LTLs serve up new service options

In the competitive less-than-truckload market, just how far will regional LTLs go to meet shipper demands?

By Etta Walsh, Senior News Editor -- Logistics Management, 2/1/2001

Back in the chaotic days when interstate trucking was first deregulated, a successful less-than-truckload (LTL) operation was judged by how much area it could cover. Later, regional LTLs upped the ante a bit by promising to deliver goods within 700 miles from their point of origin overnight, eating into the market share of national motor carriers and air carriers.

But something was happening to the marketplace that no one expected. Shippers, who once only cared about getting cargo shipped faster and cheaper, began asking for more - they wanted faster deliveries, better customer service, wider coverage, and an easy working relationship with carriers. At the same time, manufacturers began to embrace the concept of integrating transportation companies into their supply chains. They didn't just want carriers anymore. They wanted supply chain partners.

Pressed by demands from their own customers, shippers decided they also wanted their transportation providers to offer information management technology that made the entire movement cycle visible, from loading dock to loading dock. "We are aware that shippers are getting smarter and have more information at their fingertips than ever before," says Glenn Cort, executive vice president of Plymouth Rock Transportation Corp. of Stoneham, Mass. "They will expect more from their carriers and suppliers simply because their customers are expecting more from them."

This revolution has profoundly changed the playing field for regional LTLs in ways no one expected 10 years ago. Now these carriers are offering time-definite services, expedited services, inside deliveries, Web-based shipment tracking, and warehousing.

Shippers' demands are shaping the marketplace in other ways as well. In order to expand outside the three traditional LTL regions - the South and Southwestern states, the Northeastern and Central states, and the Western states - carriers have been forming service networks through alliances with independent carriers or by outright purchases of carriers in other regions. The consolidation strategy has worked, broadening the territories they can serve effectively well beyond their original borders. It has also raised shippers' expectations to new levels.

All Things to All Shippers?

In response to these intensifying shipper demands, LTL carriers are hurriedly expanding their service menus, making them look more and more like third-party logistics providers (3PLs). Some LTLs are now offering shipments of differing configurations, such as palletized shipments, says Tom Garrison, CEO of American Freightways of Harrison, Ark. (which is being acquired by FedEx Corp.). He thinks the LTL service menu will keep expanding as regional carriers continue to fight for market share. That doesn't mean regional LTLs want to become 3PLs, he notes; motor carriers are simply responding to customers' demands.

Averitt Express's Phil Pierce, executive vice president of sales, tells a similar tale. He says the business strategy of the Cookeville, Tenn., LTL carrier is to be a full-service logistics provider that can manage the entire distribution process for customers - from raw material to finished product. The company offers direct time-definite, expedited, dedicated, truckload, and international service in the southern United States, Canada, Mexico, and the Caribbean and international services to 100 countries.

Shippers who formerly looked to 3PLs to manage their freight needs are now looking for asset-based providers in order to have more control over the quality of the service, Pierce says. Shippers want to be closer to the transportation process because they now see it as part of their own customer-satisfaction cycle, he adds.

Another carrier that has taken the service expansion tack is Pitt Ohio of Pittsburgh. Geoffrey Muessig, Pitt Ohio's vice president of sales, says the LTL carrier now has a warehouse division, Keystone Dedicated Logistics (KDL), which offers cross docking and distribution, pick-pack, labeling, and bar-coding services to Pitt Ohio's clients. KDL has two facilities in Pittsburgh with more than 200,000 square feet of warehouse space. The company has also expanded its delivery territory to include Virginia, with two new terminals in Roanoke and in Richmond, and has added new terminals in East Windsor and Cherry Hill, N.J.

Pitt Ohio has also launched several new services this year: PreDawn Express, which delivers to a destination before the sun comes up; Fast Track, a next-morning guaranteed service; and Pool Distribution, under which Pitt Ohio manages the entire transportation process, from origin to final destination. Pitt Ohio will even arrange for a different carrier to handle a shipment if that meets the customer's need.

Other carriers are banking on upgraded information-technology capabilities in their bid to meet customers' demands. Southwestern carrier Viking Freight of San Jose, Calif., has equipped its truck drivers with wireless handheld devices in order to provide customers with up-to-date information about their shipments on Viking's Web site, reports Doug Duncan, who was Viking's CEO prior to his promotion to CEO of FedEx Corp.'s LTL group. Although the movement of freight is Viking's top priority, Duncan says, the delivery of information is now a close second because of the significant productivity gains that can be achieved when information flows smoothly between shippers and carriers.

Finding a Niche

Despite all these initiatives, regional LTL carriers continue to face intense market pressure. The Colography Group, a research firm in Atlanta, reports that in 1999, no LTL carrier hauled more than 9.2 percent of the market's shipments or 8.3 percent of its tonnage - or earned more than 11.5 percent of its revenue. The top nine carriers - national and regional - carried only 51.7 percent of the industry's tonnage and generated 62.0 percent of the revenue.

