers who either desire large trailer pools (e.g., Celadon

1
According to mandatory financial reports filed by Knight Transportation (Ticker Symbol: KNX) with the
Securities Exchange Commission.

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2014; Heartland Express 2014) or low prices (Bearth 2009). In contrast, academic inquiries into

strategic carrier management usually evaluate the impact of trailers and tractors by their age and

condition (Meixell and Norbis 2008) rather than their joint configuration. As a result,

conversations surrounding fleet management largely revolve around fleet optimization while

T2T remains a tool for either marketing or cost optimization.

The primary goal of this study is to clarify the empirical relationship between the

configuration of the core TL carrier operating assets, trailers and tractors, and financial

performance. We then draw on interviews with qualified experts in the motor carrier industry to

understand the strategic motivation behind a carriers fleet configuration as shown through its

T2T. Examining the relationship between T2T and performance is particularly timely as many

TL carriers have begun a strategic migration toward operations models characterized as asset-

light, which involves reducing large capital expenditures for maintaining company-owned fleets

by shedding equipment (Wong and Karia 2010; Hjortholt 2014). Although industry anecdotes of

the asset-light model are largely positive, limited research exists to determine whether reducing

trailers or reducing tractors may be more appropriate.

We adopt the strategic purity framework (Thornhill and White 2007) to augment the

resource-based view (Barney 1991) and thereby make three contributions to theory and practice.

First, we argue and provide supporting evidence to show that strategy-driven heterogeneous

configurations of common assets that lack differentiating value may lead to performance

benefits. Second, we show that strategic purity allows TL carriers to enjoy super-normal

financial performance despite their hypercompetitive environment. Third, our study provides a

method for a popular industry metricthe trailer-to-tractor ratioto be used by carriers to

monitor their fleet configuration and saliently manage it corresponding to their competitive

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strategy. A carrier with low T2T should operate as cost leaders by pursuing highly price-

sensitive shippers, while a carrier with a high T2T should pursue shippers who are willing to pay

premium prices for large trailer pools. Strategic misalignment due to a carrier altering its fleet

configuration in pursuit of an incompatible shipper may suffer performance degradation.

LITERATURE REVIEW

Motor Carrier Strategies and Performance

The modern TL carrier industry is intensely competitive (Scheraga 2011). Due to low regulatory

and cost barriers (Stephenson and Stank 1994), small carriers are able to enter different

geographic markets and operate nationally with relative ease. Over time, a combination of profit

erosion from competition (Moore 1989) and fuel price volatility (ICF Consulting 2003) push

many carriers into bankruptcy (Corsi 2005). Those carriers that competed successfully in the

marketplace have tended to adopt strategies to reduce cost, provide driver-assisted freight

handling, access to capacity, superior transit time reliability, improved productivity (Wisner and

Lewis 1996), and greater awareness of customers needs (Corsi et al. 1992; Stephenson and

Stank 1994; Wisner and Lewis 1996; Han et al. 2008).

Today, carriers have shifted from a primarily inward focus driven by productivity gains

to an outward emphasis based on shipper demands. In the carrier selection literature, service

dimensions such as capacity, flexibility, quality, and security are deemed to be the most

influential factors in shaping shipper perceptions of carriers (Meixell and Norbis 2008; Voss et

al. 2006). Some shippers have engaged a group of core carriers in long term contracts to secure

service and asset provisions rather than focus solely on price (Dobie 2005). These carriers tend

to possess a large fleet as well as the ability to rapidly deploy assets according to shipper needs

(Golob and Regan 2002). Possessing such asset flexibility also precludes a low cost structure for
5
these core carriers, whose customers (shippers) are willing to pay premium prices for enhanced

delivery reliability and a reduced likelihood of stock-outs (Du and Hall 1997; Dobie 2005).

Despite gradual shifts in the industry toward service, price remains an important

consideration, as a fragmented industry and low barriers to entry continue to commoditize basic

transactional TL carriage (Premeaux 2010). Heavy emphasis placed on price by shippers

translates to low shipper loyalty, contrary to carrier expectations (Meixell and Norbis 2008). In

order to successfully compete for these shippers, carriers steadily improve asset utilization

through tactics such as routing (e.g., McMullen and Lee 1999) and cost control (e.g., Bearth

2009; DOT 2011). Thus, carriers may successfully compete through low costs by offering prices

that both underbid the competition and still remain profitable (Scheraga 2011).

Managing Carrier Resources

Extant motor carrier literature identifies many important firm-level strategies that carriers may

adopt to accomplish specific operational outcomes ranging from increasing productivity and

lowering cost (Stephenson and Stank 1994) to catering to specific shipper demands (Meixell and

Norbis 2008). While these targets are highly useful as operational and service objectives, few

measures beyond those commonly-utilized financial ratios (e.g., asset turnover) exist to

determine how carriers utilize their primary assetstrailers and tractorsto achieve greater

profitability. Instead, the preponderance of carrier fleet management concerns topics such as

improving operational performance through fleet utilization (e.g., Turner et al 2012), network

repositioning (Topaloglu and Powell 2007), and dynamic optimization (e.g., Powell et al., 2002).

Intuitively, the utility of either class of asset is limited without the other. That is, power

capacity without cargo capacity cannot haul freight. On the other hand, cargo capacity without

power capacity is simply storage space. By managing their ratio, carriers can focus on different

6
operational dimensions (Celadon 2014; Bearth 2009) to determine transportation service

provisions and cost structure (Holcomb and Manrodt 2000). To more effectively compete along

service dimensions, carriers have generally increased their T2T over time (Corsi 1997). While

the current average T2T among North American fleet is between 2.5 to 3 (Cooper and Leuschen

2005; Leuschen and Cooper 2006), most of the aforementioned fleet sizing models either do not

discuss this ratio or simply assume it to be 1:1 (Du and Hall 1997; Jin and Kite-Powell 2000).

THEORETICAL FRAMEWORK AND HYPOTHESES

Strategic Purity and the Resource Based View

Thornhill and White (2007) broadly define strategic purity as the degree to which a firm pursues

a strategic focus on either cost or service strategies. The strategic purity framework is based

heavily upon prior strategy theorists such as Miles and Snow (1978), Porter (1985), March

(1991), Treacy and Wiersema (1995), who described various distinct archetypes of business

strategies. While distinct emphasis on one of these various archetypal competitive strategies

tends to allow firms to react to various market influences (Miles and Snow, 1978), they can also

serve as anchors for a spectrum of strategies composed of a myriad of hybrid approaches

(Campbell-Hunt, 2000). In almost all manufacturing industries, strategically-pure firms tend to

outperform firms that use hybrid strategies (Thornhill and White, 2007), provided that they

operate in an economy that is not undergoing institutional transition (Shinkle et al., 2013).

