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The year 2023 was a challenging one for those involved in the freight transportation industry. Here are some of the major forces shaping 2024.

Supply and Demand are Moving Toward Equilibrium

Many industry experts used the term Freight Recession to describe the state of the industry in 2023. There is no doubt that there was excess truck capacity in 2023, a carryover from the freight boom during the early stages of the pandemic. As consumers shifted their financial resources in 2023 from buying goods to purchasing travel and services, trucking companies expanded their fleets, creating the disconnect.

It is also clear that an uptick in inflation, caused by higher interest rates and a rise in the prices of food, gasoline and other products put a damper on demand. However, many citizens experienced an increase in compensation. Consumer spending remained solid and consumer confidence is high at the beginning of the New Year. The Freight Recession was really a Carrier Capacity Surplus, too many trucks chasing too little freight.

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This has clearly been the year of the large M & A deal in the freight industry with TFII’s purchase of UPS’ LTL business (https://www.dantranscon.com/index.php/blog/entry/the-first-big-transportation-deal-of-the-year-tfii-s-purchase-of-ups-freight ) followed by Knight Swift’s acquisition of LTL operator AAA Cooper Transportation (https://www.dantranscon.com/index.php/blog/entry/why-are-large-ltl-trucking-companies-such-attractive-m-a-targets ). The Uber Freight purchase of Transplace for $2.25 billion is different from the other two acquisitions.

Unlike the prior mergers that combined two asset-based trucking companies, this merger blends two non-asset-based technology-driven freight brokerage operations. Uber Freight supplies shippers with real-time quoting and booking, using their freight management platform; it provides access to a network of US and Canadian-based carriers. Their focus has been on a transactional, instant gratification shipper-carrier load matching services. While still unprofitable, they have been achieving rapid growth in this segment of the freight brokerage market.

Transplace, while also in the freight brokerage space, has focused on large shippers with consistent freight volumes. Their technology is designed to marry this class of shipper with carriers that have the capacity and coverage to handle recurring traffic in designated areas. This is much more of a contracted business rather than a transactional business model. Transplace states on its website that it counts 62,000 unique users and has $11 billion of freight under management.

So, what made Transplace attractive to Uber Freight? Uber Freight is paying 22 .5 times EBITDA to acquire a company that has a current EBITDA run rate of over $100 million. This is a steep multiple, but Transplace’s earnings will improve the financials of the merged Uber Freight.

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Freight volumes are at record levels on many lanes this fall. Load rejections, freight embargoes and rate increases are now becoming the norm. Even driver shortages, which started to dwindle in the early stages of the pandemic, are once again a factor in securing capacity to move freight. Motor carriers have leverage as to the shippers they wish to serve. For the past several decades, many shippers have turned to a commonly used tool to secure capacity and competitive rates, the freight bid.

My colleagues and I have reviewed many bids over the years and have successfully conducted dozens of these projects for our shipper clients. In some cases, we have been asked by carriers to help them prepare responses to the bids they receive. We have also reviewed RFPs for many other kinds of services including software procurement, organizational structure review, transportation, and production process efficiency. In so many cases we have remarked that our services would have been just as valuable helping the bid or RFP issuer craft a document that met basic professional standards for quality through attention to detail and exacting editing.

Sure, carriers will respond (sometimes) to poorly crafted bids, but they do so with a somewhat diminished opinion of the requesting company. This is only natural – we all tend to be editors and evaluators, especially of documents that require time and effort to prepare a response.

What separates the successful from the unsuccessful RFPs? This is what we have observed.

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Truck capacity remains tight during this peak season and this is expected to continue into 2021 as inventories are replenished. We are seeing all-time highs in the number of loads in the spot market. Despite the impact of Covid-19, capacity has been reduced by a decrease in the truck driver workforce that occurred during the pandemic. This resulted from some carriers going out of business, some selling excess equipment, an increase in insurance rates, and some drivers receiving sufficient income from COVID-related government aid to stay out of the workforce and/or refusing to work to prevent themselves from being infected.

