Less-than-Truckload Industry Becomes Faster, Lighter

Less-than-Truckload Industry Becomes Faster, Lighter

The less-than-truckload industry is moving faster, even as the economic engine slows, with the largest industry giants and regional players alike re-engineering networks to deliver freight more quickly for shippers and consignees.

Trucking companies are lopping days off transit times as rapid replenishment becomes the standard way of doing business in an era of thinner-than-a-pallet inventories. LTL carriers are rethinking the size of their terminal networks, cutting facilities or adding service centers to speed freight and build lane density.  

LTL carriers are faster today in part because they’re lighter — the 10 largest LTL companies reduced their combined terminal count by 18.5 percent from 2007 through 2011, according to research by SJ Consulting Group, Pittsburgh.

How much speed is LTL gaining? A decade of two ago, a cross-country LTL shipment might take five to six days, and a shipper might not be able to trace it until day 4. Today, that shipment might move partly on intermodal rail, especially if it is moving east, and would probably take three to four days. Shippers would receive confirmation of its release and its location right through delivery. 

In the regional world, where most LTL and truckload freight moves, next-day delivery is now the standard, and second-day is almost deferred service.

“There are regional companies that are expanding, while the companies with the nationwide footprint are retracting, not in their coverage but in their number of terminals,” said Michael D. Scheid, an SJ Consulting Group analyst. “They’ve learned they can cover more area with fewer terminals and offer the same level of service.”

That re-engineering is a process that doesn’t come to a stop when a goal — say, a one-day reduction in transit times across thousands of lanes — is achieved.

“I view network design as an ongoing, constant review of how you run your business,” said William J. Logue, president and CEO of FedEx Freight, which at $5.3 billion in revenue in 2011 is the largest stand-alone LTL carrier. The industrial freight arm of FedEx completed a massive overhaul of its operations in January 2011 and has “tweaked” its new LTL network twice, once in September 2011 and again this July, when it shortened shipment transit times on 6,000 lanes. “It takes a couple of adjustments to get that thing running like a finely tuned engine,” Logue said.

There’s more to re-engineering an LTL network than buying or selling real estate or adding or subtracting terminal doors. LTL redesign extends to how assets, including trucks, drivers and dock workers, are deployed, how shipments are handled and how often they’re touched in transit and, increasingly, how technology is used to optimize pickup and delivery, move freight across docks and build lane density.

Today, LTL re-engineering is as much about using technology to create complementary networks of freight and data, and moving data efficiently to customers along with or ahead of shipments, as it is about reducing transit times — though transit times, as a result, get top billing when carriers tout their efforts.

The carrier with the biggest brick-and-mortar network no longer necessarily has an advantage in an age when smaller carriers can match their prowess in terms of technology, enabling competitive levels of service and visibility for shippers.

Technology helped Averitt, Pitt Ohio and other carriers in The Reliance Network create a seamless means of providing supply chain visibility for customers, said Phil Pierce, executive vice president of sales and marketing at Averitt. “It was one of the bullets we had to overcome to convince customers we were not just an interline service when we formed the Reliance Network five years ago,” Pierce said. 

“We needed one PRO number for tracking and tracing throughout all eight companies (in the network) and for all our customers. That was probably the hardest thing for us to do, but it paid dividends,” he said. In the LTL trucking market, “the people who invest in technology are going to be true winners,” he said.

The hardest thing for an LTL carrier — or shipper — to do simply may be to think outside the box surrounding “LTL,” a term used to describe an industry with a lot of historical baggage, most of it palletized and shrink-wrapped since the 1930s.

For decades, LTL trucking was a world unto itself within transportation, with a unique freight classification system and pricing measured in recent years by the size of a discount off a rate contained in a tariff published perhaps a decade ago.

The classic LTL network was a hub-and-spoke terminal system. That traditional network is still there, but today some of those spokes are rail tracks carrying intermodal freight, and carriers such as Old Dominion Freight Lines, Estes Express and ABF Freight Systems are feeding less-than-containerload, or LCL, freight coming off ships into their domestic LTL networks, either at ports or farther inland.

