[dpFund]

I factor a lot of trucking companies and there are 3 types of companies in the industry:

- brokers: typically don't own trucks. They arrange loads for carriers. These guys typically operate with tops 15% margins. They can open and shut down on a fly since they don't have any skin in the game other than a computer and a phone. Any broker with less than 2 years in operations is high risk.

- carriers: carriers can be broken down into three categories:

1. Small fleet: 1-5 trucks. These guys burn a truck, file a claim with their insurance carrier and close the company and then run and get a new DOT number under a new entity just as fast as changing an underwear.

2. Medium fleet: 5-20 this is where the money is as it's harder for a company to change the entire fleet to another company.

3. Large fleet 20-up: these are home runs, if you fund them, but these are typically ABL prospects.

- the last one are carriers who operate as brokers: they use other people's trucks, however, the trucks run under the carrier's authority.

Happy to share some qualifying questions I use to help you guys determine which companies are good to pursue. Just let me know.

Hope this helps.

VFG - Thanks for your thoughtful answer. I have a couple trucking companies right now that claim to have 20-50 trucks each. I tend to see a combination of carriers and brokers, probably leaning toward carriers since they can grow quickly without major capital infusion. These two companies claim to own some trucks and also work with independent contractors (guys who own their own trucks, and haul for them). These companies get their loads from brokers and either haul themselves or sub it out to the independent contractors (as stated above, often a combination of both)

Interestingly, the trucking companies I look at claim to have very impressive net margins (20% - 40%) and are growing quickly. While that is enticing...I am cautiously suspicious. Robust growth is good, but quite often frantic growth can lead to some serious problems.

From your post, I take it that you are wary (and even flat out avoid) the carriers? If so, what if someone has a combination of both?

This is an interesting vertical, since so many avoid it. Conventional wisdom would suggest to avoid it also, but the little contrarian bird keeps tweeting to at least take a look at it.

Still very interested in everyone's feedback.