Non-Traditional Services Save the Day
Staid no longer, venerable LTL carriers are devising diversification strategies to meet shipper demands. In turn, regional carriers are forming alliances, launching new services, and leaping into action.
By John D. Schulz, Contributing Editor -- Logistics Management, 8/1/2008
The less-than-truckload (LTL) sector is the Rodney Dangerfield of trucking: Despite the fact that LTL carriers are absolutely essential to the nation’s supply chains, the sector just doesn’t get any respect.
Let’s look at its negatives: Long-haul LTL is considered a mature sector with flat revenue — around $33.6 billion for the last several years. Some of its largest players are unionized, which some shippers simply don’t like. And, like the truckload side of the business, profits have been scant the past couple of years since fuel and other costs have skyrocketed.
“Market conditions are as tough as they ever have been,” says Jim Fields, chief operating officer at Pitt Ohio Express, a top regional carrier. “We are fighting cost increase pressures from our suppliers on one side. From the other side we are being challenged for revenue and margins from our customers.”
Others carriers are quick to agree. “The escalation in fuel costs has been extraordinary,” says John Labrie, president of Con-way Freight. “It ends up being reflected in the cost of goods, while rising fuel cost works its way into the eventual cost of everything sold.”
Still, there a few positives among all the gloom. The major players have national terminal networks that few competitors can duplicate. Because of the high cost of replicating these 300-plus terminal networks, there have been few new entrants in the LTL market in the past 20 years. The Teamster work forces of the major LTL carriers are the most experienced workers with some of the lowest turnover rates in the industry. Last, but not least of the positives, these carriers offer some of the most innovative, responsive, and technologically sound services with ideas and operations that continually stay one step ahead of shipper wishes.
“After 80 years, we have a very loyal fan club,” says Mike Smid, president and CEO of North American Transportation for YRCW Corp.
What’s the root of that loyalty? Shippers and analysts say it all boils down to performance. “Mostly it’s their transit times,” says Satish Jindel, principal with SJ Consulting and a long-time LTL analyst. “If you don’t have them, whom do you use? The parcel guys? Not really. The LTL guys can cover 600 miles in one day, that’s twice the distance covered in a day than a parcel carrier.”
Even with these positive elements highlighted, market conditions in the LTL sector are challenging. That was evident in May when Jevic Transportation, a New Jersey-based hybrid carrier with a significant LTL footprint, suddenly ceased operations. Fuel and other sharply rising costs were cited in Jevic’s demise.
“The biggest challenge they face is having too much capacity,” Jindel says. “Some carriers also lack the understanding of changes in the market as well as their customers’ shipping profiles. They have maintained capacity they should have taken out. Look at what happened in the flatbed sector where some carriers reduced capacity because of the housing slump and now they’re able to charge higher rates for the remaining shippers.”
Jindel and others expect more LTL failures, although they likely will be among the smaller, less-capitalized carriers. “I don’t see a big one falling,” he says. “I hope YRC does something to take capacity out. They will avoid pricing pressure and provide for some stability in pricing not just for their company but everybody else in their space.”
When Jevic, which did $350 million in revenue last year, closed its doors this spring it marked the 20th LTL closure since 2002. The last mega-LTL carrier to close was Consolidated Freightways (CF)—with more than $3 billion in revenue—which closed on Labor Day 2002.
These closings, and the fact there has been no new significant capacity additions, has helped to keep LTL rates fairly stable. The removal of CF, which was considered the heaviest discounter in the field, has helped prop up rates, carriers and shippers say. But the sector is always very price sensitive, and competition is as fierce as ever, both side say.
“Consolidation, expansion, and speed have defined the industry for the past five years,” says Ira Rosenfeld, UPS Freight’s director of media relations. “There is no reason to think that will change.”
Staying Relevant
What is changing is the face of LTL. Just within the last five years, YRC Worldwide has realigned its regional group. There have been at least 14 major acquisitions, including UPS’ acquisition off Overnite and rebranding that long-haul unit as UPS Freight. FedEx bought Watkins and rebranded that into FedEx Freight National. Con-way bought truckload carrier CFI to give it an immediate $500 million presence in the truckload sector. And the Reliance Group was formed by Pitt Ohio Express and five partners to expand their footprint in long-haul LTL.
With the growth in one- and two-day lanes, carriers are positioning themselves for speed. UPS Freight, which reduced transit times on some 8,000 lanes in 2007, made another 1,000 more transit time reductions effective in June through the South and Southwest. There are more to come this year, Rosenfeld says.
