When carriers expand, shippers can win on pricing

By Ray Bohman -- Logistics Management, 11/1/2006

Many motor carriers today are developing new business opportunities in two ways: either by acquiring other carriers, or by expanding their territorial coverage or service offerings on their own.

Any carriers that are involved in merger and expansion activities are likely to be looking for more business. As a result, they may be willing to negotiate favorable concessions, such as deeper discounts and lower “freight, all kinds” (FAK) rates, to attract more volume for their new services. In particular, carriers that have entered new market segments may be receptive to rate reductions if you can offer them business in more than one service niche. For example, if your less-than-truckload (LTL) carriers have expanded into truckload, and you could swing a fair amount of that truckload business their way, they might be willing to give you better discounts based on the combined volume of both types of shipments.

You needn't look very far to find potential opportunities for this type of deal. Over the past year or so, we’ve seen a number of publicly traded and privately held LTL and truckload companies acquire other carriers. Almost every week, in fact, we seem to come across news of mergers, acquisitions, expansions, and alliances in the trucking industry.

Some recent LTL examples include Vitran’s purchase of Northeast LTL carrier PJAX Freight; UPS’s purchase of Overnite Corp.; and FedEx’s purchase of long-haul LTL carrier Watkins Motor Lines. We are seeing similar trends in the truckload sector; the latest example is Covenant Transport’s purchase of the assets of Star Transportation.

Other motor carriers are broadening their territorial coverage and are financing that expansion using their own funds. One example is New England Motor Freight (NEMF), a regional LTL carrier serving the Northeast, which recently extended its service area to Ohio, Illinois, Kentucky, and Virginia. Another is A. Duie Pyle, a Northeast regional LTL, which announced this summer that it would expand its truckload operation by investing in 50 new sleeper tractors and hiring more full-time truckload drivers by the end of the year.

These and other carriers that are expanding in similar fashion may be more agreeable to a program that will help you hold the line on your transportation costs—or even better, to reduce them.

This is not to imply that you should discontinue using the carriers that are now serving your company. For many reasons, you may want those relationships to continue. On the other hand, this might be an opportune time to sit down with representatives of carriers that have recently begun serving your territory for the first time to find out what they might be willing to offer in order to secure your business. This could also give you a better idea of where your present transportation costs may be out of line, particularly on key lanes to your major customers.

Just remember, though, that cost should not be your only consideration. Service quality is an extremely important factor, and your company may be unwilling to risk the kind of service failures that may occur when switching to a newcomer in the early stages of its expansion.