Pilot Freight Services tops $500 million in revenue for 2012

Full service 3PL and non asset-based 3PL services provider Pilot Freight announced today that in 2012 it eclipsed the $500 million revenue mark for the first time in its history at $500.6 million in revenue, adding that it shipped more than 640 million pounds in 2012, which was up 8 percent over 2011.

Logistics Management Group News Editor Jeff Berman spoke with Pilot CEO Richard Phillips about the company’s financial milestone and related industry topics. A transcript of the conversation is below.

Logistics Management (LM): The $500 million mark is significant. How did Pilot get there in 2012?
Richard Phillips: We knew it was going to be a challenge, but we were confident. The number, though, was not nearly as important to us as what we needed to do to get there. In January 2012, we walked away from our single largest piece of business and still managed to hit our goal number. We did it by focusing on expedited freight that really matters to our customers and giving them outstanding service. The way we expanded was not by handling less valuable freight but by finding new ways to offer that service to our customers. And we have expanded geographically in places like Amsterdam and Spain and are planning further expansion in Europe with logistics and warehousing divisions. This was not a 2012 thing; we started building towards this five years ago when we started putting the pieces in place.

LM: In walking away from a big piece of business, was there any type of contingency plan to offset lost revenue?
Phillips: We basically found that when a customer does not care as much about the service as we do the relationship is very hard to maintain, especially if you want the relationship to be a real partnership which we do. Freight is getting more commoditized every year. If a customer views the handling of freight as a commodity, that relationship does not usually work for us very long, because of our focus on service. When we care more than the customer, it can work some times but more often it does not, and that is where we found ourselves. We have walked away from our single largest customer four times and in each case we grew each year. It is always scary, and we never make that decision lightly. But it has always been the best decision in the end.

LM: Pilot’s home delivery unit was up 11 percent in 2012. What is that unit comprised of?
Phillips: It is basically a non-conveyable or non-parcel shipment. That is everything from a flat screen TV to a treadmill to a high-end bathtub. It is basically anything that won’t fit on a UPS or FedEx conveyor belt, because it is too big, too heavy, or too fragile.

LM: Is it fair to say there is more room for growth with that segment going forward if things like new housing starts, for example, continue to head in the right direction?
Phillips: I think so, assuming the housing market continues to bounce back. And as people buy more and more larger things online as opposed to touching and feeling them, that segment of online retailing will continue to grow. We are now seeing people buy things online they never would have considered a few years ago.

LM: When we talk about online shopping and e-commerce, what do you see as the subsequent aftereffects of it on supply chain operations for companies like Pilot Freight?
Phillips: I don’t think anybody has yet to figure out the winning model for it. What we are seeing with large online retailers is that the model is changing almost constantly and they are all trying figure out how to best do it to move product efficiently and grant customers access in a way that they can shop and experience product before they buy. It is incredibly fluid right now, and online retail is morphing on a monthly basis and that requires us to be flexible and nimble to ensure we can handle that. Nobody has one specific model at this point, so we are staying as flexible as possible so that whatever model a customer is trying is something we can serve.

LM: Let’s shift gears to fuel. Diesel prices have gone up significantly in recent weeks. How is that impacting carriers and shippers this time around?
Phillips: We are not seeing a big impact in terms of volume or velocity just yet, but we also know if prices stay at this level for very much longer it will start to impact volumes across the board.

LM: How do high fuel prices impact your relationships with customers?
Phillips: What we try to do is the same thing we do with any other tough situation and that is to help them plan and analyze the impact and in the end the best thing we can do is to effectively communicate with them. People are feeling it but at the same time we have yet to see it impact velocity. Customers have not delayed shipments due to higher fuel surcharges, nor have we seen a shifting down in modes. Doing that essentially changes the supply chain model for shippers. It is not something most shippers will do quickly. Prices would have to be sustained at a high level for that to happen.

LM: How do you view freight brokerage and forwarding as it relates to available capacity? Anecdotally there are reports that capacity is loosening up a bit. Is it harder or easier for shippers to secure capacity than it was, say, six-12 months ago?
Phillips: I have heard that things are loosening up compared to before but we have not seen a significant change yet. Things will certainly continue to come online as the economy continues to recover.

LM: What are some of the things you are seeing in the air cargo market?
Phillips: We have seen it recover since it was really down not too long ago, and shippers are starting to use it more and more. Part of that is for speed-to-market, which has value but also because they are seeing a significant difference in handling, too. It is not a huge part of our business but we are seeing it come back as the economy does the same.

LM: How about the ocean market? There still seems to be lots of extra capacity while rates are not sticking with consistency.
Phillips: Ocean for us has never been a large part of our mix but it is coming back. What we are seeing is that a lot of the business that used to be ocean has been near-shored. That is leading to increased traffic from Mexico for products that used to be made in China and that is hurting ocean numbers, too. Ocean is not greatly out of step with other modes but it may be slightly behind due to near-shoring.

LM: Where do you think things are in regards to the current state of the freight economy?
Phillips: I think there will continue to be growth. Looking at 2013, growth in the 5 percent range is within reason. It is not going to explode, nor will things stagnate either. I will say lessons from 2012 that we learned are that shippers and manufacturers are more in tune to what is going on in Washington and the economy than they ever have been. I think you will see relatively “clunky” growth. Using 2012 as an example, the worse months of the year were those pertaining to the debt crisis and the Fiscal Cliff, when there were many concerns and businesses and consumers started to pull back. As long as Congress does its job and provides some certainty, there will be growth but maybe not at the level people want to see or expect.