Central to enabling strategic puritys performance benefits is the emphasis on the

customer, whose demands can be heterogeneous and best served by firms formulating unique

products and services (Gebauer et al., 2011). Distinct tradeoffs exist for firms attempting to

navigate from one generic strategy to another, often to the detriment to firm performance

(Cennamo and Santalo, 2013). That is because firms that are internally focused, while they may
7
be adept at meeting common specifications in mass production and reducing costs, are ill-suited

for endeavors associated with increasing the externally-oriented and customer-specific value

proposition of their products and services (Zatnik et al., 2012). In particular, for industries whose

products and services are relatively homogeneous, firms typically may experience superior

performance through adopting a strategic emphasis on either production economies of scale or

differentiating values (Brenes et al., 2014).

Hybrid business models have inherent deficits (Thornhill and White, 2007). They are

seen as difficult-to-manage (Miles and Snow, 1978) and tend to leave firms vulnerable to

competition from those firms with purer strategies (Treacy and Wiersema, 1995). Compensating

for such deficits requires firms to respond to market demand by utilizing heterogeneous-endowed

resources that are valuable, rare, inimitable, and non-substitutable (Barney, 1991). However, not

all resources satisfy such criteria. It is apparent that resource possession alone is not satisfactory

for enabling supernormal performance; instead, strategic configuration of homogeneous

resources may be key to unlocking their performance benefits (Eisenhardt and Martin, 2000;

Priem and Butler, 2001). Hence, firms must be able to select the appropriate resource

configuration corresponding to pure competitive strategies, such as cost leadership or service

differentiation, rather than a hybrid combination of them.

For motor carriers, neither tractors nor trailers are difficult to obtain, thereby violating the

basic necessary conditions for them to be individually considered as sources of competitive

advantage. However, since their utility is jointly determined by their composition in a carriers

fleet, therefore their ratio supersedes their individual quantities in determining their strategic

value.

Strategic Purity in the Truckload Industry

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In transportation, shipper demands largely focus on either service or cost (Wallenburg 2009).

Correspondingly, scheduling flexibility and rate are among the most important considerations for

shippers when selecting a motor carrier (Lambert et al. 1993; Crum and Allen 1997; Gibson et al.

2002; Meixell and Norbis 2008). To serve shipper demands for flexibility, carriers may find it

necessary to acquire additional trailers (Ortiz et al. 2007) to provide capacity, thereby allowing

shippers to load/unload trailers unhindered by carrier schedules (Cheesman 1990). Alternatively,

carriers may pursue rate advantages by shedding excess trailers to lower capital and maintenance

costs (Bearth 2009). Therefore, assuming that the hybrid strategy falls between cost leadership

and differentiation through asset provisions, a carriers T2T should deviate away from the

industry average as it utilizes its trailers and tractors to become more adept at executing either

strategy.

If TL carriers pursue strategic purity by placing particular emphasis on either service or

cost, then a hybrid approach would focus on both. Since hybrid strategies require resources to be

used in potentially conflicting ways (Treacy and Wiersema 1995), carriers attempting to straddle

across both strategies would be limited to a less effective version of either alone. For example, a

carrier may attempt to furnish additional trailers to shippers that demand higher levels of

flexibility. In doing so, the carrier may become saddled with idle trailers that its cost-conscious

shippers do not need, thereby increasing its cost structure and compromising their ability to

compete on price. Moreover, even though the carrier can target a wider range of shippers, it

remains vulnerable to competition from others with purer strategies (March 1991). Reflective of

this rationale, Scheraga (2011) found that of those carriers that adopted multiple competitive

strategies, none showed positive performance. Therefore, we hypothesize:

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 Hypothesis 1 (H1): Strategic purity, as reflected by a carriers deviation away

from the industry average T2T, is positively associated with performance.

Although extant literature documents that strategic purity (cost leadership and

differentiation) is positively associated with performance in many industries, the positive

association often exists for only one strategy rather than both (Thornhill and White 2007).

Further, in the TL industry in particular, conflicting beliefs exist regarding whether T2T should

be increased (e.g., Heartland Express 2014) or decreased (e.g., Bearth 2009). Such rhetoric

indicates that the strategic value of T2T remains unclear in the TL industry. While both below-

average and above-average T2T may be considered as being deviated away from the industry

average, both industry and academic literature lack guidance as to which (or both) would lead to

enhanced carrier outcomes. Further, in order for carriers to saliently manage their T2T in

accordance with their strategy, the extent to which they must increase/decrease their T2T to

become above/below the industry average in order to reap performance benefits should be

determined as well. Therefore, it is important to recognize two elements associated with the T2T-

performance relationship. First, the functional form of the T2T-performance relationship should

be determined in order to ascertain if both cost leadership and differentiation are viable

strategies. Second, it is also important to determine how much movement to either end of the

strategic continuum would yield performance gains.

Carriers can reap financial benefits by expanding and extending relationships with

shippers (Dobie 2005; Hofer et al. 2009). As previously discussed, carriers may differentiate

their asset utilization by providing extra trailers to shippers who demand scheduling flexibility,

which allows shippers to optimize warehouse operations by reducing live-loading and unloading

as a costly source of logistics inefficiency (Cheesman 1990; DOT 2011). Otherwise a shipper is

10
dependent on the inbound and outbound transportation schedules in order to load and unload

freight only when a driver or tractor is present. Additionally, since transit time is influenced by

hours of service, optimal speed for fuel conservation, and road safety, shippers that value speed

may also require a high T2T to minimize time spent waiting on live loading and unloading (Corsi

1997).

On the other hand, some shippers engage carriers in transactional loads and emphasize

low price (Meixell and Norbis 2008) with few extra service provisions (Han et al. 2008).

Maintaining excess trailers in pursuit of shippers who demand flexibility necessarily results in

increased carrier cost structure. Whereas core carriers may command premium prices to offset

expenses associated with maintaining excess trailers (Dobie 2005), those same carriers

competing in the spot market are not able to submit bids that are low enough to win loads and

remain profitable. Thus, effectively competing through price requires carriers to increase asset

productivity through either shedding or utilizing excess trailers (Bearth 2009), thereby lowering

T2T. Therefore, carriers successfully competing based on cost are likely to exhibit a lower T2T

so that they may capture transactional loads with low but profitable prices.

In summary, the positive empirical association between strategic purity and firm

performance does not guarantee that both ends of a strategic spectrum outperform their hybrid

(Thornhill and White 2007). Whereas a high T2T allows TL carriers to charge premium prices

for the value proposition of scheduling flexibility (Cheesman 1990; Premeaux 2010), a low T2T

provides carriers superior cost structures that allow them to profitably compete as cost leaders.