Traditional long-hauler ABF continues to expand in the regional market with RPM, which is ABF’s name for its Regional Performance Model. This is ABF’s long-anticipated entrée into the regional LTL market where it hopes to compete with long-established non-union stars such as Con-way, Pitt Ohio, Estes Express and many others.
In fact, the current rate of revenue growth in regional lanes is substantially outpacing that of ABF’s traditional business, says Ray Slagle, ABF senior vice president of sales and marketing. “We’re encouraged by the success we are having, especially in our next-day markets,” Slagle says. “Our investment in the regional market is beginning to bear fruit.”
Slagle adds that in August, ABF expects to further enhance its regional offering by reducing its transit times on approximately 20,000 additional regional lanes. And by the end of the year, the carrier also expects to expand RPM throughout the western one-third of the United States.
Labrie of Con-way Freight, the third-largest LTL carrier with 9 percent market share, says it’s not just that customers are seeking new services, but they want continuous improvement in the core LTL services that carriers provide. “They want efficiency,” Labrie says. “They want fast, consistent performance against stringent transit times. They want prompt pickups. They want freight delivered damage free. They want accurate, timely information. And they want a carrier who is responsive and flexible.”
YRC’s Smid says that only 30 percent of the shipments handled at its Yellow and Roadway long-haul units is considered “traditional” LTL freight. “The majority of our shipments now have some sort of unique circumstances,” Smid says. “That could be early or late pickups, special billing, security concerns, consolidated loads or something else. There is myriad of things that make working with a supply chain more complicated but with much more opportunity.”
According to Smid, YRC has taken advantage of these opportunities by increasing its premium, time-based services. “The fastest part of our business is specialized situations,” he says, recalling one shipper that wanted 4,500 shipments picked up in a six-hour period that had to be delivered in 48-hour period around the country.
Because of requests like these, YRC is rolling out a new “Velocity” program over the course of this summer. It has caused YRC, and other carriers, to redesign the timing and efficiency of its entire network, both at its national and regional carriers. “That combination is a bright spot of our operations,” Smid says.
Maintaining Home Field Advantage
The entrée of huge players such as YRC, UPS, and FedEx into the shorter-haul lanes is not lost on top regional providers, who say they are determined to maintain their “home field advantage” in the next-day lanes.
Chuck Hammel, president of Pitt Ohio Express, a highly successful Northeast regional carrier, says some large carriers are heavily discounting services in regional lanes. He says customer service “can’t be painted with the same broad brush,” and adds that the new Reliance Network of six high-quality regional carriers offering seamless North American service is working well.
“This gives our customers one additional choice of carriers to service their needs,” Hammel says. “While it has only been launched for a few months, it is already far exceeding our expectations. We continue to grow this service each month and we are looking at this as one of our growth engines over the next few years.
Pitt Ohio recently devised a customer solutions group that works directly with customers to customize supply chain/transportation solutions. This group is able to look at the bigger picture from a supply chain standpoint and work at creating efficiencies through customized solutions that may or may not include LTL services.
“We do a Mexican consolidation for a Fortune 100 company where we pick up LTL shipments in our footprint and consolidate them into truckload shipments destined for Mexico,” Hammel says. “We have also provided for a customer a one-way dedicated move that saves our customer money and allows us to use the equipment at the end of the delivery run. A typical dedicated would have the customer pay for the truck both ways. This not only saves the customer money, it keeps us from running empty equipment which supports our environmental green strategy.”
Steve O’Kane, president of A. Duie Pyle, a major Northeastern regional carrier, says his company is looking beyond traditional LTL services to remain on top of the marketplace. Capitalizing on Jevic’s demise, Pyle is offering a winter freezing protection program for shippers of paint and other products. “We seem to be the major player in the Northeast without weekend shipping restrictions on freezable freight, and it’s positioning us for additional business in the coming months,” O’Kane says.
Another new business for Pyle is dedicated services. “We’re active in private fleet conversion, and seem to be gaining some traction,” O’Kane says. It’s blending resources of Pyle Transport, its truckload company, with A. Duie Pyle LTL, to create some cost effective and innovative solutions. “We can utilize some of our specialized equipment, flatbeds, curtain side trailers, straight trucks with lift gates, or whatever is needed, to provide solutions.”
Like the national carriers, O’Kane says demand for guaranteed services is increasing at the regional level. “Time-definite services seem to be gaining acceptance, perhaps as a result of inventory reduction,” he adds.