Although many businesses slowed or paused their operations at the onset of the pandemic, there was an influx of shipments as North American markets began to reopen. It should also be noted that since freight transportation is deemed an essential service, cross-border shipping has remained open. While some sectors of the economy (i.e. travel, restaurants etc.) remain depressed, the surge in freight demand has continued as companies seek to return to their usual operations and recoup lost profits. U.S. Xpress (NYSE: USX) noted in a late-September publication that rate increases in 2021 needed to be in the 10%-plus range to recoup the impact of the last two negative bid cycles and two years’ worth of cost inflation.

As a result of this shortage of drivers and the high demand for freight transportation, carriers are being more selective with the allocation of their assets and are raising rates. This fall we are hearing of freight embargoes as certain carriers restrict the availability of their assets to their highest yielding customers and lanes.

There has also been tight capacity across intermodal rail. Due to the influx of freight that followed the initial downturn at the start of the pandemic, there has been a shortage of available equipment, including containers and chassis, at railroad terminals and ramps across all major metropolitan areas. The congestion from this abundance of freight has led to frequent delays ranging from 24-72 hours in key markets. There is also a shortage of draymen due to organizational restructuring at various drayage companies, including layoffs, furloughs, leave of absences, etc.

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A couple of weeks ago I received a copy of a fascinating new book entitled The Future of Buildings, Transportation and Power, written by Roger Duncan and Michael E. Webber and published by DW Books. I was particularly struck by the chapters on the Future of the Freight Transportation Industry.

They identify “three major areas of change underway in our transportation sector. First, there is the cultural change in the way we own or use vehicles daily. Second, there are fundamental shifts in transportation technology. And finally, alternative fuels are capturing the fuel market.” Below please find some of their thoughts on Transportation Technology.

Electric Vehicles

Messrs. Duncan and Webber conclude that “the resurgence of the electric vehicle (EV) is strong today and electric cars seem destined to dominate our local transportation . . . A global coalition of countries has the aspirational goal of electric vehicles taking 30 percent of the market share by 2030. . . Cars, sedans, vans, and most trucks will be electrified in the coming decades . . . At the core of this transition is the relative efficiency of electric motors compared with internal combustion engines.”

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On July 7, 2020, Freightera (https://www.freightera.com/), North America's rapidly growing online freight marketplace, announced the enhancement of its popular free platform with value-added paid memberships and a rewards program. Freightera’s customers can now subscribe to a range of Membership Plans that provide enhanced freight transportation services, tailored to their unique requirements.

Freightera is one of the top growth companies in the North American freight transportation industry, having increased revenues 240% per year since 2015, making it the third fastest-growing company in British Columbia (source: Business in Vancouver 2019 report). Frost & Sullivan identified Freightera as one of the top five "automated on-demand" freight platforms in North America and the only system that offers fixed-cost, all-inclusive quotes direct from transport companies of all sizes and modes.

Overview of Membership Plans

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As of May 2, 32 U.S. states and 5 Canadian provinces (https://nationalpost.com/news/canada/reopening-canada-provinces-ontario-quebec-saskatchewan-alberta) have announced plans to reopen businesses on a phased basis. Each state and province has developed back to work guidelines to manage the process. These actions are being taken even though Covid-19 is a very contagious virus with 1.1 million reported cases and 65,000 deaths in the US and 55,000 cases and almost 3400 deaths in Canada. Currently there is no cure and a cure is at least a year or more away.

Government Health Care Guidelines

While there are various sets of guidelines that have been published, those developed by New York State and by the Province of Ontario (https://www.ontario.ca/page/resources-prevent-covid-19-workplace?_ga=2.258615434.1461890914.1588269926-1610310933.1584035138 ) are particularly thoughtful and will be referred to in this blog. The NY state document stipulates that to open their economy, hospital and ICU capacity should not exceed 70%. Moreover, the rate of transmissions should be less than 1.1 (i.e. one person infects less than 1.1 people). Adhering to these guidelines will limit the possibility of hospitals being overwhelmed by a surge of new cases. The CDC (Centre for Disease Control) in the United States suggests that there should be a 14-day decline in Covid-19 hospitalizations immediately preceding the lifting of restrictions. Should the number of infections begin to escalate, restrictions should be put back in place. Note that some states are lifting restrictions while infections are rising.

