Schneider National helped create the template for the long-haul truckload carrier in the decades after trucking deregulation in the 1980s. Now the $3.4 billion company is reinventing itself again in a post-recession trucking landscape.
Schneider is blazing a route many long-haul trucking companies are likely to follow, transforming itself into more of an intermodal, short-haul truckload carrier, while expanding its emphasis on specialized transportation and logistics.
As one of the largest U.S. truckload carriers, Schneider has the size and weight to pave the way. In 2010, only Swift Transportation commanded a larger share of the truckload freight market, according to SJ Consulting Group. Following Schneider were Werner Enterprises, U.S. Xpress Enterprises, J.B. Hunt Transport Services and Landstar System. Those companies are on the edge of a truckload transformation that will accelerate in 2012 as freight demand meets freight-hauling capacity restraints baked into transportation networks by the 2008-2009 recession.
Truckload carriers are diversifying and changing their business models as shippers revamp distribution, inventory management and transportation strategies. They’re both competing and collaborating with non-asset third-party logistics companies that increasingly act as pipelines to large volumes of capacity for shippers.
Schneider sees opportunity not just to increase revenue and profit by diversifying its service portfolio, but also the chance to embed itself deeper in customer supply chains, and the carrier is favoring shippers that will let it do that.
“There’s a bifurcation in the market, and there’s a continuing movement away from viewing transportation just as a commodity purchase,” said Christopher Lofgren, president and CEO of the Green Bay, Wis.-based company. “We’re putting less of our capacity into play in places where people view transportation as a commodity.”
The common wisdom among shippers has long been there would always be another carrier willing to haul a shipment for a few dollars less in the highly fragmented truckload freight market. Amid escalating operating costs and tight capacity, however, that may no longer be acceptable or wise.
Shippers are concerned about reliable access to capacity, Lofgren said. “We’re going back to the point where owning assets is an OK thing,” he said. “There was a time when owning assets was viewed as old-school.” That was before the rapid erosion of capacity during the recession. The tractor count at a select group of large truckload carriers monitored by The Journal of Commerce fell more than 15 percent from 2006 through 2011.
Today, Schneider, whose service portfolio is backed 9,773 tractors, 32,108 trailers and 12,600 domestic intermodal containers, isn’t just “cherry-picking” freight, accepting only the most profitable shipments; it’s cherry-picking customers. The plan is to use its logistics expertise to “create differentiation for our assets and get us coupled more tightly into our customers’ supply chains,” Lofgren said.
That means becoming more flexible about how the company handles a shipper’s business.
Putting more long-haul truck freight on intermodal rail and shortening truckload lanes to less than 500 miles are key elements of that strategy. Schneider last month renewed its multiyear intermodal contract with CSX Transportation. The trucker hopes to increase intermodal volume 10 percent in 2012 as the eastern railroad expands intermodal routes linking the Midwest with the Eastern Seaboard.
Schneider also is ahead of schedule on a long-term plan to regionalize its highway operations. When Schneider launched a western regional truckload service in 2008, less than 5 percent of its freight was in lanes of less than 500 miles. The strategic goal was to shift that number to 50 percent over several years as it expanded regional service across the continental U.S.
“Today, 60 percent of the loads we take in are regional, and not quite 50 percent of the miles driven,” Lofgren said. “That’s a faster shift than I anticipated.”
The shift tracks shipper distribution and inventory strategies. “Customers over the last decade have been putting facilities closer to their customers,” Lofgren said, shortening the average length of haul for Schneider drivers considerably.
The change also cuts to how shippers select modes and what they’re willing to ship in short-haul and longer-haul lanes.
“People are now willing to ship from a distribution center to a store or a customer via intermodal where in the past they were only using intermodal to ship from plant to plant,” said Steve Van Kirk, senior vice president of intermodal commercial management at Schneider. “We’ve seen that trend accelerate in recent years.”
That’s partly because of greater reliance by shippers on 3PLs, including Schneider Logistics, and partly because of improved intermodal service from the Class I railroads.
Lofgren doesn’t anticipate a freight shift at Schneider as radical as that seen at J.B. Hunt. Once a truckload operator much like Schneider or Swift, J.B. Hunt now gets 60 percent of its revenue from intermodal.
However, intermodal traffic now accounts for a third of Schneider’s revenue, and the company only jumped onto the rails in 2006. “The trucking part of our business is likely to always be the largest part,” Lofgren said. “But regional trucking will have higher growth rates than long-haul, and intermodal is going to grow.”
Shifting business from long-haul to intermodal and regional service also helps attract and keep truck drivers. “Part of our goal is to put drivers into configurations where they get home more frequently,” Lofgren said. The strategy also “gives us access to shippers that may be more regional in their orientation and customer base. So it’s good on all fronts for us.”
It comes down to putting capacity in the right place and in the right combinations to move freight. “We’re trying to put our capital and our drivers into places where there’s real value for our customers in their supply chain, and where we can grow with them,” Lofgren said.