Thus, in addition to the positive relationship between strategic purity and performance as stated

in the prior hypothesis, the specific shape of the T2T-performance relationship is convex.

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 Hypothesis 2 (H2): The functional form of the relationship between trailer-to-

tractor ratio and carrier performance is convex.

DATA

The North American Industry Classification System (NAICS) code 484121 contains carriers

whose dominant majority of revenue comes from long distance, general freight truckload

operations. These publicly-traded carriers are held accountable by a wide range of institutional

and private investors with regard to their strategic directions. All carriers in our sample primarily

utilize class 8 tractors and engage in irregular route, truckload freight carriage for shippers across

a variety of industries. We extracted financial data for these carriers from the Compustat

database2 and the number of tractors and trailers for each companys fleet from the Publicly

Traded For-Hire Truckload Carriers Database (Act Research 2009). Altogether, our sample

contains data for eighteen carriers from 1998 to 2014 to form an unbalanced panel of 828 firm-

quarterly observations. See Table 1.

[Insert Table 1 Approximately Here]

In our sample, fleet size (number of tractors) ranges from 339 to 18,843. The average

T2T is 2.606, which is in line with the industry average (Cooper and Leuschen 2005). The

maximum (8.88) and minimum (0.32) levels of T2T and a standard deviation of 1.11 suggest a

high degree of variability in resource utilization by TL carriers. Carriers in our sample, on

average, generated $7.74 million net income on $269.86 million sales with $544.06 million in

total assets. Finally, carriers in our sample on average had a 697 mile average length of haul.

2
Specifically, the list of publicly-traded TL carriers in 484121 includes companies that are identified by the
following ticker symbols: BOYD, CGI, CENF, CVTI, FFEX, JBHT, KNX, LSTR, MRTN, MSCA, PTSI, QLTY,
SMXC, SWFT, TCAM, USAK, WERN, XPRSA.

12
Financial Performance

We use two different dependent variables to capture firm financial performance. Our first

( )
variable is ZProfit, calculated as , for all carriers f at quarter t, and
( )

( ) is the standard deviation of the distribution of Net Income. By standardizing the

difference between a carriers profitability relative to the rest of the industry, ZProfit considers

the TL industrys notorious degree of competition and perceived lack of profitability (SC Digest

2011), which often leaves even the best performing carrier with only slim margins that are

vulnerable to becoming losses during recessionary periods. Examples of its use may be found in

other disciplines such as economics (Bilson 1980), finance (Hau 2001), and retail (Bloom and

Perry 2001). Thus, a positive ZProfit may be interpreted as outperforming the industry average,

and vice versa.

In addition to ZProfit, we also use a more traditional dependent variable for performance,

return on assets (ROA), which captures a carriers financial performance relative to its size by

computing its profit (loss) relative to its total assets. ROA reflects a carriers effective use of

assets, such as tractors and trailers, to generate financial returns. It is calculated as:

1 for all firms f at quarter t.
( )( +1 )
2

Variables of Interest

Trailer-to-tractor ratio (T2T): This variable is calculated by dividing the number of trailers in a

carriers fleet by the number of its tractors. A companys fleet is composed of company-owned

tractors and trailers, and equipment under contract with independent owner-operators.

Considering that a carriers use of owner-operators is subject to managerial discretion and

13
influence carrier flexibility, capacity, and service, we include them as part of our measure of the

T2T.

Deviation from Average T2T (T2T_Deviation): Based on the definition of strategic purity, we

formulate a T2T-based measure of strategic purity in the TL industry by calculating the degree to

which a carriers T2T deviates from the industry mean. This variable represents a hybrid strategy

that becomes increasingly purer as the ratio moves closer to either very low (cost leadership)

or very high (services). Hence, T2T_Deviation is calculated as the absolute value of the

difference between the T2T for each carrier (f) and the sample average at time (t), as shown:

2_ = |2
2 |. Higher T2T_Deviation indicates a greater extent of a

carriers strategic purity in its approach to managing its T2T.

Control Variables

Average length of Haul (ALH): This variable is calculated as ( ) for each carrier f

in quarter t. We control for ALH for several reasons. First, longer ALH tends to result in lower

average cost per loaded miles. Second, some carriers have established smaller, regionalized

regular routes for specialized truckload freight. Therefore controlling ALH would allow us to

ensure that the parameter estimated for T2T does not include the influence of a carriers network

configuration.

Carrier size: Although prior research assumes constant returns to scale (McMullen and

Okuyama 2000; Scheraga 2011), potential managerial economies of scale related to labor

(Scheraga 2011) and network diseconomies of scale (McMullen and Lee 1999) suggest that firm

size should be controlled in empirical models. Since one of our performance measures is

calculated with total assets, we choose to use total quarterly revenue, Sales, as a proxy for firm

14
size. As observed in Table 1, sales data was highly skewed, and so we take the natural log of

this variable prior to empirical estimation.

Operating ratio: Operating ratio, calculated as ( ), has been used in various

empirical studies as indicator of carrier operational efficiency (Scheraga 2011), which is

positively correlated with financial performance (Flynn et al. 2010). Therefore, considering that

the focal variable of interest in this study pertains specifically to the performance impact of

strategic asset utilization, it is important to control for a carriers operational efficiency.

Descriptive Statistics

We present descriptive statistics and correlations of our dependent and independent variables in

Table 2. The 0.008 average ROA reflects the degree of competition in the TL industry and that

carriers on average made less than a penny per dollar of asset. In addition, the tenuous financial

state of motor carriers is further reflected in the average OpRatio of 96.727%. As indicated by

T2T_Deviation, the average carrier T2T is about 0.690 away from the quarterly mean. Further,

the standard deviation of T2T_Deviation (0.828) suggests that carriers competed along a

spectrum of T2T to imply heterogeneity of resource use among carriers for each quarter. Finally,

we note that T2T and LnSales are correlated at 0.549 and may inflate errors in our model

estimation (Greene, 2008).

[Insert Table 2 Approximately Here]

METHODOLOGY AND MODEL SPECIFICATION

Although the empirical pattern between T2T and financial performance as hypothesized

can be quantitatively analyzed and deductively tested, the contextual why questions require

qualitative feedback from those who have a unique understanding of TL competitive strategies.

