The length of haul on full truckload shipments within the United States has been shifting downwards for years. The trend became particularly clear to me during some freight bids with which I was involved last year. During the course of these bids, a number of the major US national truckload carriers outlined their companies’ regional truckload strategies and were very clear about their objective to build their regional businesses.
The move from national (e.g. greater than 500 miles) to regional truckload shipping (e.g. less than 500 miles) was precipitated by a number of factors. The freight recession that began in 2006 has resulted in fewer long haul truckload shipments. As fuel costs began to increase, it became very punishing financially to incur out of route miles to chase backhaul freight, particularly when these miles were not all producing revenue. In addition, the intermodal option became more attractive on longer distances, when you consider line haul and fuel costs. As fuel costs were escalating, supply chain managers sought to shorten their supply chain to reduce miles, inventory costs and freight costs.
In 2009, the sharp downturn in shipping volumes is giving this movement added momentum. The national truckload carriers are reshaping their business strategies to address the current market realities. These carriers are not abandoning the national markets but revising their long haul strategies. As an example, Werner, in its current earnings report, notes that it “is deemphasizing the low asset return, solo driver solution” while seeking “to grow several other customer focused solutions for this market, such as using team drivers, engineered networks of relay trucks, third-party brokerage carriers, power only with trucks provided by third-party carriers and intermodal.”
Schneider National has also been rolling out its regional truckload business plan. On the heels of what the company said was the successful launch of a regional service in the West last January, Schneider said it would offer regional service in the South-Central United States. Schneider first launched its regional service to western US customers in January, providing service to a seven-state area: Arizona, California, Colorado, Nevada, Oregon, Utah and Washington. The new South-Central regional service will add nine states to that list: Texas, Oklahoma, Kansas, Missouri, Arkansas, Louisiana, Tennessee, Mississippi and Alabama.
Regional terminals will be located in Dallas, Houston and Memphis and will serve as hubs for customer service representatives and drivers who are dedicated solely to this region of the country. Regional drivers develop regular driving routes, allowing them more time at home and consistent workloads. Heartland Express, another medium distance carrier opened its 10th regional operation in Dallas.
What can we expect in the future? More of the same. Keith McCoy, director of marketing for Prime Inc., a refrigerated truckload carrier, expects retailers to continue to shorten their supply chains by forcing manufacturers to move their distribution centres closer to reduce carrying costs. Higher interest rates and rising fuel costs will likely be major factors in the future. Prime has opened four “mini” centres to address these shifts and has plans to do more.
The shrinking length of haul is apparent from the trucking company results reported in the first quarter. Werner’s average length of haul dropped 13.5% to 469 miles while USA truck reported an 11.2% reduction to 651 miles.
In Canada, the market dynamics are somewhat different. Certain industry sectors (e.g. automotive, pulp and paper) are very challenged at this time, with a quick recovery not in sight. The severe downturn in the US economy has resulted in significant declines in cross-border truckload movements. As a result, Canadian carriers are seeking out Canadian markets that have growth and profit potential. As an example, XTL, a central Canada based carrier that historically derived over 50% of revenues from cross-border freight, outlined at a recent workshop that it is now expanding its truckload business west to Alberta and British Columbia.
Clearly carriers on both sides of the border are realigning their strategies to match their capacity to where they perceive the demand to be. As capacity continues to exit the market, it is critical for truckload carriers to apply these precious assets to the geographic areas and lengths of haul that represent the best opportunities for profits.