The globalization of manufacturing and sourcing and the rise of third-party logistics companies since the 1990s is still spurring LTL reorganization, but the primary factor driving re-engineering at carriers large and small is the economy; Specifically, the economic downturn that trucking first felt in 2006 and the recovery that started in 2009.

When the recession struck in 2009, the LTL industry as a whole lost 25 percent of its revenue, or more than $8 billion, perhaps the worst contraction in trucking history, according to SJ Consulting Group data. A number of companies had been scrambling to re-engineer even beforehand, most notably YRC Worldwide, which merged Yellow Transportation and Roadway in 2008 and 2009, closing hundreds of terminals as it tried to stave off bankruptcy following billions of dollars in losses.

That wasn’t enough to restore profit or balance at the $3.2 billion carrier now called YRC Freight, so this year the company completed a change of operations designed to eliminate excessive freight handling and speed traffic across its network. 

Those changes helped YRC Freight cut at least one day of delivery time on hundreds of its lanes and reduce transit times between more than 24,000 origin and destination points, chopping shipments from Charlotte, N.C., to Seattle, for example, from five to four days and Indianapolis to Los Angeles from four to three days.

“When line-haul is one of the most expensive parts of your operation, you’d better make sure it’s as efficient as it can be,” YRC Worldwide CEO James Welch said.

Shipper and eventually consumer demands are dictating the changes roiling the LTL landscape, he said. “People wait until the last minute to order something, and when they order it they want it the next day.” The growth of e-commerce is rippling through LTL, he said, as it has overnight parcel and same-day transportation. 

Con-way Freight also restructured in 2008, closing 50 terminals and slicing transit times between 460 destinations by reducing handling and building density on direct routes. That proved farsighted. The 2009 recession changed trucking “fundamentally,” forcing deep changes in LTL operations, Con-way CEO Douglas W. Stotlar told reporters at the SMC3 Connections 2012 conference in June.

“It took the downturn of late 2008-2009 to take the excess capacity that built up before the recession” out of the LTL industry, Stotlar said. Even so, Con-way Freight was rocked by a flood of low-priced freight that clogged its network when it engaged in a 2009 pricing war. It took a change of management and a “back-to-basics” reorganization focused on productivity and LTL yield to restore balance.

The surviving LTL carriers are “more sophisticated,” running streamlined, more efficient networks, and “we’re much better companies as a result,” Stotlar said.

As the economy shifted from recession to recovery, LTL carriers shifted their re-engineering efforts from taking out capacity to bolstering margins by improving service, Pierce said. “The industry spent some time last year trying to improve its margins, and the real results are evident,” he said. “The public carriers reported improved yields. Now the market is flattening out, and if you want to continue to hold onto your higher margins, the best thing to do is improve service through network enhancements, rather than going back to lower rates.”

Those enhancements may include hiring drivers, upgrading automated dispatch systems and freight management systems, merging terminals and closing or opening facilities — but to shippers, they boil down to better transit times. From the top down, carriers have been vying to get freight to shippers — and to end markets — quicker, whether they operate national, interregional or regional networks.

In April, Reliance Network member LTL carrier Pitt Ohio launched its first TRNet Express Lane providing two- to three-day service from its Mid-Atlantic region to California, Arizona and Nevada. In September, Pitt Ohio launched a TRNet Express Lane to Texas, in cooperation with Averitt, while Averitt launched an Express Lane to the West Coast in combination with partner carrier Mountain Valley Express.

“We’re running teams from our gateway in Nashville to Los Angeles, and anyone shipping next-day to Nashville on a Thursday or Friday can have their shipment delivered in LA on Tuesday,” a two- to three-day transit time, Pierce said.

“That’s been very appealing to customers,” he said. “We’re looking at running gateway teams out of Dallas to Portland in the Northwest.” In designing the express network, “We try to select lanes in certain markets where the data tell us opportunities lie. It’s a regional concept with a national reach.” 

Contact William B. Cassidy at wcassidy@joc.com.