15
Therefore, we adopt a multi-method approach to first specify an econometric model where we

utilize various control variables and effects to account for both observed and unobserved

heterogeneity. Key coefficients of the quantitative model can be used to determine the empirical

relationship between T2T and financial performance. To further understand the strategic

motivation behind why a carrier may adopt various T2T configurations, we complement our

empirical models with a series of interviews of key informants whose primary responsibilities

entail directing and understanding motor carrier strategies, which endows them with unique

qualifications to answer our key research question. This approach allows us to not only test

empirical relationships as hypothesized under extant theory but also make contextual-specific

contributions to both theory and practice.

Panel Data Analysis

For our panel data, we performed a Hausman test to determine proper specifications of

time and firm effects in our empirical model. The test indicated the fixed effects model was

preferable ( 2 = 117.05). In addition, the Breusch-Pagan / Cook-Weisberg test indicated the

presence of heteroskedasticity for both performance measures ROA ( 2 = 2,730.05) and ZProfit

( 2 = 2,098.82); therefore, Whites robust standard errors are utilized.

We begin by first entering performance measures (ZProfit and ROA) as our dependent

variables along with our control variables to establish a baseline model. Model 1 contains ALH,

OpRatio and LnSales as control variables, as well as both firm and time fixed effects to control

for unobserved heterogeneity3.

3
Carriers have attempted to use fuel surcharges to offset potentially adverse impact from price volatilities, but
many carriers disclosed in their annual reports that surcharges cover only a fraction of fuel expenses. This research
tested empirical models that included the quarterly average price of fuel as a control variable. However fuel was
not statistically significant and therefore not retained in the final model.

16
 = + 1 + 2 + 3

+ + +

Model 2 includes our first variable of interest, 2_ , which measures the

extent to which T2T of each carrier f deviates from the industry average in quarter t.

Interpretation of its coefficient is straightforward: if statistically significant and positive, then

results suggest that a carriers performance improves as its T2T deviates from the industry mean

because it is moving toward either end of the spectrum of resource configuration strategy. Model

2 is thus specified:

= + 1 + 2 + 3 +

4 2_ + + +

where 4 is used to test Hypothesis 1. If 5 is significant and positive then strategic purity is

positively associated with carrier performance as measured by both ZProfit and ROA.

Model 3 removes 2_ and enters 2 and 2 2 . The squared term, 2 2 ,

allows us to specify a quadratic model with a flexible functional form (Thornhill and White

2007) to test the hypothesized nonlinear nature of the relationship between 2 and the two

measures of performance. Model 3 is shown below:

= + 1 + 2 + 3

+5 2 + 6 2 2 + + +

where coefficient estimate for 6 tests Hypothesis 2. If 6 is significant and negative, then the

relationship is concave (inverse U-shaped); and if positive then it is convex (U-shaped), as

17
hypothesized. If it is not significant, then T2Ts relationship with performance is determined by

5 as linear and in the direction of the coefficient estimate. Additionally, the above empirical

model was subjected to alternate specifications of dependent and independent variables for

robustness checks. Please see Appendix I.

Interview Methodology

To gain greater insight to the focal research question, we conducted a series of interviews during

our data collection stage. An interview questionnaire was developed specifically pertaining to

fleet asset management, with an emphasis on asset configuration. For each general asset

management question, a follow-up question is asked when participants mentioned either trailers

or tractors. All questions were derived from findings in both academic and industry motor carrier

publications specifically pertaining to TL carrier asset management strategies (e.g., JBHunt

2013; Scheraga 2013).

We conducted a total of eight open-ended semi-structured interviews, among which six

were with senior-level managers from motor carriers comparable to those in our sample and two

senior investment banking analysts who specialize in publicly-traded motor carriers. This

sampling approach allows us to gain greater insight that is directly relevant to our phenomenon

of interest by interviewing key decision-makers who hold distinct influence over their firms

strategic direction (Strauss and Corbin 1990; Pettigrew 1990).

The typical interview lasted from one to three hours. The interviews were conducted by

two researchers. Participants were provided a copy of the interview instrument (Table 4) in

advance (Spradley 1979). Prior to the interviews, we met to derive a consensus regarding their

expectations on the coding scheme (Eisenhardt 1989). During each interview, we probed

18
interview responses to stimulate in-depth questioning on topics associated with trailer-to-tractor

ratio and asset utilization. Audio recordings of interviews were transcribed to preserve data

(Pettigrew 1990) and later used for iterative analysis by the two researchers as independent cases

in order to identify common themes relevant (e.g., factors driving T2T higher/lower) to this

research for cross-case comparison (Eisenhardt and Graebner 2007). Figure 2 shows an overview

of the data coding structure.

[Insert Table 4 Approximately Here]

[Insert Figure 2 Approximately Here]

More specifically, we each independently and iteratively dissected all transcripts to amass

relevant statements identified through the following criteria:

1. Statements reflecting possible change in a carriers (or a competitors) fleet composition.

2. Statements implicating a driver or catalyst for a carrier to alter its (or a competitors) fleet
composition.

3. Statements regarding the performance impact of the change to a carriers (or a

competitors) fleet composition.

Additionally, we periodically met throughout the coding process to compare and reconcile

potential differences in their interpretations of the statements to reach a final consensus regarding

the interview findings (Eisenhardt and Graebner 2007).

RESULTS

Our empirical models attempt to identify the relationship between T2T and financial

performance in two ways. Model 1 examines whether or not a TL carrier may be financially

rewarded by strategically configuring its fleet to differentiate itself from the industry average. If

so, then the parameter estimate for T2T_Deviation should be positive. Since a carrier may

19
deviate from the industry average T2T by pursuing either low or high T2T, model 2 seeks to

further clarify whether or not TL carriers may enjoy superior financial performance by adopting

either fleet configuration. The empirical results are shown in Table 3. Model 1 is significant for

both ZProfit and ROA with adjusted R2 of 0.717 and 0.211, respectively. The control variables

have coefficient estimates with the expected signs and exhibit varying levels of statistical

significance. Entering T2T_Deviation (Model 2) resulted in incremental improvement in

adjusted R2 to 0.733 and 0.214. Replacing T2T_Deviation with T2T and its squared term (Model

3) further increased adjusted R2 to 0.734 and 0.215.

[Insert Table 3 Approximately Here]

We contend in H1 that greater strategic purity, as reflected by a carriers deviation away

from the industry average T2T, is positively associated with performance, regardless of the

direction of the deviation. In support of H1, The coefficient for T2T_Deviation has a positive and

statistically significant relationship with both measures of performance at 0.220 (p<0.01) and

0.001 (p<0.01) for ZProfit and ROA, respectively.

