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Knight Transportation Case Solution

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Every day, businesses undergo the process of making micro, and macro-level decision and this decision making process are backed by strong data and analysis on the part of the organization. The area of business where the economic aspect is combined with the managerial decision making process is known as managerial economics. Managerial economics is a diverse field which covers everything from the prediction and forecasting of future firm performance to the making of small everyday decisions by the organization such as the allotment of assets, production levels, etc. This essay is based on covering the managerial economic indicators and web resources to provide a forecast for Knight Transportation. Knight Transportation is an American Truckload Shipping Carrier based in Phoenix Arizona, founded in 1990 by four co-founders. Since its inception, it has grown exponentially and now boasts a total of 4000 trucks and 8,700 trailers. Knight Transportation has been listed and publicly traded on the New York Stock Exchange since 1994. Like all other businesses, Knight Transportation also suffered in light of the economic depression in 2007. The management took several measures to ensure that the company stayed afloat and that none of the workforces had to be fired. But over time, the firm has been stretched to the maximum, and the adverse impact has been shown in the financial statements of the company (Ritcher, 2016).

Following questions are answered in this case study solution:

  1. Introduction

  2. Discussion

  3. Conclusion

Case Study Questions Answers

2. Discussion

The trucking industry is one of the major industries of the US as most of the major produced and end products are transported between several states. Multiple trucking operations are currently running within the US, and they operate on various models according to their business vision and mission. It is essential to understand that this kind of business is purely operational and largely dependent on the kind of fleet a company has and how satisfactorily they can cater to the customers’ needs. When Knight Transportation took a step into this market, the brothers and cousins who were the co-founders has already been working in the transportation industry for a couple of years, mainly for Swift, and were aware of all the major challenges and problems that the transporters faced (Knight Transportation, 2016). They were also aware of the tactics that were used industry-wide to increase the business and cater to the growing needs of the customers. It was for this reason that they focused on short routes right from the start and ensured that their service stations were present on those routes. They ensured the maintenance of the vehicles and provided service to well-known guaranteed clients from whom there’s no chance of default in payment. They also only catered to the shorter routes so that they could ensure that the drivers were not away too long from their homes and thus managed to attract a good workforce. This allowed Knight Transportation to come up within the sector at a very fast pace. The year 2006 proved to a be a challenging year for most of the businesses as the signs for the economic meltdown of 2007 started materializing. The economy took a nosedive, and the businesses started pulling back and making more conservative choices (HJournal of Commerce, 2016). Since Knight. Transportation was still one of the small businesses, several well-thought out measures were needed to be taken to ride out the recession successfully. As Kevin Knight pointed put in an interview, some of the measures that they took included not selling off their old vehicles as they were unable to get a fair price in a declining market so they extended the life of their fleet. Cash flow started slowing down, and the team needed to cut costs. Instead of laying off people, they took a different step. They cut down their own salaries and then asked their employees to do the same so that with overall savings, they would not have to do any layoffs. Everybody agreed and this model worked for a while, and ensured that the reputation of the business was not ruined as other businesses conducted massive layoffs left and right (Cunningham, 2014).

Now moving on into 2016, the economy has been on the rise again for three to four years now, depending on the specific area of business of any organization. In the case of Knight Transportation, however, the overview is not so encouraging. The table below compares the consolidated three months’ results till March 31, 2015, and March 31, 2016.


Three months till March 31, 2015

Three months till March 31, 2016

Overall change

Total Revenue

$290.3 million

$272.1 million

Decrease by 6.3%

Net Income (Knight)

$29.6 million

$22.6 million

Decrease by 23.7%

Net Income per diluted share




Source: Yahoo Finance (2016)

The data shows that Knight Transportation is not in good shape. The overall trucking industry is facing the problem that is faced by Knight Transportation, which is the shortage of qualified drivers. Official figures from American Trucking Association show that in 2012 alone the industry faced a shortage of 38,000 and then it is also predicted that if the same trend continues, the figure is expected to reach 175,000 by 2024. The problem is much worse for the carriers such as Knight, as they need qualified drivers, who fulfil certain criteria about prior records, experience, etc. Not just any driver can be hired in this industry as. Otherwise, the cost of hiring would increase significantly especially regarding insurance premiums. The turnover rate for the drivers in the industry is also very high at the moment showing that there is indeed an increased demand for good drivers. The graph below shows the number of drivers available in total vs. tractor/trailer drivers (Market Watch, 2016).

Source: Costello & Suarez (2015)

There are several factors impacting this truck driver shortage and the increased overall costs of recruiting new drivers. First and foremost are the government regulations as they have a major impact on the productivity of the industry and also on the overall recruiting cost of the drivers. The productivity is impacted because if the government regulations become too stringent, then the productivity declines and the trucking industry needs additional trucks and drivers to transport the same number of products or goods. As government regulations specify the level of qualifications that the drivers should have and also which tools need to be implemented within the industry (Journal of Commerce, 2016). For example, most of Knights’ customers are adopting computerized processes and these processes have to be integrated at the Knight Industries as well. Once done, the organization needs to provide its drivers with the proper tools and equipment such as tablets and then provide them formal training on how to use the new system as well as the new programs and software's implemented simultaneously with the system. Anthe major case for the shortage is the demographics of the truck drivers. The median age for the truck drivers currently is 49 years which is high compared to the average US working age which is 42 years. The age required in this industry should be roughly 21 years. This proves that currently; the trucking industry is missing out on a large chunk of potential employee market of age range 18-21 years. The younger generation prefers to join other industries where they can start at a younger age without much experience. So this is one area where Knight Industries can tap into (Costello & Suarez, 2015).

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