I started my career in the transportation industry over 25 years ago with TNT Overland Express (now TST Overland Express, a division of Transforce), a company that has continued to be leading regional LTL service provider. The evolution of the LTL segment of the industry has always been of considerable interest to me. It has been quite fascinating to watch how this segment of the industry is being transformed.
LTL service continues to be an important component of the supply chain of many manufacturers and distributors. Unlike truckload shipping, where loads frequently originate at a single location and are carried to a single destination, LTL carriers collect freight from multiple shippers and consolidate that freight for a line haul move to a terminal or hub where the freight can be further sorted and consolidated for additional line hauls or deconsolidated for delivery to multiple consignees. For companies requiring shipments of between 100 and 15,000 pounds, LTL shipping meets a vital need. In this blog I will examine some of the drivers for change and then look at how the carriers are responding.
• Speed to Market
Shippers are looking for service consistency, shorter transit times and error free deliveries within tight time windows, all at a competitive price. For many markets, second day, next day and even same day service are becoming the norm. Carriers have been retooling their networks to improve throughput, increasing their direct to destination loads with fewer “touch” points. The national LTL carriers are playing “catch up” with some of the regional LTL carriers in the shorter haul markets.
• Rise in the Cost of Diesel Fuel
The dramatic increase in the cost of diesel fuel has had an impact on all facets of the transportation industry including LTL shipping. Fuel surcharges continue to escalate in line with the rising cost of fuel. Most carriers stated in their most recent earnings reports that despite higher revenue due to fuel surcharges, the added inflow failed to keep up with rapidly rising diesel fuel and other costs. While most shippers are understanding of the need for fuel surcharges, many are “pushing back” on the level of fuel surcharges being charged.
• Economic Downturn in the United States
The decline in the U.S. economy (coupled with the rising cost of fuel) has been particularly painful to carriers that have focused on certain segments of the industry (e.g. automotive – closure of Alvan and Al’s Cartage) or employed certain business models (e.g. irregular route LTL service – closure of Jevic). While many carriers are holding on, their earnings reports reflect the difficult times being experienced in this industry. One positive development appears to be the focus on improving LTL carrier costing models. Better costing coupled with pricing discipline will likely help some carriers “ride out the storm.”
For some shippers the downturn has resulted in increased LTL traffic since it takes too long to build a full load for certain clients. In other situations, shippers hold their freight to build full truckloads or large partial truckload shipments to take advantage of the economies of shipping these sizes of shipments.
• Leaner inventories
Current trends in supply chain management require carriers to focus more on short haul markets. According to The Council of Supply Chain Management Professionals latest “State of Logistics Report,” wholesale inventory volume surpassed retail inventories for the first time in December 2007 and continued in 2008. If this trend continues, it could lead to greater demand for regional LTL service.
• Growth in the Shipping of General Commodities
According to the American Trucking Association, general commodities, most of which are finished goods delivered over the last mile in the supply chain to destination by LTLs, have grown faster than bulk commodities over the past 20 years.
• Shipper Demands for Broader Geographic Coverage
The regional LTL carriers have been working for years on expanding their geographic footprints. Some Superregionals have for the most part reached national carrier status. Certain regional carriers have pursued other options such as partnering with regional carriers in other geographic areas and forming strategic alliances (e.g. Reliant Network).
• The entry of UPS and Fedex into the LTL Shipping Arena
The entry of UPS and Fedex into the LTL arena has brought several changes. These companies have strong technology which they developed for their small package operations. They also bring a global perspective and reach to an industry that was very American or North American focused. In addition, they bring their strong brand identities. The entry of these financially strong, sophisticated companies into the LTL sector has rasied the competitive bar in their areas of expertise.
• Increased utilization of Transportation Intermediaries
Historically LTL service was provided by scheduled LTL carriers and partial truckload carriers. More recently, many shippers have been procuring LTL services from freight management companies and third party logistics companies. These companies are able to conduct RFPs on behalf of their clients, mix and match LTL carriers to meet their precise shipping requirements and then apply their strong freight management tools.
While each of these developments is significant, taken as a whole they are changing the face of LTL shipping in North America.
Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to transportation and logistics organizations to help them improve their profitability. All posts by Dan Goodwill