Can Long-haul LTL Industry Survive?

In the 1980s and 1990s, they ruled the interstate highway system as they crisscrossed the country. You knew their names: Roadway Express, Consolidated Freightways and Yellow Freight. They were the big three of the transportation industry. Only YRC remains, the result of the 2003 merger between Roadway and Yellow and CF’s bankruptcy a year earlier.

The long-haul less-than-truckload industry has gone the way of vinyl records and film cameras. What led to the downfall of this once-mighty industry?

Long-haul LTL was based upon hauling freight more than 1,000 miles. All long-haul LTL carriers utilized a hub-and-spoke system much like the passenger airline industry. In the industry’s heyday, local drivers picked up freight and returned to their local terminal, from where the freight was routed to a consolidation center. When the freight arrived at the consolidation center, it was separated, built into loads and sent to other consolidation centers. From there, it moved pony express-style across the country.

When it reached the final consolidation center, the freight was unloaded and sent to the local terminal for delivery by drivers. Because much of the freight was heavy and bulky, it was labor intensive to load and unload, unlike the parcel industry with its high-speed automation and conveyor systems that reduce labor costs.

Like the airline hub-and-spoke model, the LTL long-haul network worked well when there was plenty of freight to fill the network and pricing was rational. When there wasn’t enough freight to fill the network, the high costs to operate the network facilities and unionized labor eroded profits and sent operating ratios soaring. Discounting rates to get freight only exacerbated the problem.

But why weren’t the long-haul LTL carriers able to keep the network full? There are several reasons the industry is on the verge of extinction.

As manufacturing moved offshore to Asia, goods were shipped in containers. Today, the containers arrive at the ports, from where they are shipped cross-country as a truckload move or by intermodal rail, the final leg handled by a drayage or local trucking company.

Another option is to have shipments labeled in Asia, shipped by container to the U.S., and delivered to a parcel company such as UPS or FedEx that moves the labeled shipments via their ground networks. Over time, parcel companies increased the weight restrictions for individual shipments to 150 pounds, and goods were no longer palletized.

Many companies have abandoned their mega-distribution center concept in favor of a regional distribution center model. Regional DCs provide product to their stores and customers by the next day. Regional and super-regional carriers quickly jumped in and filled this shipping opportunity, providing delivery in one to two days on routes less than 500 miles.

Regional LTLs rely on flexibility and the ability to turn freight quickly. Most regional LTL carriers are nonunion. Super-regional carriers filled the gap to deliver freight for the 500- to 1,000-mile shipments.

Rail intermodal shipments initially were primarily for long-haul movements with three- to four-day service. But railroads have made significant improvement in transit times, with regional shipments now being delivered in a day. Look for super-regional carriers to leverage the railroads to extend their footprint into the traditional long-haul area.

As companies outsourced their logistics and transportation, they relied on third-party logistics providers to manage their logistics and transportation programs. Many 3PLs are part of a parent transportation company that offers a full portfolio of services — parcel, air, LTL, truckload, brokerage and logistics.

The 3PLs’ goal is to protect and increase their parent companies’ revenue. The 3PL also brings value to customers by providing knowledge and insight on transportation and logistics, allowing many companies to outsource those processes and focus on their core business.

Many transportation companies now bundle their service offerings, providing a multitude of services across air, LTL, truckload, brokerage, intermodal, and distribution and fulfillment. The sales forces of the largest transportation companies have a full-service menu to offer bundled services. That’s a huge incentive for customers who like one-stop shopping and can enjoy the discounts provided by buying multiple products.

In the end, the inability to adapt to a changing business model and the inability to provide a wide swath of transportation and logistics services doomed the long-haul transportation carriers. The high costs to run and maintain a nationwide terminal network of local and regional consolidation centers along with a high cost structure and inflexible work rules contributed to the demise.

James Bisaha is the managing partner of Logistics and IT Consulting in Atlanta. Contact him at jtbisaha@gmail.com.
 

For the full story: Log In, Register for Free or Subscribe