Whereas H1 hypothesizes a positive relationship between strategic purity and

performance, H2 seeks to further ascertain that carrier performance is positively associated with

both increasing T2T as well as decreasing T2T relative to the industry average. In Model 3, the

estimated coefficients for T2T2, 6, are positive and statistically significant for both ZProfit and

ROA at 0.043 (p<0.01) and 0.001 (p<0.05), respectively. This indicates that the functional form

of the T2T-to-performance link is indeed convex to support that both strategic focuses are

superior to a hybrid strategy for carriers (H2). Recall that ZProfit is a measure of profitability

20
relative to industry competitors, while ROA measures asset returns. Thus, strategic purity in the

use of trailers and tractors carries a similar impact to both measures of performance4.

Our empirical results are further illustrated using the Johnson-Neyman Test for Slope

Significance (Figure 1), which illustrates the slope-significance of a quadratic empirical model

such as model 2 (Miller et al. 2013). This analysis may be used to determine if there are specific

ranges in the value of an independent variable in which statistically significant changes may be

observed in the dependent variable. To further ensure the relevance of our analysis, we chose to

limit the range of analysis based on the minimum and maximum T2T in our sample, 0.32 and

8.88, respectively. The Johnson-Neyman test results are provided in Appendix II.

[Insert Figure 1 Approximately Here]

As shown in Figure 1, distinct differences exist between the respective quadratic

relationships of T2T with ZProfit and ROA. For ZProfit, changes in performance becomes

statistically significant only when T2T is either less than 2 or greater than 6. For ROA,

statistically significant performance improvement is only observed when T2T is greater than 5.

Together, the zones of statistical non-significance for the slopes suggest that performance

differentiation is clearly associated with those carriers who configured their fleet to possess

much higher T2T than the industry average range of 2.5 to 3.

Based on the statistical results and illustration, we observe an empirical pattern indicating

that T2T may reflect a TL motor carriers strategic configuration of the industrys most common

revenue-producing assets, tractors and trailers. Those carriers that possess either a very high or a

very low ratio tend to outperform those that compete with ratios closer to the industry average.

4
We subjected our empirical model to a battery of robustness checks, summarized in Appendix I

21
Not only does this evidence lend strong support to extant strategic management literature

regarding the virtues of strategic purity (Reitsperger et al. 1993; Thornhill and White 2007;

Gebauer et al. 2011; Brenes et al. 2014), but it also provides empirical verification of common

industry claims that the T2T should be either low (Bearth 2009) or high (Celadon 2014;

Heartland Express 2014; Hyndman 2015).

Despite the empirical findings, two questions persist that require greater clarification.

First, while we find the relationship between T2T and various performance measures to be

convex, explanation offered by extant Strategic Purity literature, such as tradeoffs due to

incompatible competencies, does not provide a clear view to the underlying drivers of this

empirical relationship. Second, extant motor carrier literature clearly documented that an

emphasis on operational efficiency had yielded substantial performance benefits for carriers

(e.g., Stephenson and Stank 1994), yet to pursue a high T2T strategy necessarily requires carriers

to abandon such successful strategies by acquiring higher number of trailers than operationally

necessary.

Interview Results

The information portrayed by the qualitative interviews lends support and further explains the

empirical findings. Universally, all interview participants expressed that maximizing asset

utilization remains a fundamental operational objective. However, unique influences may drive

carrier strategies, which in turn determines the extent to which carriers can maximize asset

utilization. They are:

1. Intense price competition: Not surprisingly, the TL industry remains intensely price
competitive, exacerbated by less sophisticated carriers that sometimes emphasize cash
flow over profitability. As a result, the need for all carriers to control costs persists.

22
 2. Emerging service competition based on asset provisions: Some shippers contractually
require and are willing to pay for a high T2T from their core carriers.

3. Price-service tradeoff: Carriers that engage shippers with asset provision demands cannot
effectively compete on price due to their cost structure. However, market forces
frequently tempt carriers to sacrifice strategic stability in favor of short term cash flows
by straddling across both price and service competition.

These three themes and how they influence T2T are further illustrated with exemplary quotes

obtained using our data coding structure, as shown in Table 5.

[Insert Table 5 Approximately Here]

Intense Price Competition: In line with prior research (Crum and Allen, 1997; Scheraga, 2011),

several executives expressed that industry fragmentation and competition continue to drive a

high degree of price competition to erode profits and present strategic conundrum. Analysts also

recognized this industry issue and explained that smaller carriers dependent on large shippers

frequently resort to operating below their variable cost in order to undercut prices of those larger

carriers who have greater commitment toward sound financial management. As a result, intense

pressure to compete on price requires carriers of all strategic orientations to tightly manage

assets, sometimes to the detriment of their ability to utilize resources to strategically focus on

shippers who are willing to pay for additional asset-provisions. During particularly tumultuous

times, less sophisticated carriers sacrifice both the quality and safety of their operations in order

to secure loads. Several executives expressed that they had delayed purchasing new equipment

and implementing maintenance programs due to pressures to lower cost in order to stay price

competitive. This led one executive to lament: Were not real smart as an industry.

Emerging service competition based on asset provisions: Several executives indicated that some

shippers place a higher emphasis on the number of trailers being furnished for reasons such as

23
the ability to optimize warehouse operations or provide temporary storage for peak levels of

seasonal inventory. These shippers view extra trailers furnished by carriers as not only a

voluntary form of service, but sometimes a contractual requirement. It is not uncommon for

shippers to require up to 9 trailers per tractor, which is far above the industry average (2.5 to 3).

While carriers who are able to cater to these shippers view the high overall T2T in their fleet as

central to keeping those profitable customers, who both recognize and are willing to pay

premium prices. This competitive strategy necessarily precludes them from effectively

competing on price.

Price-service tradeoff: The tension between cost and service strategies is evident from the

interviews. Most executives expressed that they cannot effectively compete on price due to the

segment of shippers they target, most of whom require excess trailers. However, they also

indicated, due to the cyclical and seasonal changes to demand for transport services, fleet-wide

investment toward technology-driven cost control measures are difficult to justify. One executive

in particular expressed that their recent decision to adopt untethered trailer-tracking technology

to reduce T2T took years of testing. The single most significant hindrance was being able to

ascertain whether or not a reduced T2T would not compromise contractual obligations to high

volume shippers who require high T2T.

Other factors affecting T2T: Interviewees discussed that the incentive to increase T2T does not

solely come from shipper demand. Instead, carriers tend to benefit from using trailer-pools to

minimize idle times for tractors and drivers, thereby increasing overall levels of T2T, increasing

asset utilization, and decreasing costs. However, the point at which T2T stops benefitting the

carriers that furnish large trailer pools can be idiosyncratic and difficult to determine. Hence, it is

apparent that, while carriers may broadly pursue a cost leadership strategy by minimizing T2T

24
(Bearth 2009), there appears to be a lower bound at which point operational inefficiencies may

compromise cost savings associated with minimal idle trailers. Similarly, executives indicate that

carriers competing through these provisions must not neglect their idle trailers, and they must

continue to experiment with ways to maximize asset productivity while fulfilling their

contractual obligations to the extent possible under such a strategy.

