Expedited trucking: Preemptive strike
Today, shippers are using expedited services for more than just emergency response. Here’s how some of the savviest are better utilizing these upscale, worry-free solutions to guarantee leaner supply chain operations.
By John D. Schulz, Contributing Editor -- Logistics Management, 11/1/2007
- Make It Quick
- Tumi’s New Bag
- Making It Routine
- Expanding Expedited
- Expedited service at an LTL-negotiated rate?
In the old days it was called the “oops” market. It thrived on those heartburn-inducing days when a mistake in the supply chain threatened to shut down an entire assembly line or lead to the loss of a valuable customer. Alarm bells would sound: Call an expedited carrier, get a truck, any truck, just get it there and we’ll worry about the bill later.
Today, due of the lack of standby inventory and the general nature of just-in-time delivery cycles, shippers are turning to expedited services for more than just emergency needs. Shippers are using expedited services to trim service times for time-sensitive materials. The additional transportation costs, some shippers say, are often more than offset by reduced production and personnel costs associated with their streamlined operations, especially in industries where mistakes just aren’t tolerated.
In short, expedited is not just for emergency shipments anymore. Pharmaceutical companies routinely use expedited for products that must remain at a certain temperatures. Retailers use it to assure adequate stocks of stylish merchandise. Time-sensitive industries, such as publishing, use it to assure that deadlines are always met.
Over the past few years, leading expedited carriers such as FedEx Custom Critical, Panther Expedited, Landstar Express America, and others have been able to market these upscale services not only as emergency game-savers, but as logical, timely solutions in a wide range of industries ranging from automotive to zoology. Here’s a look at what carriers are doing to fine-tune their services and how shippers are better integrating these upscale, worry-free solutions to create leaner supply chain operations.
Make It Quick
Although expedited freight expenditures are still less than 1 percent of the overall $34.7 billion LTL market, the market leaders say they’re doing quite well despite the downturn in the automotive sector, which is a large user of expedited services.
Satish Jindel, principal of transportation advisory firm SJ Consulting, says that FedEx Custom Critical is the largest and oldest provider in this niche as it was founded as Roberts Express in the 1970s and was a unit of Roadway Services Inc. Since then, others have copied that business model with great success.
During the freight boom from 2002 to 2006, revenue in the expedited market was growing in the 10 to 12 percent range, according to Jindel. That has lessened to about 2 to 3 percent growth this past year, as all carriers have suffered a slowdown in growth due to industry overcapacity.
Revenue of the largest expedited carriers is only about a tenth of what a large LTL carrier such as ABF or Roadway Express now put on the top line. According to Jindel, FedEx Custom Critical posted revenue of about $278 million last year (parent FedEx Corp. does not break out revenue for this unit). Jindel adds that privately held Panther Expedited Services, the second-largest player in this sector after its purchase of Con-way NOW in 2006, will post about $250 million revenue this year. And Landstar Express America will post about $200 million revenue, according to Jindel’s calculations. But because profit margins are much higher than a typical LTL operation, the top expedited carriers are all solidly profitable, according to Jindel and other industry executives.
“It’s no longer an ambulance and emergency services business,” says Andrew Clarke, president and CEO of Panther Expedited. “The premium logistics market is growing faster than the overall freight environment; and as companies have tightened their supply chains and are practicing lean logistics, it’s absolutely critical to have a partner that can assure deliveries are made on time all the time.”
Clarke adds that the market has evolved to match those needs, with many shippers now viewing expedited as the glue that holds their entire supply chains together. “We have a significant number of repeat customers…and we have become an integral part of their operations.”
The obvious advantages that expedited brings to lean shippers are worry-free, last-minute shipping, an ultra-level of reliability, and the assurance that a last-minute transportation glitch won’t wreck a company’s operations. The disadvantages, of course, are costs. Margins in the expedited market are the fattest in all of transportation, but shippers increasingly seem willing to pay those higher rates in hopes of offsetting higher production costs to assure timely operations.
Clearly, the expedited sector is evolving as supply chains become ever leaner. At first, the use of expedited was mainly for covering up for mistakes. But now, expedited carriers are offering more reasons for using their services. It is commonplace for shippers in pharmaceuticals, publishing, retail, automotive and other sectors to retain the services of at least one expedited carrier for use along with their regular LTL and TL providers. “The expedited services business is growing because we’re providing solutions and solving problems for customers,” says Clarke. “Customers are relying on us for more than trucks. We have to solve problems.”
And the growth in the niche is certainly evidence that shippers are finding innovative ways to incorporate expedited services into their everyday business plans. And according to Panther’s Clarke, savvy shippers are able to justify the cost. “They figure if they can save $10 million a year in running a lean supply chain, maybe spending $1.5 million a year on expedited transport is worth it,” says Clarke. “They feel they’re still better off.”
Tumi’s New Bag
Vidalia, Ga.-based Tumi Inc., a manufacturer and distributor of high-end quality luggage, recently expanded its luggage line and is now selling goods through its own stores in some of the toniest areas in the country—Madison Ave. in New York City, Palm Beach, Fla., Country Club Plaza in Kansas City, and high-end casinos in Las Vegas.
Tumi currently operates 65 stores that are typically located in malls where there’s limited square footage for display or stocking and present special delivery time requirements creating the need for targeted, weekly deliveries. According to Renee Edge, Tumi’s logistics coordinator, the luggage maker had been using UPS into the stores, but became dissatisfied with the “parcel style” of delivery—two pieces today, the rest tomorrow or the next day.
