Less-than-truckload motor carriers that survived the recession are struggling with challenges, including modal shift and rising costs, that are transforming their industry, a quartet of trucking CEOs said Monday at the NASSTRAC 2012 Logistics Conference in Orlando, Fla.
“LTL is a strange animal,” said Rob Estes, president and CEO of Richmond, Va.-based Estes Express Lines, and many shippers would agree. LTL trucking has roots that go back to the 1920s, with unique operating networks and unique pricing structures.
The 2009 recession put those unique facets of LTL trucking under a microscope and under extreme pressure, Estes and the other CEOs told an audience of nearly 500 shippers, trucking freight brokers, truckers and technology suppliers at the conference.
“In the last couple of years we have had to look at ways to make our operation more efficient,” said Estes, whose LTL company, the largest privately owned LTL carrier, increased revenue 15.1 percent in 2011, according to SJ Consulting Group data.
“If we’re alive today, we're definitely stronger,” Estes said. “We’ve all had to adapt and really change. We’ve had to look at how we do business, find ways to improve costs. We’re competing with thoroughbreds now. The nags have gone by the wayside.”
That competition increasingly crosses modal lines, Estes and the other LTL executives said. "LTL is the meat in the middle of a hamburger bun. On the top is truckload, and when business is tight they come down into our shipments."
“Below” the LTL carriers are UPS and FedEx, parcel shipping giants with large LTL freight subsidiaries of their own that for decades have targeted smaller LTL shipments. “In the LTL space we are challenged because we’re right in the middle,” Estes said.
Jack Holmes, president of UPS Freight, confirmed that modal shift. “If you look at distribution models, certainly there's been a move toward consolidation, mode-shifting up from smaller shipments to larger shipments,” Holmes said.
That shift can occur in either direction, however. As truckload capacity tightens, LTL carriers gain opportunities to haul freight that once would have moved in a truckload.
Although the average LTL shipment is still under 500 pounds, LTL shipments weighing more than 10,000 pounds have grown almost 17 percent in the past couple of years, Holmes said. “There’s certainly a move toward consolidation wherever possible.”
Facilitating that consolidation and the accompanying modal shift are third-party logistics providers that play a much more important role in transportation than they did when Holmes joined Richmond-based UPS Freight, the former Overnite Transportation.
“Five years ago, our 3PL strategies were different,” Holmes said. “Trucking companies used them as an extension of their sales force, and they may have been reluctant partners. 3PLs were looking for price; carriers were looking for a revenue spigot.”
Today, “we all have strategies” that encourage closer relationships with 3PLs that help LTL carriers add value to their transportation services, while repudiating those rate resellers that “commoditize” LTL trucking companies, Holmes told the conference.
“We have fired 100 or so 3PLs in the last year because we saw them commoditize us,” Holmes said. “We took the UPS shield out of their portfolio.” In contrast, the LTL trucker has given other 3PLs access to technology and other tools to improve their business.
“If you’ve got a segment of the market that controls 20 to 25 percent of transportation spend, you have to have a strategy for dealing with that segment of the market,” Holmes said. “Those who make us stronger, we work to make them stronger.”