July 26, 2005

CRST Has Faced Many Trials During Its 50-Year History

Jul. 24--CEDAR RAPIDS -- If there is one word that describes Herald Smith's approach to business over the years, it would be persistence.

Smith, founder of CRST International, overcame a number of potentially fatal obstacles as he grew the 50-year-old company to become the nation's 10th largest truckload carrier.

In 1955, Herald "Smitty" Smith was a regional manager for Western Transportation, a trucking firm that had employed his father, when a twist of fate changed his life.

"This general manager from their headquarters in Chicago -- he and I didn't get along too well," Smith said. "Here I am backed up with freight on the dock, not getting delivered, and customers want their freight delivered.

"He calls me and says, 'You are not to pay any more overtime.' I said, 'Well, I can't get this freight delivered without overtime.' He said, 'I don't care. You let it pile up. Don't deliver any.'

"Well, I didn't do it, and so I paid the overtime, and I got all that freight delivered. So the next day, they showed up and fired me."

With a $1,000 loan from his father and $250 in severance pay, Smith purchased Cedar Rapids Steel Transportation Co. Inc. on March 1, 1955, for $10,000, payable over a 10-year period. He persuaded his wife, Miriam, to hold off paying the household bills for three months to give him enough money to jump-start the fledgling company.

The purchase of Cedar Rapids Steel Transportation gave Smith the right to haul freight between Cedar Rapids and Chicago. The trucking industry was regulated in the 1950s, requiring a hauler to have a franchise granted by the Interstate Commerce Commission.

Smith saw trucks hauling livestock from Eastern Iowa to Chicago and returning empty. He figured that these "bull haulers" could haul steel from Chicago to customers in Cedar Rapids.

Smith's plan was to pay bull haulers 75 percent of what he made on a load of steel, and he would keep 25 percent. He contacted bull haulers in the Cedar Rapids area and convinced them they could make an easy $100 on their trip back from Chicago by hauling for him.

On Dec. 17, 1958, the company faced the first of many tests when one of its leased trucks hauling a load of corn hit a Chicago Great Western Railway Co. freight train. Four diesel engines and 23 cars of the 86-car train were derailed.

The cars carried sheep, many of which were shot due to their injuries.

The railroad filed a lawsuit in federal court requesting $286,130 in damages from CRST. Shortly after the suit was filed, CRST's insurer, Mid-Union Indemnity Co. of Elgin, Ill., filed for bankruptcy, leaving CRST without insurance coverage.

With a company net worth of less than $100,000, Smith was faced with the prospect of filing for bankruptcy. The next morning, Smith was in Des Moines with his profit and loss statements to prove that CRST had a net worth of less that $100,000.

The railroad agreed to settle for $100,000 with $10,000 due immediately, another $6,000 due by the end of the year, and $6,000 to be paid annually until the judgment was paid off.

Another critical juncture in the company's history occurred in August 1975 when Smith took on the Teamsters Union at Lee Bros., a trucking company in Chicago that CRST had acquired in 1971.

Before CRST's purchase of the company, Lee Bros. drivers would haul loads from Chicago to the company's Detroit terminal. A Lee Bros. city truck would be hooked up to the trailer so that it could deliver the freight to destinations around town.

Believing that was an inefficient way to operate, Smith changed the procedure so that the road driver would make deliveries direct to Detroit customers. The drivers walked out, leaving a dozen loads of undelivered freight, including three perishable loads.

Smith went to Chicago to move the freight. He fired up the "yard truck" and began jockeying the first load of meat, discovering that the only way out of a narrow path between the striking rigs was to back out.

To get each trailer turned around within the depot meant moving back-and-forth a foot or two at a time. He ended the day with a double hernia from cranking the wheel of the old jalopy.

The deregulation of the trucking industry under the Motor Carrier Act of 1980 was another major test for CRST.

Although it had spent $3.8 million acquiring companies with operating franchises, CRST embraced deregulation. It quickly established contacts with shippers around the country, reaching beyond its local operating area of states adjacent to Iowa.

Smith credits his son, John Smith, president and chief executive officer of CRST, for preparing CRST to thrive under deregulation.

"I ran the company when it was small, but my management style wouldn't work in a large company," he said. "John came in and pointed the company in a new direction. His management style allowed us to go from a small company to a large company."

In April 1986, CRST was threatened again when its insurer refused to renew the company's policy. With a fleet of 1,500 trucks and only five days left before the insurance coverage lapsed, John and Herald Smith flew to Birmingham, Ala., and then Atlanta, where they struck a deal with a major insurer.

"For $1.5 million, the insurance company agreed to file the paperwork required by law that said we were insured," John Smith said. "However, the agreement was that CRST would cover the losses in the event of a lawsuit.

"We were gambling that one of our trucks would not be involved in a serious collision." CRST has expanded to become an international truckload carrier, serving clients in the United States, Canada and Mexico. The company, with a work force of more than 5,000, is projecting annual revenues of $1 billion by 2010.

"Right now, I'm absolutely convinced that we're going to hit our target revenue and profits," he said. "I'm also sure that some things are going to happen in the next six months that we can't predict, and away we'll go."


--Company: CRST International, 3930 16th Ave. SW, Cedar Rapids

--Founded: March 1, 1955, by Herald "Smitty" Smith Jr.

--Annual Revenue: $620 million in 2004 ($700 million projected for 2005)

--Industry Position: 10th largest truckload carrier in the United States

--Territory: United States, Canada and Mexico

--Employment: 5,000-plus

--On the Net: www.crst.com


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