US third party logistics providers controlling more LTL freight.
C.H. Robinson has more than doubled its LTL net revenue over the past five years. The largest U.S. logistics provider increased its LTL shipment volume 36 percent year-over-year in the fourth quarter, while LTL net revenue jumped 41.4 percent to $89 million. For the full year, the logistics company’s LTL net revenue rose 39.3 percent to $360.7 million.
“We are the largest non-asset LTL provider in North America by a wide margin, and our go-to-market strategy has proved to be a winning one with customers and providers,” CEO John Wiehoff said in January.
In the fourth quarter, C.H. Robinson’s “organic” LTL volume, excluding volume from online brokerage Freightquote.com, acquired in 2015, rose 17 percent. One couldn’t ask for a clearer sign of the growing role of non-asset logistics providers in the LTL market, except perhaps the acquisition of Con-way Freight, the second-largest LTL carrier, by XPO Logistics last fall. XPO, two years ago a purely non-asset company, now has LTL operations in Europe and the U.S., as well as intermodal assets.
In 2016, 3PLs such as C.H. Robinson and XPO will make more inroads into the LTL market, pushing their share of LTL revenue beyond 25 percent, and pushing traditional LTL carriers to rethink their long-term strategies, according to SJ Consulting Group. C.H. Robinson is “still having success converting customers who previously shipped direct with LTL carriers to their platforms,” said Michael Scheid, senior analyst at the Pittsburgh-based consulting firm. Scheid’s statement holds true for other 3PLs and brokers. “It’s not just Freightquote that’s growing, it’s their traditional LTL platform, which focuses on larger shippers,” he said.
At many of the large, traditional, asset-based LTL carriers, volumes are dropping. In the fourth quarter, LTL shipments per day declined 9.7 percent year-over-year at UPS Freight, while at YRC Freight, shipments per day fell 6.9 percent on an annualized basis. Tonnage per day at ABF Freight System was down 4.9 percent year-over-year in the fourth quarter. At Saia, shipments were off 6.2 percent from a year ago.
Reasons for a general year-over-year decline in LTL volumes include a contraction in industrial production in the second half of 2015, normal seasonal decline, tough comparisons with a more economically vibrant second half of 2014, and possibly the rejection of less-profitable freight by carriers or consolidation of palletized shipments into truckloads.
Still, 3PLs are moving more and more LTL pallets, And more 3PLs and brokers are pursuing LTL business. Nearly three-quarters, 71 percent, of the 3PLs included in the Transportation Intermediaries Association’s third-quarter benchmarking survey said they handled LTL shipments. Before the recession, that number was closer to 30 percent.
Why would 3PLs would want that LTL freight? They’re able to make a profit from it. Although LTL freight accounted for about 9 percent of the revenue of the 3PLs surveyed by TIA, and truckload 69 percent, the average profit margin on those LTL shipments climbed to 20 percent in the third quarter. That compares with a truckload margin of 15.1 percent.
“We look at LTL as an attractive business for a number of reasons,” XPO Logistics CEO Bradley S. Jacobs said last fall after purchasing Europe’s Norbert Dentressangle and U.S.-based Con-way. “E-commerce is growing super-fast, and there are an increasing number of online orders that are too big for the parcel carriers but don’t require the ‘white glove’ treatment of last-mile logistics.”
Those orders are a good fit for LTL, he said. “We also believe scale and technology will separate the winners from non-winners in LTL, and we bring both size and technology.”
Shippers already working with 3PLs such as XPO on other supply-chain fronts expect a broad portfolio that includes LTL service. And smaller shippers with fewer logistics personnel or resources, and less expertise in LTL pricing, want help, too. “Rather than working with 12 or 15 LTL carriers (nationwide), there are shippers who will ask a 3PL to do it (for them),” said Satish Jindel, president of SJ Consulting Group. “If LTL carriers aren’t careful, they will find the 3PLs between themselves and their customers.”
That’s a transformation for trucking operators who have been in the LTL business for years. Ask an LTL trucking executive about the biggest change they’ve seen over the past decade, and the increasingly important role 3PLs play in their business will likely be the answer. The relationship between LTL and 3PL is sometimes strained, especially when the carrier believes a third-party player is trying to play them on price, acting as a rate consolidator and not giving any value back to the carrier.
LTL executives often speak of “firing 3PLs” that simply “resell rates” and don’t offer them “value” for the assets and opportunity they provide. But LTL carriers also rely on 3PLs for freight that can increase lane density and for access to smaller shippers they typically can’t reach.
This isn’t just a boxing match between LTLs and 3PLs, however. Broader supply chain change is rerouting freight, forcing LTL carriers to adapt and adopt new strategies if they don’t want to be “commoditized.”
And just as XPO Logistics has invested in LTL assets, some LTL operators — notably ArcBest, parent of ABF Freight System — have invested in non-asset or asset-light businesses to extend their supply chain reach. In ArcBest’s case, those investments include the acquisition of Panther Premium Logistics, Bear Transportation and Smart Line Transportation Group and the expansion of ABF Logistics.
“We’re seeing this happen everywhere,” Tommy Barnes, president of Project44, a technology company that uses application program interfaces to connect 3PLs, shippers and LTL carriers, enabling faster flow of data among multiple transportation management systems. “Today’s freight market is agnostic,” Barnes said during a JOC.com webinar in January. “There’s a blend of all types of activity,” he said, across modes as well as the narrowing asset and non-asset divide. “It comes down to service, and what tools people bring to the party.”
When it comes to service, LTL carriers “need to identify which shippers they can best serve,” Jindel said. “They need to ask if the margin they get from the 3PL is as as good as it would be if they handled that shipper’s business directly. And whatever margin they are giving to the 3PL, how are they offsetting that in costs? I know at least two or three LTL carriers that are keeping salespeople for large national accounts, but the field salespeople they used to send out to target smaller accounts are being eliminated,” Jindel said. “They’re using 3PLs for that business.”
The trend is toward greater cooperation and combination between 3PLs, LTL carriers and other transport operators. That’s a difficult dance as each partner tries to find the right footing, but technology may help.
SHIFT Freight is an LTL operator that relies almost entirely on technology to move freight through its unique, “virtual” LTL network. If any company deserves the label “3PLTL,” it’s Southern California-based SHIFT. The carrier uses 3PLs as a sales force, deriving 75 percent of its revenue from them and 25 percent from direct sales to shippers.
Although it’s building a nationwide network, SHIFT only operates five of its own trucks. It relies on established LTL carrier partners to haul freight. Those carriers, in return, use freight sourced from SHIFT to fill trailers more fully and build density in specific lanes.
“3PLs are becoming a lot more collaborative, at least with us,” said Kurt Watkins, vice president of sales and marketing for SHIFT. “We get together and ask how can we grow business together. The companies that partner up with the 3PLs, they’re more competitive.”
That kind of “beyond the pallet” thinking solves problems, and that’s what shippers are looking for in a partner, whether a 3PL or LTL company.