The NY state plan stipulates that a testing regimen should be activated with a daily objective of 30 tests per 1000 people. There should also be a satisfactory number of testing sites in each location; there should be an immediate turnaround on testing results to limit the spread. New York State suggests that an advertising program be created to educate the public about the need and the process of being tested.

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As we watch the Covid-19 pandemic unfold, in real time, on our television and computer screens, we are observing major weaknesses in many of our essential institutions. Despite the warning from China at the beginning of this year, North Americans were unprepared for this pandemic. Before it even began, pandemic readiness work triggered by HIV and SARS epidemics had already been abandoned or scaled back for political rather than health concerns, leaving all of us vulnerable. Then there was a failure of the U.S. president to listen to the warning signals, to take responsibility for this crisis, to activate policies to produce protective equipment, to implement a national stay at home policy, and to ensure there were adequate tests to identify those who have Covid-19 and those who do not.

Our health care systems were overwhelmed by a lack of planning and resources. Our grocery and household goods supply chains were not ready for the huge upswing in online shopping and for the surge in demand for many items.

The result of these failures is that the United States is now the epicenter of the virus. Canada is also being hit hard. The pandemic is forcing millions of Canadians and Americans, other than those designated as providing essential services, to say at home to help reduce the spread of Covid-19. This necessary policy is causing the ongoing shutdown of many businesses and a loss of millions of jobs. As outlined in this article in Foreign Policy (https://foreignpolicy.com/2020/04/09/unemployment-coronavirus-pandemic-normal-economy-is-never-coming-back/), the “normal economy is never coming back.”

We are already seeing significant changes in our everyday lives. Many of us are becoming proficient at meeting with our family, friends and colleagues via a video conference. This trend will likely become more prevalent in our business lives after the crisis. Many people are becoming more skilled at purchasing groceries and supplies online and are taking the opportunity to upgrade their abilities in banking from home, home schooling, personal fitness, hair cutting and in a variety of other areas.

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In my previous blog (https://www.dantranscon.com/index.php/blog/entry/where-is-the-freight-transportation-industry-headed-in-2020), I outlined some of the forces shaping the freight transportation industry in 2020. This will likely be another year of upheaval.

In brief, the current “manufacturing recession” is restraining freight volumes. There will likely be a removal of a glut of fleet equipment. This coupled with the ELD compliance requirements in the US and Canada, and high insurance costs, may push out more poorly financed carriers. Political instability in the Middle East may drive up fuel costs. The maintenance of tariffs, even after the signing of the phase 1 China / US trade deal, will continue to drive up costs of supplies from China. This will likely make this a challenging year for shippers and carriers. It is very likely that shippers will face rising freight rates in 2020 to offset rising costs.

What can shippers do to restrain freight costs in 2020? Here are a few thoughts

1. Reevaluate your network and shipping practices

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Here is my annual recap of the major trends that shaped the Surface Transportation industry during the past year.

1. The Reboot – The Trucking Industry goes into a Freight Recession in 2019

After a booming first three quarters of 2018, the trucking industry contracted in the fourth quarter; by mid-April of 2019, it became apparent (https://www.barrons.com/articles/trucking-industry-is-in-a-recession-will-economy-follow-51565880739) that the trucking industry was in a “freight recession.” In a “strange inversion of market dynamics,” truckload rates dipped below intermodal rates in some lanes. By mid-year, the Cass Freight Shipper Expenditure Index turned negative year / year signaling that shippers were paying less for freight and moving fewer loads than the previous year.