Summary of Interview Results Collectively, our empirical and qualitative results portray a

complex picture in asset-based strategic competition among TL carriers that parallels extant

literature. See Figure 3. At the most basic level, internal productivity improvement serves as the

basis for a TL carriers survival (e.g., McMullen and Okuyama, 2000; Pettus 2001; Stephenson

and Stank, 1994). When internal sources of productivity improvement are exhausted, a

secondary strategy is needed for carriers to take a specialized approach to gain the necessary core

competence to thrive in the market. However, persistent industry volatility causes carriers to

refrain from committing their resources in a strategically pure approach and instead remain

tempted to pursue shippers across the entire cost-service continuum. The price for the illusion of

flexibility afforded by a hybrid strategy is the inability for a carrier to effectively compete

against either true cost leaders (low T2T) or service differentiators (high T2T).

[Insert Figure 3 Approximately Here]

MANAGERIAL IMPLICATIONS

The truckload motor carrier industry continues to be highly fragmented and populated by many

small and unsophisticated carriers jousting for survival. Operating at an exceptional level of

efficiency has allowed the modern TL carriers to survive decades of intense competition post

industry deregulation. By focusing on a single strategy rather than attempting to pursue multiple

25
disparate strategies, large carriers may move beyond simply surviving hypercompetition and

thrive. To that end, conflicting industry recommendations and anecdotes regarding the trailer-to-

tractor ratio suggest that carriers may experience success by strategically configuring their

otherwise undifferentiated assetstractors and trailersin two distinct strategic directions.

First, TL carriers may experience performance gains through minimizing their T2T to

profitably operate as an industry cost leader. Corroborating our empirical findings, several

carriers (e.g., JB Hunt 2014) have begun to concentrate on asset-light models of operation by

maintaining fewer trailers and tractors on their balance sheet. In doing so, these carriers believe

that they may maximize financial performance by possessing just enough equipment to

effectively meet shipper demand while minimizing capital and maintenance expenses. This

strategy may be considered an evolution and a legacy of the most prevalent survival strategy,

which entails a singular focus on improving internal productivity measures (Stephenson and

Stank 1994) as adopted by TL carriers since industry deregulation. Indeed, our interview

participants indicate that many carriers continue to compete on price, and that maintaining a low

cost structure is vital toward profitably underbidding the competition.

Second, TL carriers may also experience performance gains through configuring a level

of T2T to be substantially higher than the industry average. While it may be intuitive that

lowering T2T may result in a lower cost structure, this research provides evidence that a high

T2T strategy may be equally viable. Our qualitative analysis, supporting our empirical evidence,

indicates that some shippers have begun to both recognize and pay a premium for the additive

values of a large on-site trailer pool. The extra storage space afforded by a large trailer pool helps

those shippers whose business models are highly seasonal to avoid costly permanent warehouse

expansions during peak demand seasons. Indeed, a recent decision by Amazon to buy thousands

26
of company-owned dry-van trailers further highlights the substantial value of a large trailer pool

for shippers who value highly optimized warehouse operations and those who face highly

seasonal demand patterns (DOnfro 2015). Additionally, having both empty and loaded trailers

on-site allows shippers to optimize their warehouse operations for more effective labor and dock

utilization management as well. For carriers, large trailer pools also help to minimize live-

loading and unloading to keep drivers on the road, which would allow the drivers to earn more

money and the carrier to reduce route irregularity and get their drivers home more regularly (e.g.,

Hyndman 2015), thereby improving driver retention and enjoying cost savings in association.

For TL carriers, a perpetual state of hypercompetition often results in firm-level strategic

flux as carriers pursue shippers regardless of strategic compatibility. Carriers ill-equipped to

pursue shippers who demand excess trailers must expand their trailer fleet to temporarily engage

them. However, carrier relationships with shippers tend to be far more transient in nature and

shorter than the time needed for asset acquisition and disposal (Meixell and Norbis 2008). To the

opposite end of the spectrum, carriers well-suited to pursue shippers who demand excess trailers

may attempt to pursue cost-oriented shippers by lowering their cost structure through shedding

idle trailers and undermine their original core competency. In both cases, carriers with distinct

strategic competencies effectively altered their fleet configuration toward a hybrid strategyand

thus lower performance (Thornhill and White 2007; Cennamo and Santalo 2012).

To successfully align fleet configuration and strategy, it is important for managers to

understand the significance of the convex relationship that T2T has with various measures of

performance. As clearly shown in Figure 3, ROA, which is a measure of profit margin, may not

see significant improvement for carriers moving toward a low T2T fleet configuration. The lack

of improved margins is in sharp contrast to improved relative profitability (ZProfit), which both

27
illustrate the continued downward pressure on prices but the viability of a cost leadership

strategy in TL. In other words, the combination of improved profits but static margins indicates

that cost-leading carriers succeed through volume at the expense of margins (Porter 1985). For

those carriers closer to the other end of the T2T spectrum, both improved margins and relative

profitability may be observed, suggesting that the source of improvement for these carriers come

from premium prices offered in exchange for a superior value proposition as offered by carriers

with high T2T. Similarly, our interview respondents indicated that maintaining an ongoing

relationship with high volume shippers who face complex warehouse operations and seasonal

demand patterns necessarily results in a fleet configuration that is incompatible with a cost

leadership strategy.

For all TL carriers, a fundamental question is raised as to whether the current measures of

trailer utilizations sufficiently reflect the strategic intent of the carrier. Trailer utilization is

commonly measured as a variant of the ratio of loads to trailer fleet. However, our interview

participants clearly indicated that even idle trailers serve a purpose and generate revenue from

shippers who need them for streamlining warehouse operations and flexible storage space. Thus,

trailer utilization as a key performance indicator must be used with the proper strategic context.

Most particularly for carriers pursuing a high T2T strategy, the only truly unutilized trailers are

those sitting in their own lots waiting to be deployed to shippers who require more trailers.

Finally, we reiterate a caution by interview participants. A fundamental survival strategy

remains an important aspect of motor carrier operations. Even carriers thriving through strategic

purity strategies must remain vigilant on cost control and to provide great service as measured by

metrics such as lead time and consistency. As carriers often report in their annual and quarterly

28
filings, an active program designed to monitor, retire and replace worn-out tractors and trailers

remains fundamental to any asset configuration strategy.

