Less Than Lucrative: LTL recovery most challenging

TORONTO — During the legwork for the 2009 U.S. Mastio & Co. LTL shipper survey author Kevin Huntsman was talking shop with a medium-sized U.S. carrier who shared a pricing tale that involved losing four accounts to a much larger, national carrier whose recent struggles have been well chronicled.

"The customers," relays Huntsman, "told the carrier that ‘the price is so low that we don’t think we’ll ever see pricing like this again, and we have to take it.’"

And if, as it’s been speculated, the carrier goes under with the freight left on the shipping dock?

"We’ll deal with it when it happens," the customers told him. "The price right now is just too cheap to say no to."

You hear stories like that all the time in the LTL sphere, which has arguably rivaled flatbed as the trucking sector that has taken it the hardest on the chin during this freight downturn.

"We’ve all been Walmartized," says Huntsman. "Once you give someone those discounts it’s awfully tough to take them back. To change their mindset that they’re not going to get them anymore is going to take time."

(Click here for our write-up on the second-even LTL Shipper satisfaction Survey).

 

And time for LTL fleets seems to pace slower than in most other freight modes, which for the most part touched bottom last fall and, at least in terms of volumes, have incrementally shown some improvement ever since.

"It seems that the [general] freight economy could be at the bottom from an activities perspective — tonnage — but for LTL I’m not sure we’re even at the bottom yet," Rick Gaetz, CEO of Vitran Corp. told us recently. "Although it feels that we may be approaching it."

First, though, the sector — perhaps more than others — has to self-adjust a gross capacity imbalance that’s overfilled by as much as 30 percent. Subterranean consumer confidence, the degrading USD and other weak economic conditions only underline a much bigger pricing problem in cross-border LTL which, carriers alone can correct, says Mike McCarron of Bolton, Ont.-based MSM Transportation.

"The deal doesn’t start when the freight is quoted. The true cost is when you start working with customers at a much deeper level, which is not pricing," he says. "But, as truckers, we are selling on price and price alone.

"We control the equipment. We control the market. But we have dropped our pants because some people that have not properly managed their business are allowed to give it away because the banks and lenders won’t pull the plug."

There are many who think the unprecedented scale of the recession will have profound shape-shifting effects on LTL. Larger, national-scale carriers, which exist mainly in the U.S., have struggled to maintain route density and, in the face of shrinking marketshare, have been under immense pressure to fill those linehaul and P&D trailers with revenue-solid shipments. Plus, with so many fixed costs imbedded in a vast cross-dock and breakbulk infrastructure, it remains much more difficult for LTL carriers to downscale in proportion to earnings.

As supply chains shrink and suppliers-distributors move closer to retailers and end users, Claude Robert thinks that the new normal for LTL carriers in both Canada and the U.S. is to hunker down and regionalize if they’re going to maximize efficiencies throughout their network.

"The cost of infrastructure today and the price they’re getting on freight, they just can’t keep up," says the Robert Transport owner. "People today are forced to ration. You cut the number of trucks, naturally. But where the guy on a P&D schedule was able to do 60 miles in the day, he now has to do 125 miles — and it’s half loaded. That’s not [sustainable]."

In the U.S., anything within a 500-mile radius is considered regional because of multiple pockets of high density. Here, though, the emergence of a compassed hub-and-spoke distribution system might start to make sense if "hubs" outside of southern Ontario like Atlantica and Centreport prove successful; and the long-haul spokes across this vast land are propped up with an improved rail system.

But for many Canadian LTL carriers, to be able to market rounder, cross-border regional service packages while keeping a lid on both fixed and variable costs outside of their footprint, interlining and brokering alliances with other carriers will continue to be a growth trend.

At the same time, LTL’ers — those with decent balance sheets that survive the expected capacity purge, anyway — will need to reassess regional lanes in isolation from the whole network.

Avoiding circumference-based routes in certain core P&D runs and adding more short linehaul runs to cut down on redundancy and backtracking; putting to work more straight trucks on lower tonnage routes; and accepting more non-traditional LTL freight like expedited are just a few ways LTL carriers are adapting to new market conditions.

To diversify their portfolios further, other medium-sized LTL’ers are trying to mimic fleets like FedEx, UPS and Con-Way by offering expanded supply chain visibility and inventory solutions to customers who might be lured by 3PLs as the primary source of transport services.

As this market has shown, though, being overexposed in unfamiliar territory with more responsibility than you can handle, can be perilous when things do head south.

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