The correction seemed to be a result of several factors. Slower industrial production was evidenced by the dip below 50 in the ISM Production Index. Trade tensions and tariff wars with China reduced demand. On the supply side, many truckers added to their fleets to address the capacity shortages in 2018. This coupled with higher pay to attract drivers and increasing insurance costs, drove up expenses as freight rates were falling. Softening demand, coupled with excess capacity, produced the Freight Recession of 2019.

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These are the major developments shaping the freight transportation industry in North America in the second half of 2019.

1. We are entering a period of Economic Uncertainty

Despite a climate of record low unemployment levels, low inflation, a positive ISM manufacturing index and other encouraging economic indicators, the US Federal Reserve cut interest rates on July 31 by a quarter point, the first such rate reduction since 2008. This action is being framed as a precautionary measure to protect the United States from slowing growth in China and Europe, and from uncertainty over President Trump’s trade war. The fact is that this unpredictability is beginning to weigh on business investment in the United States and abroad. Shippers and carriers should closely monitor the key economic indicators to assess whether this and possible other rate cuts will sustain the decade long economic expansion or ease the impact of an approaching downturn or recession.

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It is hard to believe that a decade has gone by since the Great Recession. Those of us in the Freight Transportation Industry at that time remember the sharp drop in business activity and freight volumes. This encouraged many shippers to conduct multiple freight bids during that period to use (abuse) their freight rate negotiating leverage to reduce their shipping costs. Carrier loyalty was sacrificed for freight cost savings.

One year ago, the tables were totally reversed. The introduction of electronic logging devices (ELDs) combined with an upswing in economic activity and a capacity shortage pushed freight rates to record levels. Carriers became very selective in allocating their capacity. Manufacturers and distributors were advised to become “Shippers of Choice.”

Carriers gave preference to shippers whose facilities were “driver friendly,” whose loads and paperwork were ready in a timely manner, who moved loads to preferred locations, and who paid top dollar. Shippers that wished to maintain consistent, reliable capacity and service were encouraged to establish “core carrier” programs at “carrier friendly” rates. They were told to pay the newly elevated rates to protect their supply chains.

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Carrier costing models have evolved over the past couple of decades. Freight rates are based on the complete set of transportation-related processes at origin, in transit, and at destination, to serve each client. To effectively manage freight expenses, shippers must have a full understanding of all three elements.

Shippers with weak shipping order procedures and staging processes drive up the cost of freight transportation. Shipments that move at peak times, in congested areas, to remote areas, or on circuitous routes, drive up the cost of freight transportation. Consignees that disrupt or slow down the delivery process, that consistently extend a delivery beyond standard Hours of Service, that charge fines for late deliveries, have a significant negative impact on the financials of the shipper. What takes place during the pick-up and loading process is only part of the expense of moving freight in a cost-effective way. One of the biggest mistakes a shipper can make is to think that after they have selected high quality carriers, negotiated competitive freight rates, and trained their carriers on how to load their freight, their job is done. It isn’t.

The world of freight has changed. Hours of Service regulations coupled with the ELD implementation have increased the focus on driving and delivery windows. Strong economic conditions have created capacity shortages. Driver shortages have made capacity even tighter as carriers have had to park equipment across North America. Shippers and consignees with ineffective pick-up and delivery processes can increase the number of transit days beyond previous norms and raise costs. Shippers with chronically inefficient processes have been facing not only higher rates, but also a shortage of capacity. This can jeopardize customer retention, revenues and profits. What can shippers do to prevent this from happening?

Gain an Understanding of the Three Components of Freight Transportation for your Business

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Are We Heading Into Another Freight Recession?

Posted by on in Economy

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 Global Economic Outlook

Early this month, the International Monetary Fund downgraded its outlook for growth in the United States, Europe, Japan and the overall global economy and pointed to heightened trade tensions as a key reason. U.S. trade talks with China continue without resolution, and there are indications that the rate of Chinese economic growth is slowing. The IMF expects the world economy to grow 3.3% this year, down from 3.6% in 2018. That would match 2016 for the weakest year since 2009. In its previous forecast in January, the IMF had predicted that international growth would reach 3.5% this year.