THEORETICAL IMPLICATIONS

Under RBV, competitive advantage afforded by VRIN resources inevitably erodes over time

(Priem and Butler, 2001). In this study, we present evidence that such strategic reconfiguration

should be conducted with strategic purity in mind (Thornhill and White, 2007). That is, the

ability for firms to successfully utilize resources commonly endowed among their competitors

should focus on a primary strategic direction. Adopting multiple strategies in a hypercompetitive

industry will likely diminish firm performance derived from dynamic reconfiguration of firm

resources.

While our empirical results suggest that strategic focus should be based on purity, our

interview evidence argues that resource configuration under hypercompetition should initially

focus on a basic survival strategy that is necessary to sustain a businesss fundamental operating

model. To survive under hypercompetition, firms are largely concerned with maximizing

productivity and minimizing costs since resources tend to be homogeneous in hypercompetitive

industries (e.g., Stephenson and Stank, 1994).

To thrive, it is necessary for firms to strategically focus their configuration of

homogeneous resources. As elucidated by many strategy theorists and supported by our

empirical results, product/service emphasis and cost leadership are two common strategies firms

may use to devise resource configurations for superior performance (Porter 1985; Treacy and

Wiersema 1995). Our interview findings further reveal that firms attempting to utilize their

resources in pursuit of either generic strategy should not forsake their survival strategy in

29
hypercompetitive markets. At times, forces that demand firms to maintain service and control

costs to uphold their basic survival strategy may hinder their pursuit of strategic purity. Due to an

inherent desire for survival, firms in hypercompetitive markets that experience even temporary

setbacks in their movement toward strategic purity tend to retrench to preserve the status quo and

continue competing through their base survival strategy despite the inherent disadvantages of a

diluted or hybrid strategy.

Finally, firms may frequently find it tempting to pursue customers who require a resource

configuration incompatible with a strategy to thrive. For example, to firms that utilize cost

leadership as their competitive strategy, the premium prices offered by customers (who desire

higher levels of product/service emphasis) may be alluring. However, pursuing these customers

usually requires firms to adopt resource configurations that result in a higher cost structure which

compromises cost leadership. Such temptation over the viability of new or novel resource

configurations might slow down or even reverse firm progress toward strategic purity and result

in strategic limbo rather than superior performance. The same can be said for firms competing

through product/service emphasis, but who may desire to win some shippers based on price.

LIMITATIONS, AND FUTURE RESEARCH

This study has some limitations, many of which lead to interesting future research possibilities.

First, we did not explicitly account for the influence of owner operators, due to data availability.

Previous research (Scheraga 2011) found that the use of owner-operators did not significantly

influence carrier financial outcomes. On the other hand, owner-operators are most well-suited for

specific types of loads that do not require specialized service provisions (Baker and Hubbard

2003; Han et al. 2008). Therefore, the use of owner-operators may exert influence on the cost-

service emphasis spectrum and could be an area for future research. Second, although we have

30
identified a convex relationship between T2T and performance using data collected from annual

and quarterly reports of publicly-traded TL carriers, it is highly inconceivable for a carrier to

successfully operate with a T2T of zero or ten-thousand. Therefore, future research should

develop boundary conditions, including other equipment-specific factors such as age and

condition, under which this relationship holds true. This would also include whether the

empirical relationship identified in this study is directly applicable to privately-held for-hire TL

carriers, and if the U-shaped T2T relationship with performance is subject to seasonal changes.

Third, the strategic purity literature identifies that while pure strategies tend to outperform hybrid

strategies in stable economies, the opposite is true for those economies in transition (Shinkle et

al. 2013). Hence, we speculate that hybrid strategies may be superior for customers whose

industries are in transition. This could make an interesting future study for motor carriers in

developing economies and in markets in transition from disruptive innovations (e.g., autonomous

vehicles). Finally, while we fortified the external validity of our empirical results through in-

depth interviews, insights derived from our findings remain most relevant to large national

carriers. A study of small, regional carriers could help to generalize our findings, particularly

regarding their expansion strategies as they seek growth in the midst of hypercompetition.

31
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 Appendix I Robustness Checks for Empirical Model

Operating Margin as an Alternate Dependent Variable

This study used two different performance measures (ZProfit and ROA) to establish the

functional form between T2T and firm financial performance while controlling for the operating

ratio as an indicator of operational efficiency. However, operating ratio has been used in past

literature as a measure of performance. We utilized operating ratio to specific an alternate

measure of performance, operating margin ( ), which is calculated as 1

. In doing so, we transformed from an expense ratio to a profit ratio,

which facilitates the ease of parameter interpretation.

To ensure that the comparison of parameter estimates for key coefficients are valid across

all three dependent variables, we also removed from the original empirical models

for and . For Model 2, when using as the dependent variable, the

coefficient for T2T_Deviation is 6.65 (p<0.01) suggests that the operating margin increases as

carriers deviate away from the industry average T2T. In Model 3, resulting parameter estimates

were qualitatively unchanged; the coefficient for T2T2 is 0.564 and statistically significant

(p<0.01) to suggest a U-shaped relationship between T2T and . Additionally,

excluding from the original empirical model did not result in qualitative changes to

the key coefficient estimates for both and . Therefore, we conclude that our

results are fairly robust across different measure of performance.

Alternate Measure of T2T_Deviation

Next, we specified an alternative measure of T2T_Deviation by calculating it as

2
2
2_ = (2
2 ) , rather than using the absolute value. This approach may

37
be more sensitive than the non-squared original measure. The relationship between
2
2_ and both measures of dependent variable, and , also remain

qualitatively unchanged from our original estimate with coefficients of 0.038 (t=5.14, p<0.01)

and 0.001 (t = 2.02, p<0.05), respectively.

Finally, we inserted several measures of macroeconomic influence as control variables

including the gross domestic product (GDP), the level of import activity (Import), and national

fuel prices (Fuel). The variables for these controls were largely non-significant and our results

for all dependent variables , , and remain qualitatively

unchanged.

Assessing Potential Influence of Outliers

Lastly, linear relationships can sometimes be influenced by the presence of several

outliers. To ensure that our results are not sensitive to these outliers, we utilized robust

regression (Atkinson and Riani 2000), which removes select observations using Cooks distance

(Cook and Weisberg 1982) prior to estimating coefficients. No qualitative difference was found

for any of the key coefficients, thereby reassuring that our empirical results are not sensitive to

outliers in our data.

