It’s been an eventful few years for truck-trailer manufacturer Wabash National, as it narrowed its portfolio; shed product lines including aircraft fueling equipment and healthcare containment systems; and streamlined from three sometimes-redundant divisions to one. The company, led by President and CEO Brent Yeagy since 2018, saw record earnings in 2022 under challenging transportation market conditions.
Recognizing that with the boom in on-demand e-commerce delivery, the truck market has become less cyclical, Wabash has also inked longer-term relationships with key suppliers (Hydro for aluminum and Ryerson for steel), customers (J.B. Hunt, for 15,000 trailers) and technology providers (Fernweh, for digital service and e-commerce).
Yeagy and Chief Strategy Officer Dustin Smith talk about the realignment, and how Wabash is preparing for the future.
Take me through the organizational changes you’ve made at Wabash.
Brent Yeagy: We ushered in a whole new C-suite of leaders who had been with the company for, on average, eight to 10 years. People who were close to me, people who had a common vision as to what Wabash should be doing. We deviated from the previous strategy, which was to become a diversified industrial manufacturer, to focus on transportation, logistics and distribution. Over time, we think that is a much larger set of markets that are going through a dynamic change both from a digitalization standpoint and then just secular forces that are moving through those markets today.
My team has been acutely aware of this as early as 2015. We felt that was the right pivot for the company to create shareholder value over the next decade.
We moved away from strategic business units and went to what we call a OneWabash approach—a hybrid centralization of activities. And then with that, we literally changed the roles of almost 40 people. Really, only myself was the only role that wasn't restructured.
Dustin Smith: Being a diversified industrial manufacturer had no boundaries at all, so it was hard to focus. We had three different business units trying to operate pretty much in an autonomous manner.
But our customers were trying to do business with all three. It’s hard to be customer-centric and customer-focused when you're going to those customers with three different faces.
BY: Another aspect of it at a high level was that when you think about trying to create that focus, but doing it with scale, you have to be able to reallocate resources quickly in an agile fashion and those resources have to be available. The previous organizational design was just rife with waste, in terms of duplicity. So we had dollars and people stacked up doing really non-value-added activity. By reorganizing, we freed up those resources that allowed us to redeploy them on the things that we thought would create much greater value over the next three to four years, which has proven to be the case.
One of the reasons we centralized was to pull everyone up away from the detail within the markets and began to look up and see what the broader opportunities were. It was a very purposeful change in and of itself to enable what would come next.
What’s an example of a leadership role that’s changed with One Wabash?
BY: Dustin is a great example. Dustin was a strategic business unit leader. He had a narrow market focus with dedicated resources that were cross-functional: finance, HR, manufacturing, business development and sales. Just that classic grouping, and we had that times three, so when we centralized everything, Dustin was freed up initially to aggregate all manufacturing. But ultimately, we determined that we even need to use his talents and capabilities and look further out. So we put him in a strategy role in order to focus the company, taking our best people and being able to lay out future strategic actions that would be more impactful in terms of creating innovation and value.
DS: We had pockets of the organization that were only working on a certain product area that they had expertise in, and so if you're in sales you're selling only one product to a customer. In this new world, that sales leader is selling our entire portfolio of products. Or an engineer that would only be engineering products for the flatbed segment is now engineering products for multiple segments. With this redeployment of resources and talent, you can put the best engineers where you need them in the moment versus having these trapped resources.
BY: To put that in perspective: it's 2020. Wabash had deployed over $700 million over the previous eight years to add tanks and truck bodies through acquisition. They had never organized those business units for the purpose of serving the customer.
[One Wabash] allowed us to have a new commercial strategy, which we call “first to final mile.” Meaning that when we go to our customers, we could show up selling everything that they needed. And we realized that we were the only OEM manufacturer who could show up with the product portfolio brands to claim that. That put us in a very unique position. We bundled product services, pricing and the overall value creation aspect of what we do, and we organized the company to do that with most efficiency going forward. So not only did we increase the ability of creating growth, but we also increased the ability of creating profitability simultaneously.
What about your supplier relationships? Are you streamlining those, too?
BY: By aggregating what we do and the way we do it, we are in the best position to talk to both suppliers and customers about where the world is going 5 to 10 years out. We are also partnering with our most impactful suppliers to provide a total enterprise supply chain that meets the needs of the future. So while we're creating five-year-plus agreements on the customer side, we're creating five- to 10-year agreements on the supplier side.
Historically within our industry, customers were typically on one-year agreements, and were spot orders, and suppliers were on one-year, maybe three-year, pricing agreements. These are holistic agreements that have everything from demand and capacity planning to aspects of advanced product development and engineering.
How are those longer contracts going over with your suppliers?
DS: When you expand that relationship to a very long period of time, all parties are willing to simply invest more time in the relationship. They're willing to put more on the R&D and innovation side because they know we're going to be in this relationship for quite some time. It's simply worth the investment.
We’re seeing right now about 18 to 20% of our annual [dry van trailer] revenue being allocated to long-term-agreement customers. For us, that's going to be somewhere between $500 and $600 million a year. We see that growing slightly, to maybe 30% of our total [dry van trailer] revenue.
Where are you focusing your product innovation?
DS: If I were to pick a bellwether area, it’s advanced material science. We're always looking for technology for lightweighting of products. We're always trying to find new technologies from a durability or an asset-life standpoint, and thermal efficiency in our full-chain products. Those are the verticals.
Something that cuts through everything that perhaps wasn't there 10 years ago, is clearly the focus on electrification and autonomy. How do we become an aid to the adoption of EV technology? And then how do we also become a leader aiding in the adoption of autonomous?
BY: When Wabash looks at the electrification of vehicles, there are a lot of players out there. There are almost too many players for the market. In the near-term, we are working through which providers our customers really need to do business with, and understanding those so that we can create the right relationships with EV providers--whether it be vocational vehicles, delivery vehicles.
The mid-term is understanding how do our truck bodies, trailers, tankers need to adapt for near-term regulatory and weight-related innovation—meaning that as near-term regulatory forces come into bear, create some adoption for electrified vehicles. There's typically an offset relative to the battery in terms of weight, so the revenue-carrying capacity can remain at least constant.
In the long-term, we're looking at things that are missing in the industry today—everything from solar technology to the ability to scavenge energy off just the movement of the vehicle. Additional types of technology that may create added advances in hybrid electric technology; things that will allow the overall scale of EV adoption to increase at a rapid rate to meet both social and regulatory milestones; and needs that are being expressed on the vehicle-owning entities that we work with.
What are your biggest supply chain challenges?
BY: Supply chain challenges remain. We’ve moved from large-scale disruption to a lack of resiliency throughout the supply chain. The challenges are extended across the overall supply chain, so not just tier one to OEM, but all the way through tier four. The whole pebble in the ocean. It creates large waves through that supply chain and they just have not recovered since the pandemic era.
The efficiency of the pre-pandemic supply chain has been broken. And your tier three fours and fives are in an economic disadvantage. In an inflationary environment, with uncertain economic considerations, it’s not a great place to be.
In 2024, it looks like demand might be down for your products. What’s your plan for the coming year?
BY: We're at the tail end of a freight recession that's been going on for about 18 to 20 months. That should conclude itself somewhere in the first half of 2024. It’s far from what I would call a negative market, but it is down year over year. We're in the best position we've ever been in from a balance-sheet perspective. We're coming on record profitability, record earnings per share. We are more than enabled to continue to invest in everything that we've got laid out with our strategic plan and the additive to that plan for ‘25 and ‘26.