Split decisions
After years of focusing on national longhaul service, the Big Four LTL carriers are taking divergent approaches to their business. Where are they headed and why?
By Peter Bradley Editor in Chief -- Logistics Management, 5/1/2002
At their core, the national less-than-truckload (LTL) motor carriers continue to be what they have always been—providers of longhaul service for shipments weighing 10,000 pounds or less.
Yet at the same time, those carriers have been broadening their horizons by expanding into new business lines, fine-tuning their networks, and increasing the variety of services they offer—in short, building businesses that will thrive in an environment that demands speed, precision and efficiency.
As a result, the Big Four unionized carriers—ABF Freight System, Consolidated Freightways, Roadway Express and Yellow Transportation, along with their corporate parents—still compete fiercely with one another for customers that want basic less-than-truckload service, but the differences between them are widening.
These differences stem from the carriers' varying business strategies. For example, Yellow Transportation's parent company, Yellow Corp., plans to divest its small stable of regional carriers. But Roadway Corp., the holding company for Roadway Express, entered that business just last year through an acquisition and is looking for other regionals to buy. ABF and CF have both entered the household-goods arena, an area the other two haven't touched. Both Roadway and CF, meanwhile, have jumped into the airfreight forwarding business, and Roadway has placed renewed emphasis on its reverse-logistics division, Roadway Reverse Logistics Inc.
In some areas, though, the carriers still compete head to head. All four have invested heavily in technology and offer sophisticated Internet-based tools for booking, tracking and tracing, documentation and other customer services. They all have extended their brands throughout North America and offer international services as well, although some place more emphasis on those developments than others.
Most notable, perhaps, is their increasing reliance on two- and three-day service. All four are banking on the booming regional segment to provide significant growth opportunities. More than 40 percent of CF's tonnage, for example, moves 1,000 miles or less. Yellow Transportation's two- and three-day Regional Advantage service now accounts for 35 percent of its business, while about 15 percent of Roadway's business and 33 percent of ABF's falls into this category.
For shippers, it all adds up to more options, improved service levels, and—given the current overcapacity in the LTL market—nearly flat rates. Here's a brief overview of where each of the Big Four LTL carriers is heading these days and why.
ABF Freight System
From a financial standpoint, ABF Freight System has held the strongest hand among the Big Four recently. It reported an operating ratio (the ratio of operating costs to operating income) of 94.5 percent in the fourth quarter of last year. For the full year, its operating ratio was 93.8 percent, a good number at any time, let alone in the depths of an economic downturn.
At a transportation conference recently hosted by investment bank DB Alex. Brown, Robert A. Young III, president and chief executive of ABF's parent, Arkansas Best Corp., outlined services that ABF has introduced to maintain its competitive position. They include nationwide same-time delivery for products that have specific release dates, merge-in-transit services and reusable container management.
At the same time, Young questioned the effectiveness of his competitors' efforts to differentiate themselves. "I see the competition doing things I know won't work," he said. "They've been pushing sleeper teams to solve the transit-time problem. Every broke carrier we ever bought had sleeper teams. It's not a panacea."
Young expects much of his company's future growth to come from shorter-haul shipments, a segment that is growing faster than the longhaul business. Although the national carriers have conceded the next-day freight business to regional carriers whose networks are specifically designed for that type of service, they are competing hard for customers in two-day and three-day lanes. ABF's two-day service, available on 12,000 lanes, now accounts for about one-third of the carrier's tonnage, and that percentage may increase. Said Young: "There's plenty of room for growth [in the two-day business]."
Consolidated Freightways
Among the Big Four national LTL carriers, Consolidated Freightways has had the roughest ride in recent years. Last year, the company reported a net loss of $104.3 million on revenue of $2.2 billion.
Like its competitors, CF saw its tonnage drop sharply at the end of 2001—down 9.3 percent in the fourth quarter compared to 2000. For the year, tonnage was down by 3.6 percent. Yet the company remains confident that it will recover, a confidence buttressed by new financing and new contracts. In February, CF announced it had arranged for $45 million in new loans backed by real estate. The carrier also signed a multi-year, core-carrier contract to make overnight deliveries for Home Depot, which last year accounted for about $100 million in revenues for CF.