U.S. Economic Outlook

Economists expect U.S. first-quarter growth to decelerate less than previously thought even as they cut forecasts for the rest of the year, projecting a second-quarter rebound will fade as the effects of tax cuts wane. The median estimate for growth in the first three months of the year increased to 1.6% from 1.5% seen last month, according to an April 5-10 Bloomberg News survey. At the same time, forecasts for the second quarter held at 2.6% while those for the third edged down to 2.2% and were lower for the fourth, at 2%.

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The subject of rising freight transportation costs has come up on the earnings calls and quarterly reports of almost every publicly traded manufacturer and retailer in 2018. This has been a very challenging year as many transportation expense budgets were shattered by a host of variables including a driver shortage, the ELD mandate and a surging economy.

The financial impact of rapidly rising freight costs caught large numbers of CEOs and CFOs by surprise. Many companies were unprepared for the capacity challenges and financial impacts that took place. Freight transportation expenses are typically in the range of 1 to 5% of sales. This changed in 2018. Suddenly the team that oversees these expenses, and the processes they manage, came under more scrutiny than ever before.

Economists are predicting solid economic growth in 2019 but not quite at the pace of 2018. What can CEOs do to protect their supply chains, the service to their customers, and their profits from further freight cost shock treatments in 2019? Here is a checklist to consider.

1. Eliminate Inefficient and Wasteful Practices

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Those of us who came into the freight transportation industry in the 80s and 90s remember when there were distinct sets of service providers. There were small parcel carriers, LTL carriers, full truckload service providers and rail carload operators. Of course, during slow times, truckload carriers would move some large LTL shipments. The small parcel carriers targeted shipments in the low end of the LTL freight sector. Even back in the 80s. truckload consolidations (of multiple LTL shipments) were popular in certain industry segments (i.e. auto parts). However, these four labels were a pretty good reflection of the major types of transportation services available at that time. Companies in each of these segments had a unique core competence and tended to operate in their area of expertise.

Today, Transport Topics and other journals still publish lists of the top 100 truckload carriers and top 50 LTL carriers. However, when you examine the business activities of a number of companies in each sector, you realize that these labels no longer fit well with the diversity of services that many trucking companies currently provide.

As an example, JB Hunt has been known for years as one of the premier truckload carriers in North America. At one point in time, this was a very accurate description of this company. However, when you examine the revenue of this company, over-the-road truckload freight now represents only five percent of the total. Through a focused business strategy and organic growth, intermodal transportation, dedicated fleet movements and freight management now make up the bulk of their business.

XPO Logistics, through their acquisition of Conway, has $3.6 billion in LTL revenues and now ranks third in the rankings of LTL carriers. This company, well known for its large logistics operation, now has a strong presence in two of the major sectors of the freight transportation industry.

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Ten years ago, my colleagues at Newcom Business Media and Dan Goodwill & Associates set out to create a high quality educational and networking event for Transportation Professionals and Decision-Makers. From humble beginnings, the conference has evolved into Canada’s premier event in the Surface Transportation Industry. The Surface Transportation Summit now attracts hundreds of Logistics executives, Transportation Industry owners and leaders, vendors to this industry, government officials, consultants, educators, and students.

To celebrate the tenth anniversary of the Summit, the organizers, in partnership with the Freight Management Association of Canada, the Canadian Trucking Alliance and the CSCMP Toronto Roundtable have created an agenda that encompasses the most important issues of the day and assembled an elite group of moderators and panelists to address these topics. As always, the conference will begin with a discussion of the top forces that have shaped the economies and the freight industry in Canada and the United States in 2018 and will power it in 2019. Paul Ferley, Assistant Chief Economist, Royal Bank of Canada, will provide an overview of the direction of the Canadian economy. He will be followed by Walter Spracklin, Managing Director, RBC Capital Markets and David Ross, Research Managing Director, Stifel Financial Corp who will discuss the trucking and rail industries in Canada and the United States. This will be followed by a moderator led discussion with Paul Roach, President & CEO, Belmont Meat Products and Scott Smith, President, JD Smith & Sons who will share their insights on the economic projections for 2019.