38
Appendix II Johnson-Neyman Test for Slope Significance

DV: ZProfit
T2T Ratio Slope SE t-value Lower 95% CI Upper 95% CI
0 -0.466 0.205 -2.269 -0.869 -0.062
1 -0.363 0.171 -2.125 -0.699 -0.027
2 -0.261 0.137 -1.902 -0.530 0.009
3 -0.158 0.104 -1.518 -0.364 0.047
4 -0.056 0.074 -0.757 -0.202 0.090
5 0.046 0.051 0.906 -0.054 0.147
6 0.149 0.047 3.160 0.056 0.241
7 0.251 0.066 3.817 0.122 0.380
8 0.353 0.095 3.737 0.167 0.539
9 0.456 0.127 3.596 0.207 0.705
Statistically significant slopes are in bold.

DV: Return on Assets

T2T Ratio Slope SE t-value Lower 95% CI Upper 95% CI
0 -0.005 0.004 -1.316 -0.013 0.003
1 -0.003 0.003 -0.981 -0.010 0.003
2 -0.001 0.003 -0.476 -0.007 0.004
3 0.001 0.002 0.351 -0.003 0.005
4 0.003 0.001 1.843 0.000 0.006
5 0.005 0.001 4.501 0.003 0.007
6 0.007 0.001 6.789 0.005 0.009
7 0.009 0.001 6.464 0.006 0.011
8 0.011 0.002 5.635 0.007 0.014
9 0.013 0.003 5.036 0.008 0.018
Statistically significant slopes are in bold.

39
 TABLE 1
Company Financial and Operational Statistics (N = 828)

Variable Mean Median Maximum Minimum Std. Dev.

Trailers 12884.96 6845.00 95996.00 500.00 16313.47
Tractors 4245.56 2631.50 18843.00 339.00 3726.17
T2T 2.61 2.47 8.88 0.32 1.11
Net Income ($Millions) 7.74 2.92 93.41 -186.23 16.66
Total Assets ($Millions) 544.06 346.70 3115.73 38.83 532.07
Total Sales ($Millions) 269.86 140.43 3488.61 12.55 367.98
Avg. Length of Haul (Miles) 697.23 683.11 1172.00 303.00 206.75
Company Ticker Symbols: BOYD, CGI, CENF, CVTI, FFEX, JBHT, KNX, LSTR, MRTN, MSCA, PTSI,
QLTY, SMXC, SWFT, TCAM, USAK, WERN, XPRSA

40
 TABLE 2
Descriptive Statistics and Correlations (N=828)

Variables 1 2 3 4 5 6
1 ROA 0.008 0.030
2 ZProfit 0.001 1.043 0.524
3 T2T 2.606 1.106 0.172 0.509
4 T2T_Deviation 0.690 0.828 0.176 0.428 0.666
5 ALH 697.226 206.751 -0.265 -0.508 -0.466 -0.314
6 Ln(Sales) 5.061 1.005 0.354 0.708 0.549 0.388 -0.402
7 OpRatio 96.727 10.266 -0.454 -0.310 -0.064 -0.094 0.267 -0.093

41
 TABLE 3
Regression results (N = 828)

DV = ZProfit DV = ROA
Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
Constant 0.670 0.418 1.184** 0.074*** 0.066*** 0.064***
(0.393) (0.383) (0.475) (0.019) (0.021) (0.021)
Operating Ratio
-0.007** -0.005* -0.005* -0.001*** -0.001*** -0.001***
(OpRatio)
(0.003) (0.003) (0.003) (0.000) (0.000) (0.000)
Average Length
0.001*** 0.001*** 0.0001 0.001 0.001 -0.001
of Haul (ALH)
(0.000) (0.000) (0.000) (0.001) (0.001) (0.001)
Firm Size
-0.013 0.005*** -0.021 -0.001 0.001 -0.001
(LnSales)
(0.033) (0.031) (0.035) (0.002) (0.002) (0.002)
T2T Deviation from
Industry Average 0.220*** 0.001***
(T2T_Deviation)
(0.041) (0.000)
Trailer-to-
Tractor Ratio -0.354*** -0.031
(T2T)
(0.093) (0.46)
2
T2T 0.043*** 0.001**
(0.008) (0.000)

Adj. R2 0.717 0.733 0.734 0.211 0.214 0.215

p>F 0.000 0.000 0.000 0.000 0.000 0.000
Notes: Standard errors in parentheses.
** Sig. at 5%, *** Sig. at 1%

42
 TABLE 4
Interview Questions (Follow-up questions)

1. How does your company determine the assets needed to achieve planned
output? (Are trailers more important or tractors?)
2. Does your company have a plan or strategy to achieve higher asset
utilization? (To what extent does this plan focus on cost and service?)
3. How does your company measure asset utilization?
4. Do you see your company growing in size? What areas would you like to
grow? (Trailers? Tractors?)
5. Is there a specific scale of operations your company is trying to achieve?
(Trailer-to-tractor ratio?)
6. Does your company consider lean asset management a net benefit to the
organization? (To what extent does this plan focus on cost and service?)
7. Does your company study or monitor asset utilization and financial
performance outcomes? (To what extent does this plan focus on cost and
service?)

43
 TABLE 5
Illustrative Quotes from Interviews

Theme Illustrative Quotes from Interviews Implications

Asset-Based "There is a certain segment of the market that we're appealing to, because Effect: Customer/shipper pressure
Service they do want 25 trailers dropped at the warehouse. for greater capital commitment
Competition toward spare trailers.
Some [shippers] ask for a 7:1 ratio or a 9:1 ratio and at that point, youre
Configuration: High T2T
just storing their freight.
Shipper Benefit: Scheduling
flexibility, temporary storage
expansion for inventory
fluctuation

Price We've seen TL carriers operate below variable cost. Effect: Competitive pressure for
Competition It's a very small margin business. minimum capital commitment and
overhead to compete on cost
Configuration: Low T2T
Shipper Benefit: Low costs

Price- We're not competitive on rate because of our overhead Joe Blow with Effect: Simultaneous pressures
Service three trucks and three trailers has no overhead and has a very low cost from competitors and
Tradeoff structure, so he can always underbid us. customers/shippers to be
competitive on both price and
We try to manage [trailer-to-tractor ratio] down as tightly as we can.
service make a hybrid approach
That's overall. It varies by each customer. Contracts require different
more tempting over strategic
arrangements.
purity.
If we didn't have a high [trailer-to-tractor] ratio we could be a lot more
competitive [on rate].

0
Figure 1 Functional Form and Slope Significance of T2T Ratio for ZProfit and ROA

1
Figure 2 Interview Coding Scheme

2
Figure 3 Empirical and Interview Findings of T2T Strategic Purity among Publicly-Traded TL Carriers