Recession squeezes local logistics industry

State economic development leaders remain bullish on Indiana’s future as a logistics hub even as two local players have
been forced into bankruptcy and others struggle with high fuel prices.

Arcadia-based Tradewinds, which filed for Chapter 11 bankruptcy July 10, had a fleet of 155 trucks
hauling freight to every state in the continental United States just a few years ago. The company still
earns near its peak annual revenue of $27 million, but sharp increases in the price of gasoline have
eaten away all its profits.

"The big thing that put us closer and closer to the edge was the spikes in fuel," said Tradewinds co-founder Benjamin
Cook.

Federal bankruptcy court records show that Indianapolis-based Icon Transportation, which maintains warehouses here and in
Terre Haute, is also reorganizing via bankruptcy. It filed a Chapter 11 petition July 3, listing $10 million to $50 million
in liabilities against less than $500,000 in assets.

Icon did not respond to IBJ‘s repeated calls for details about its bankruptcy.

Kenny Cragen, president of the Indiana Motor
Truck Association, said logistics firms across Indiana are struggling.

"In my 20 years with IMTA, these are the toughest times I’ve seen for truckers," he
said. "A combination of soft freight and record-high fuel costs is leading to companies closing
throughout the state."

Despite the current fuel-based problems of firms like Tradewinds and Icon, Gov. Mitch Daniels’ administration is optimistic
about long-term prospects for the industry. Along with life sciences, IT and advanced manufacturing, logistics is identified
by the administration as key to Indiana’s future.

State leaders say the fuel crisis can work to Indiana’s advantage. Expensive fuel makes Indiana
more attractive than ever for logistics, said Indiana Secretary of Commerce Nathan Feltman.

"As fuel prices continue to escalate, the
need to be in a low-cost, low-tax jurisdiction has only increased," Feltman said.

Carol D’Amico, whose job is to promote the sector
for the state, said that, although high fuel prices will be a problem for logistics firms in the short
term, Indiana’s central location makes them an opportunity long term.

"The days of putting the big distribution centers in the four corners of the country are
probably over," she said.

D’Amico is CEO of Conexus, which was created to promote Indiana to logistics and advanced manufacturing firms. Conexus has
been cataloging Indiana’s logistics industry and so far has found 1,826 logistics firms. Marion County alone has 429. And
D’Amico said those tallies are likely on the low side.

The pressure on firms big and small to cut costs is intensifying.

Steve Russell, CEO of locally based Celadon Group Inc., said his company has slowed all its trucks
an average of two miles per hour and is cracking down on drivers who allow their trucks to idle while
parked.

Every idling truck
wastes 4-1/2 gallons of fuel a day. With a large fleet, that means tens of millions of dollars a year.
Since Celadon doesn’t have money to burn, Russell said, it’s fired 35 drivers during the last four months who wouldn’t get
on board with the directive.

Across the country, Russell said, logistics firms are faltering. He pointed to one of Celadon’s oldest competitors, Missoula,
Mont.-based Jim Palmer Trucking, a company founded in 1964 with 350 trucks. It just filed for Chapter 11.

"Basically, the number of companies on
the verge of that is enormous," Russell said.

Tradewinds had already been looking for efficiencies before filing Chapter 11. Cook, the company’s
co-founder, said Tradewinds had reduced its fleet to just 100 trucks, required drivers to operate them
at lower average speeds, eliminated marginal delivery routes, and fired the least productive of its 125
employees.

Cook stressed
that all Tradewinds’ stakeholders are on board for its reorganization plan.

"High fuel prices are here to stay," he said. "So we’re putting a lot of energy
into getting the most out of every gallon in the truck."

Such steps could soon be necessary for every logistics firm. Purdue University professor Ananth
Iyer expects Indiana will soon see more logistics firms fail. Inefficient companies are particularly
vulnerable, said Iyer, who chairs the Krannert Graduate School of Management’s Global Supply Chain Management
Initiative.

Logistics
companies that want to succeed will need to broaden their business, Iyer said. Rather than considering themselves
simply the middlemen that move goods from point A to point B, they’ll have to actively manage the process, wringing out maximum
efficiency at every step.

That means using IT to meticulously plan delivery routes that burn the least fuel, and employing state-of-the-art GPS systems
to stay nimble enough to avoid traffic jams. It also means structuring prices for customers to encourage full trailers. Wasted
space equals wasted capacity, thus wasted fuel. The just-in-time supply chain will slow down, he said, as companies find it
cheaper to carry capacity in inventory.

"Potentially, depending on how firms play the game, this could end up being an opportunity," Iyer said. "But
only if transportation companies start thinking about overall logistics costs."

State officials are confident companies will
continue to take advantage of those opportunities here.

IEDC’s Feltman pointed to Indiana’s recent manufacturing and logistics industry successes, such
as this year’s expansion announcements from Medco, Rolls Royce and Toyota. In an expensive-fuel market,
he said, companies that make or move products are more concerned than ever with other costs, such as
taxes, and the efficiency of a state’s transportation infrastructure. Feltman said Daniels’ fully funded
$4 billion Major Moves initiative makes Indiana more attractive than its neighbors to logistics firms.

So inquiries from logistics firms considering
moving to Indiana have increased, Feltman said. He expects IEDC will announce a series of logistics business
attractions and expansions for the rest of the year.

"Taking advantage of those assets and further investing is a conscious strategy," Feltman
said. "And it’s paying off in a big, big way."

Transportation company leaders agree. The same fundamentals Feltman touts are the reason Celadon’s
Russell said he’s now considering acquisition opportunities. And they’re the reason Tradewinds’ Cook
decided to reorganize, rather than scrap, his business.

"We don’t have mountains or beaches," Cook said. "We just have our location, and
we’ve got to utilize that."