Expedited Carriers Retool in Age of ‘Deferred Delivery’

Expedited Carriers Retool in Age of ‘Deferred Delivery’

FedEx Custom Critical loading operation

When shippers get their supply chains balanced just right, everything seems wrong to an expedited carrier. Right now, “supply lines appear to be in sync, GDP is growing, inventories are balanced nicely, auto production is steady and smooth,” said Lou Schneeberger, president and CEO of Panther Expedited Services.

“We hate that with a passion,” he said. “We love it when shippers get big spikes.”

Ah, for the early days of the recovery, when the quicker pace of GDP growth had many shippers scrambling to tighten supply chains that went slack during the recession. In 2010, the five largest U.S. expedited carriers increased their combined revenue 18.1 percent to $829 million, outpacing the rest of trucking handily.

After the initial frenetic rush to restock, business began to cool in 2011, and those five expedited operations — FedEx Custom Critical, Panther Expedited (now owned by Arkansas Best, parent of ABF Freight System), UPS Express Critical, Landstar Express America and Express-1 (now owned by XPO Logistics) — increased revenue 10 percent, and in 2012, when they increased combined sales only 5.1 percent, according to an analysis by S.J. Consulting Group.

Overall, demand for expedited service slowed to the point of stagnation last year, said Satish Jindel, president of the transportation consulting firm. He cited slow economic growth, the growing role of third-party logistics companies in transportation, the low cost of carrying inventory and, in general, improvements in supply chain management. “Expedited transportation is the equivalent of the emergency room in a hospital,” Jindel said. “If people start doing more preventive medicine and leading a healthier life, they make fewer visits to the hospital.”

“Expedited is used when things break or are out of balance,” Schneeberger said. “You pay the premium when things get messed up or you need quick deliveries.”

With slow growth and more emphasis on deferred deliveries — the shift of truckload freight to intermodal rail and international air cargo to container ships — expedited trucking is losing some revenue to general truckload operators. “Some shippers are basically buying down the price, going from an expedited move to a truckload move, and as a result they’re saving money per mile,” Schneeberger said.

Still, the top five expedited carriers have increased combined revenue from $702 million at the end of the recession to $957 million last year, a 36.3 percent increase over four years. Expedited or premium transportation is an expanding business for general freight carriers, as well. “It is our fastest-growing business at YRC Freight,” said Darren Hawkins, senior vice president of sales and marketing at the $3.2 million less-than-truckload carrier. That growth is being driven by not just a need for speed but for specialized transportation management. “We think expedited and custom solutions are becoming increasingly important in supply chains simply because companies are carrying such low levels of inventory,” Hawkins said. Unplanned events and unusual demands “make them vulnerable.”

By its nature, the expedited trucking business doesn’t stand still. “There’s change afoot in expedited, and it’s been building over several years,” said Virginia Albanese, president and CEO of FedEx Custom Critical.

As LTL and truckload carriers shorten transit times, the premium expedited carriers are getting more competition. “Everybody is retooling their networks, all the big carriers, to figure out how they can deliver faster, how they can get it there before the end of the day, before noon, before 10 in the morning,” Albanese said. “Every LTL and truckload carrier now has expedited or hotshot delivery. Obviously, if you’re just relying on speed as your selling point, lots of people are trying to move into that space.”

Since the recession, she said, “every carrier, no matter what mode they’re in, has seen the need to present more value to the customer. We need to make sure the customer understands the difference between a hotshot move with a truckload carrier and an exclusive-use truck or air move with an expedited carrier.”

Expedited trucking, today, “is about customized solutions for critical shipping needs,” Albanese said. “It’s evolved from being just a time-specific service. People come to us for so much more than that. And people want more. They’re more sophisticated about how they purchase transportation, and they’re shopping.”

One thing shippers want more of, she said, is security, both physical security and security in the sense of reassurance and peace of mind about critical goods.

Customers “want to know where that shipment is all the way along the road,” she said, especially pharmaceutical customers. “Folks in that industry are always looking for higher security,” partly to comply with more stringent regulations from the U.S. Food and Drug Administration. “Pharmaceutical shippers must prove to the FDA that from the origin of a drug until it reaches a store, they’ve had a cool chain process that keeps the product within a specified temperature range.”