To meet these unique delivery requirements, Edge turned to ABF and both its new Turn-Key and TimeKeeper expedited services. TimeKeeper provides guaranteed expedited and/or time-definite solutions for anything from one-hour delivery windows to next-day transcontinental delivery, either air or ground. TurnKey provides customized delivery, assembly, and installation solutions. Deliveries can range from a simple inside delivery with dunnage removal to delivery, assembly, as well as installation. ABF also provides a combination of these two services—an expedited shipment as well as providing a TurnKey customized delivery.
Edge worked out a program where the LTL carrier picks up from Vidalia every Monday and delivers full orders to most stores by Thursday morning before the doors open for business. As part of the service, ABF drivers uncrate and unload, take away all excess freight, and even help set up displays for Tumi’s luggage.
“We can have everything delivered at one time at a centralized time, and we can have it done in the evening or before stores open,” adds Edge. “As we were getting more stores, we needed that type of service since it’s hard to find anybody to set up and crate things away. Plus, they’re guaranteeing delivery time also.”
Edge also worked with the carrier to develop the option to deliver between certain dates or during a specific time window. ABF also handles Tumi’s window display shipments as well as setup.
Although the price for expedited is higher than normal ground freight, Edge says that the additional services such as time-definite delivery and interior set up have resulted in improved operations overall at Tumi’s stores. The other benefit that makes the higher cost worthwhile, she says, is that shipments are delivered at one time rather than piecemeal, which had been the case with parcel.
Making It Routine
Because of the time sensitive nature of its printed inserts, small magazines, and catalogs, a late delivery by Steve Smith and his logistics team at Lancaster, Pa.-based Eagle Printing can render the entire job valueless.
To make sure that nothing that comes off his press looses value, Smith didn’t turn to a specialized expedited carrier but rather to an LTL with an expedited niche. Smith uses A. Duie Pyle’s PPS priority service as an inexpensive “insurance policy” to ensure Eagle’s products are delivered well within the time frame required. Compared to a typical air freight option, using Pyle’s PPS service has enabled Eagle to save as much as 70 percent in its expedited shipments.
“We get a fair amount of printed matter that is time sensitive like Steve’s,” says Steve O’Kane, president of A. Duie Pyle. The value of expedited in the printing industry is it often enables customers to get delivery of the printed materials by 10 a.m. so that same-day afternoon delivery is possible. According to O’Kane, Pyle guarantees the 10 a.m. delivery time so that all deadlines are met. Once again, the additional cost of expedited delivery is often offset by the value of same-day delivery as well as cost savings from not needing additional personnel on another day.
“The additional cost of our PPS priority service is a small fraction of even half an hour of additional production time from many of our customers’ operations,” O’Kane adds.
Pharmaceuticals are another rich market for expedited. Arthur Zheng, senior logistics manager for Medtronic, a leader in medical technology, handles transportation for the company’s spinal and biologics division. When Zheng ships product, he must have perfection, as doctors and patients are depending on delivery to complete critical procedures.
For example, a product called InFuse Bone Graft requires very specific handling procedures. The product is basically an artificial protein that stimulates regeneration of human bone and must be kept between 59 and 77 degrees Fahrenheit at all times. “The challenge is simply moving this product around,” says Zheng. To move large volumes or raw materials, Zheng has turned to FedEx Custom Critical and their Temp-Assure Validated service, which provides documented proof that product was within the temperature range throughout the trip.
For Zheng, the value goes beyond the temperature-controlled vehicle used for the service. “It offers peace of mind and a high comfort level,” says Zheng. “Security is also a major factor for me, and Custom Critical sends pictures of the drivers handling our shipments before they arrive.”
Expanding Expedited
Expansion beyond the typical expedited customer is high on the list of priorities for expedited service providers. The goal for the carriers is to ensure that shippers view the expedited market as more of an essential link in their supply chain, no matter what industry is involved.
“It’s interesting because you would think in a well-managed supply chain you would have zero expedited expenditures,” says David Ross, trucking analyst for Stifel Nicolaus. “It’s always been a mystery to us. But now expedited is factored in with the third-party logistics providers as part of the overall logistics strategy.”
More negotiated contracts, such as the ones Ryder System Inc. has in place, could be coming as well (see sidebar). But nearly everyone agrees, pressures on shippers to create lean supply chains will continue fueling growth in the high-end expedited market.
“You will never have perfect management, and there are always disruptions in the supply chain somewhere,” says Ross—meaning there will always be a need for an expedited market. However, Ross and others agree that the trick is for service provider executives to expand from their traditional automotive and manufacturing areas into new verticals. Industries such as life sciences, chemicals, utilities, government, military, and high-value goods are most certainly ripe for expanded services in this market.
“It’s like emergency rooms,” says Jindel. “No matter how much emphasis we put on health care and prevention, there will still be emergency rooms in hospitals. This is the same thing for transportation.”
Nearly everyone agrees that expedited service is top notch. Well, at the rates carriers charge, it better be. But what if shippers could have the performance of expedited service at a fully negotiated rate so that expenditures could be budgeted just like any other LTL move? Nelson Hagy, senior manager, LTL Procurement at Ryder System Inc., works in carrier management for more than 70 accounts. Nagy has used Panther Expedited for more than a decade and over that time he has learned how to have the best of both worlds—expedited trucking at a negotiated flat rate. Instead of merely paying spot market rates for expedited—the highest of all freight services. Hagy has negotiated “all carrier pricing” in general contracts with expedited carriers that is available to all Ryder clients. “That gives me a whole lot of flexibility,” says Hagy, “and it speaks to shippers’ desire to have speed to launch with pre-agreed-upon pricing and contracts. I don’t have to spend a lot of time with that carrier haggling over price.” Hagy adds that the agreement with Panther has evolved over time. “In the 3PL arena, it’s very important to have speed to launch for customers. It’s a good sell for us. I can create value for our customer this way and they get the great service of an expedited carrier.” —by John D. Schulz |
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