"Today, all truckers face competition from airlines, freight forwarders, and non-traditional rivals like United Parcel Service and FedEx that are pursuing LTL traffic," says Ted Scherck, Colography Group's president. "But the most brutal battle is shaping up in the regional LTL segment. More LTL traffic moved regionally in 1999 than in 1998, but the fight for market share was more intense last year than ever before." The Colography Group estimates that LTL traffic will grow by 9.0 percent in 2001, a gain of 16.3 million shipments over 2000 totals.

As the competition heats up, the giants are beginning to lash out. FedEx's acquisition of American Freightways indicates that FedEx is aware of the competitive threat posed by regional LTLs, says Scott Riddle, director of marketing for Daylight Transport of Long Beach, Calif. LTLs today are competing for both expedited business as well as for next-day/second-day air service - and at lower cost, he explains. (Daylight, which offers expedited, warehousing, and distribution services, isn't shy about letting customers know it's competing head on with the air carriers: Its Web site opens with the slogan, "Everything says 'Air Freight' except the rates.")

In a way, it's not surprising that giants like FedEx are acquiring some of the regional LTLs that are nipping at the express carriers' heels. "The only way they can compete is to go out and buy a carrier like American Freightways," Riddle says. "FedEx will probably offer three-day service now to a larger customer base."

Finding a Niche

Although that may come as good news to FedEx's customers, it isn't welcome news for everyone. Steve Jacobus, CEO of Olson Co. of Waukesha, Wis., a Midwestern LTL carrier, says the acquisition of regional LTLs by large industry players like FedEx creates a competitive nightmare for independent companies. "These companies are reaching deeper and deeper into territories that are served by regional carriers," he says. "It's getting difficult to differentiate yourself on rate and service levels."

To stay competitive, Olson has diversified into warehousing, equipment delivery, and inbound international distribution services, among other offerings. More importantly, it is also concentrating on serving the steel industry and growth-oriented companies. "You spread yourself too thin if you try to be all things to all people," Jacobus observes. "Each business-to-business deal is unique. You need to study that company, then tailor a solution. There are no cookie-cutter solutions in the B-to-B world."

Plymouth Rock's Cort echoes Jacobus's words: "We cannot be all things to all people," he says. "We have managed to keep up with our mostly larger competitors in providing value-added services, such as online shipment tracing, online proof-of-delivery documents, customized month-end service reports, EDI, etc. But we must be honest with ourselves and not sell beyond what our capabilities are."

Cort thinks Plymouth Rock's decision to concentrate on serving mid-market manufacturers in the company's 11-state service area in the Northeast gives the company its competitive edge. "We work closely with our customers," he says. "We may provide them with advice on another carrier or another option if we don't feel we would do the best job, but this is where our 'logistics capabilities' end." Like Olson Co. in Wisconsin, Plymouth Rock owns an affiliated company, Pursuit Logistics in Woburn, Mass., that provides logistics services.

"We may be at a small disadvantage because we can't offer one-stop shopping as some of our largest competitors do," Cort continues. "But try calling them at 3 p.m. to make a late pickup in an emergency situation and requesting delivery 400 miles away, pre-noon, for no additional charge just a courteous, 'Thank you for your business.' I'd say this is the art of regional logistics."

The End of Competition?

What's ahead for the regional LTL market? Shipper Bill Huie, assistant vice president of corporate transportation for NCH Corp., an Irving, Texas-based manufacturer of industrial chemicals, plumbing supplies, and pet products, thinks the current rate of consolidation in the LTL industry will continue. The pending acquisition of American Freightways by FedEx is "a good move," Huie says, adding that he expects to see other large companies acquire large or medium-sized LTLs. "Once you've spread throughout the nation," he notes, "the only way to get bigger is to buy someone."

Shippers needn't worry that the continuing consolidation in the industry means the end of competition, adds Huie. "Consolidation is pretty neutral to shippers so far," he says.

Instead, current industry conditions are more worrisome to large carriers, such as Con-Way, Huie continues. Deals such as the American Freightways-FedEx merger may well prompt large carriers to make their own moves in the marketplace, he observes, adding, "It wouldn't surprise me to see that two good-sized regionals had some expansion plans."

But Edward Moritz, director of marketing for national LTL Con-Way Transportation Services of Ann Arbor, Mich., sees it differently. "[The FedEx deal] is no doubt going to change the landscape," he says, "but I don't believe it will change the way Con-Way does business."

Noting that Con-Way has complete coverage of the United States and the eight most populous provinces in Canada, Moritz says, "We're in place to compete. We don't have the need or desire to acquire any other entities." Con-Way, founded in 1983, has grown its union-free, coast-to-coast business from within - not by acquisitions, he adds. "We don't plan on any deviation from that model."