Crucial to CF's strategy for strengthening its position in the marketplace is an expansion beyond its traditional boundaries. Toward that end, it now offers expedited and other specialized services, such as inside delivery and setup. The corporation also operates a third-party logistics company, Redwood Systems, and an airfreight forwarding business, CF AirFreight.
CF has grown geographically, too, covering all of North America through a network that includes subsidiaries Canadian Freightways north of the border and Transportes CF Alfri-Loder in Mexico.
In order to return to profitability, CF must first regain the confidence of shippers. "I've found in almost every case that if they let me sit down and give them the facts, they recognize that [CF's long-term survival] is not an issue," says Marty Larson, senior vice president of sales and marketing. "I've found that customers recognize CF as a player and that they expect us to be here."
Roadway Express
Roadway Express and its parent company made substantial structural changes last year. In May, Roadway Corp. was formed as a holding company for Roadway Express and several other transportation units. For 2001, Roadway Corp. posted profits of $30.8 million, compared to $56.5 million for its predecessor corporation in 2000. Corporate revenues for the year fell by $247.9 million to $2.8 billion.
The new structure allows the company to move into non-traditional service areas more easily. Roadway Corp.'s first move was to join in the formation of airfreight service provider Integres, a partnership that also includes United Airlines, American Airlines, freight forwarder UTi Worldwide, and logistics technology providers Unisys and G-Log. Roadway Express also launched its own airfreight forwarding service called Roadway Air, in conjunction with Integres. Roadway will handle some of the ground transportation for that venture, but a network of drayage carriers will provide most of that coverage. Roadway Air will act primarily as a "virtual integrator," company officials say.
Roadway's growth plans center on time-definite and shorthaul services. Several years ago, it launched a variety of guaranteed services that it markets under the Time-Critical Services name. Last November, Roadway Corp. delved deeper into the shorthaul arena when it acquired Arnold Industries, parent of Northeast regional LTL carrier New Penn. "The rationale for the acquisition is that it enables Roadway Corp. to immediately enter the next-day market," Chairman and CEO Michael Wickham said at the DB Alex. Brown conference. "It is the fastest-growing segment of the transportation market with much higher yields than longhaul."
The acquisition also included Arnold Transportation Services, a Florida-based truckload carrier offering service in 37 states. By adding both truckload and next-day regional services, Roadway has reduced its exposure in the national LTL business, which had represented 64 percent of the corporation's business.
Finally, in direct contrast to the approach ABF has chosen, Roadway earlier this year added sleeper team lanes to its LTL operation in order to cut transit times by a day on 20,000 routes in the United States and Canada.
Yellow Transportation
Yellow Corp. began the new year by changing the name of its national LTL subsidiary Yellow Freight System to Yellow Transportation. The carrier suffered financially last year, as did most of its competitors. Yellow Corp. Chairman, CEO and President William Zollars told the DB Alex. Brown conference that 2000 was the best year in his company's 77-year history, but last year was a different story. Shipping volumes paralleled industrial production, which had begun "a sleigh ride to hell" in mid-2000, he said.
Nevertheless, Zollars told the conference, the carrier had solid profits in every quarter of 2001. In the fourth quarter, for example, Yellow Corp. reported net income of $4.4 million, a substantial figure although it represents a big drop from the $17.7 million recorded in the fourth quarter of 2000. For the year, Yellow Corp.'s revenues totaled $3.3 billion, an 8.7 percent drop from 2000 figures, while net income came to $22.7 million, a drop from the $61.8 million reached in 2000.
While Roadway Corp. is in the market for regional carriers, Yellow Corp. is looking to shed its regional carrier group. In March, the company announced that it would spin off SCS Transportation, the holding company for regional carriers Saia Motor Freight and Jevic Transportation. Zollars said the move would allow both Yellow Transportation and SCS to pursue independent growth strategies.
Through its Exact Express service, which grew by 6 percent last year, Yellow has reached out into the time-definite expedited transportation business. The carrier's international forwarding business, Yellow Global, grew by 23 percent in 2001.
Yellow Corp. continues its push into e-commerce with the launch of Meridian IQ, a non-asset–based company that provides a Web-based transportation management system and transportation management, brokerage and forwarding services for mid-sized businesses. Meridian IQ is a successor to Yellow Corp.'s Transportation.com, its first foray into the e-commerce arena.
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