In April, FedEx Custom Critical launched ShipmentWatch, a monitoring service that uses a SenseAware device to track specific shipments, container or pallets. The SenseAware device, which resembles the buzzers restaurants give to waiting guests to alert them when their table is ready, is sent to a customer before pickup and attached to the shipment. The device monitors location, temperature, light exposure, humidity and barometric pressure and feeds information back to FedEx Custom Critical’s 24-hour, 365-day-a-year hot desk in Memphis.

“We’re literally babysitting that shipment, pinging it every 15 minutes and ‘geofencing’ the truck to make sure it does not go off the route it’s supposed to be on,” Albanese said. SenseAware may be placed in an envelope and sent back to FedEx Custom Critical after delivery.

Schneeberger also sees greater growth in nontraditional industries, especially life sciences and pharmaceuticals, and in services that don’t necessarily put speed of delivery first. “A vast majority of our business does begin with the auto industry, which is where expedited began,” he said. “We’re in the heartland of automotive manufacturing here.” But life sciences has been fastest-growing market for Seville, Ohio-based Panther, Schneeberger said.

“It really ties into the fact that we’re all getting older and the need for medicine is continuing to grow,” he said. “Health care is a growing industry, and with increased regulation, you’re really monitoring that supply chain and those shipments.”

For YRC Freight, expedited or Time Critical service provides an avenue to obtain business the general freight company wouldn’t typically handle. Not only will YRC provide faster service than two- to three-day long-haul LTL using Time Critical, but it will provide service over the weekend, as well, Hawkins said. “You can ship on Friday and reach almost any point in the U.S. or Canada on Monday,” he said.

But like his larger expedited competitors, Hawkins has discovered the business is about more than speed. More often, customers are looking for solutions to complex shipping problems, the type they might otherwise take to a 3PL, such as a complicated retail product launch.

“We had a customer recently who had to have a certain palletized product delivered to 937 stores nationwide on May 7, that date exactly, not earlier or later,” Hawkins said. “This customer didn’t have the staff or resources to prepare an order that size, so he engaged our custom projects department,” which synchronized pickups and final delivery on the specified date.

That type of in-store delivery requirement, increasingly common throughout the retail world, “is creating a new niche for us,” Hawkins said. “We refer to it as ‘any need, any speed, guaranteed.’ We can get it there fast if you need that, but if it’s a certain day you’re looking at, and you have limited dock space, we can handle that.”

Another time, “We had a customer in Tennessee that is a regular LTL shipper but received an order that required 100 flatbed loads shipped to a specific destination,” he said. Using its specialized equipment division, external partners and “the buying power of YRC Freight,” the Overland Park, Kan.-based company helped the shipper win the bid and several hundred thousands of dollars in business, Hawkins said.

Retailers and their vendors are a rising source of revenue for expedited carriers. “The majority of retailers now have a must-arrive-by date that applies to direct store delivery,” Hawkins said, with specific time windows and painful penalties for vendors who don’t make them. “The retail industry is one of the main drivers of Time Critical because of the chargebacks they’ve put on their vendors.”

Panther has found growth with retailers, both with special projects and expedited delivery. When a new version of the Call of Duty electronic game was released, for example, Panther delivered the games to Gamestop stores nationwide. “That was planned several months in advance,” Schneeberger said. “There was a certain time when they would need to have the games in their distribution centers, and then make quick deliveries to all their stores by a Saturday morning at 8 a.m.”

Banking is another growing vertical for Panther. “We’ll move branch offices, take records to storage locations, pick up credit cards and take them to a branch,” he said. “Secure moves are critical for banking. We’re not carrying money, but a lot of valuable information. We have two drivers, and one always has to be with the truck. And if that truck deviates 10 feet from its route, we’ve got a problem.”

FedEx Custom Critical has found ways to help big-box retailers consolidate freight into its trucks and still save money over general freight shipping, Albanese said. “We’ll consolidate several appliance shipments into an exclusive-use truck and take those loads to the final-mile carrier that delivers and installs appliances,” she said. “We’ve saved some of those retailers millions of dollars in transportation spend.”

As long as the economy grows at a slow, but steady pace, expedited carriers will evolve more into customized special project freight management. Supply chains have evolved since Bill Blodgett at Roberts Express pioneered expedited trucking in the 1980s, Jindel said. “The way things have changed, custom critical trucking is probably a better term for what they do. They’re dealing with more than speed,” he said. Expedited carriers have to be “increasingly sophisticated managers of transportation,” not just the fastest guns on the ground or in the sky.  

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Contact William B. Cassidy at wcassidy@joc.com and follow him at twitter.com/wbcassidy_joc.