Future Concerns
To help cope with fuel costs, Pitt Ohio, Con-way, and others have cut fleet speed to 62 miles per gallon. Drivers are taught to minimize idling and to shift appropriately. Top carriers are also leveraging technology to reduce empty miles by tweaking their networks.
“We’re working two sides of the equation on fuel,” Pyle’s O’Kane says. “First, we are trying to buy on weakness in price. While the trend is consistently up, on days when the price softens, we load up. We will buy some contracts, but we will also take possession of fuel, as we have capacity to store over 500,000 gallons at any one time. Buying when there is the occasional price weakness saves us a few cents per gallon on average.”
A bigger gain, adds O’Kane, comes through conservation to optimize miles per gallon. “Much of Pyle’s fleet has self inflating tires so we are certain tire pressures are correct. In the equipment that’s not self inflating, pressures are checked daily,” O’Kane says.
Jindel says that he doesn’t expect LTL conditions to improve significantly until next year. “Capacity has to come out. They can’t count on demand bringing it back. It’s not just the economy. They need to realize that the customers are making changes in their supply chains.”
For example, Jindel says shipments are getting lighter. LTL carriers used to haul loads of Sony boomboxes that weighed five to 10 pounds and were 1,280 cubic inches. An IPod weighs 6.4 ounces and is 8 cubic inches. “LTL carriers have to realize that the products they’re shipping are changing,” Jindel says. “They can’t count on the same cube and weights. They have to change their business model relating to types of equipment and technology they use.”
What are some of the carrier’s predictions for the future? “The outlook for the next 6 to 18 months is competitive with tonnage volumes from flat to slightly up,” says Con-way’s Labrie. According to Pitt Ohio’s Hammel, “Costs will certainly rise for carriers and shippers in the next 6 months to 18 months. This is going to be a real challenge to keep transportation relatively affordable in the face of rising costs.”
Pyle’s O’Kane says he’s optimistic about the next 6 to 18 months. “During the last 12 to 18 months, in a period of softness, we have watched our daily pick-up count increase steadily. That translates to more customers.”
And, as always, LTL “blocking and tackling” usually wins the day. “If you’re going to be in business today, and hope to be in business tomorrow, you had best combine reliability, technology, and speed,” adds Ira Rosenfeld of UPS Freight. “The shipping public expects nothing less.”
| Carrier Name | Operating Ratio | Y-O-Y Change (in PP) | |
| 1Q ’07 | 1Q ’08 | ||
| Source: SJ Consulting Group, Inc. | |||
| ABF | 98.6% | 97.0% | -160 |
| FedEx Freight | 95.5% | 96.0% | 50 |
| ODFL | 92.2% | 94.3% | 210 |
| Saia | 97.0% | 99.2% | 220 |
| YRC Nationals | 97.94% | 100.5% | 256 |
| Con-way | 92.3% | 95.2% | 290 |
| Vitran | 95.4% | 98.6% | 320 |
| YRC Regionals | 100.9% | 108.0% | 710 |
YRC moving toward Roadway, Yellow integration
Since buying Roadway in 2003 for $1.1 billion, YRC Worldwide Inc. has moved slowly toward integrating Yellow and Roadway. But now, according to its top official, the pace toward a single long-haul brand has quickened.
“We have taken steps to optimize how we sell and approach the marketplace,” says Mike Smid, YRC president and CEO of North American transportation. “Even in our best days, we control about 30 percent of the LTL market (see chart on page 80A). “But in some areas, such as the regional market, we’re a much smaller percentage. Our Holland regional unit is 8-10 percent of that market. But by being able to provide a little different type of service, Holland is going to have the ability to manage its regional network and have a very solid transcontinental area as well.”
The company has seen regional transport grow in the mid-to-high single digit percentages the past 15 years while long-haul freight demand has remained static. What YRC is doing, says Smid, is devising a national footprint that covers both types of demand.
For sure, regional distribution for shippers has become a much bigger part of how they do business. “We’re getting more involved with different types of consolidations,” Smid says. “Shipments may move as containers into the country, and then move onto our trucks. We are redefining how we provide that service and how we look at relationships.”
And whether it is finally delivered on a Yellow or Roadway truck is becoming immaterial, Smid says. “The majority of equipment is interchangeable and at shared facilities, we have common management now,” Smid says. An example is its 500-door facility at Harrisburg, Pa., which is shared by Yellow and Roadway. There is more common technology between the two companies, he says.
“I’m an old Yellow guy but we have started moving people back and forth,” Smid says. “At the leadership level, their compensation depends on success across all the brands.”
— by John D. Schulz, Contributing Editor
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