The will be followed by an inside look at New Freight Transportation Technologies for Manufacturers, Distributors, and Retailers. In brief interviews, Brian Hodgson, VP, Transportation Strategy, Descartes Systems will provide some thoughts on Shipment Visibility, Dave Brajkovich, Chief Technology Officer, Polaris Transportation Group, and Iliana Oris Valiente, Managing Director, Accenture | Founder at ColliderX Blockchain R&D Hub, will discuss the Blockchain movement, Martin Abadi, Counsel, Borden Ladner Gervais LLP will provide his insights on Connected Trucks and Charles Fallon, Principal, Supply Chain Intelligence will talk about Warehouse Automation.

The Shipper-Carrier Roundtable has always been a popular track. This year Dan Einwechter, Chairman and CEO, Challenger Group of Companies, Tracy Raimondo, Vice President, Logistics, Normandin Transit, John Ferguson, President, Purolator, Andrew Fuller, Assistant Vice President, Domestic Intermodal, CN Rail, Geoffrey Joseph, President & CEO, Joseph Haulage Canada, Martin Pede, Manager Zinc Sales, Hudson Bay Mining and Fiona Renzi-Fantin, VP, Supply Chain, Maple Leaf Foods will debate some of the hot issues facing shippers and carriers in 2018.

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In my last blog, I identified one of the recurring problems we encounter in working with shippers on a day to day basis, namely a lack of complete and accurate information on their freight transportation activities and expenses. I would argue that “you cannot manage what you cannot measure.” Good quality freight data is an essential component in the management of freight transportation.

Detailed, quality freight spend data can allow shippers to identify consolidation opportunities, to address chronic operational inefficiencies that result in excess or accessorial costs, to highlight “maverick” spend (e.g. higher cost carriers being used that are not listed in routing guide), to rectify the use of non-core carriers or more expensive modes and/or to create opportunities to construct more efficient routes and round trips. Shippers with poor quality and/or inaccurate freight cost data place themselves in a vulnerable position. Here are some steps that shippers can take to address this shortcoming and improve their profitability.

1. Build a Quality Freight Spend Data Base

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For the past 15 years, my colleagues and I have been working with shippers throughout North America to help them save money on freight transportation. In 2018, this cost has hit the radar screens of CEOs, as the tightness in freight capacity has placed upward pressure on freight rates. Many shippers have been experiencing rate increases in the high single digits and even double digits. Some CEOs have been highlighting the impact of freight costs during their quarterly investor calls and earnings reports.

A company’s freight costs often represent between two and ten percent of total revenues. For many companies in the manufacturing, distribution and retail sectors, their expenditures on freight have a direct and significant impact on their companies’ bottom lines.

Twelve years ago, I wrote a blog on this topic. In that blog, I identified one of the consistent problems we encounter in working with shippers on a day to day basis, namely a lack of complete and accurate information on their freight transportation activities. Twelve years later, this problem persists, and it is not limited to small companies. In fact, many companies with freight expenditures of five to fifty million dollars or more face the same problem.

“You can’t manage what you cannot measure.” Good quality freight data is an essential starting point in the management of freight transportation.

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In last week’s blog, I highlighted the tight freight capacity being experienced across North America (https://dantranscon.com/index.php/blog?view=entry&id=310 ), and that it is likely to continue for another year or two. For shippers that are experiencing shortages of trucking or rail equipment, there is a series of steps that need to be taken to prevent service failures and loss of market share. Here is a link to some blogs I wrote on this topic last summer (https://www.dantranscon.com/index.php/blog/entry/shippers-need-to-become-more-carrier-friendly-to-minimize-freight-rate-increases and https://www.dantranscon.com/index.php/blog/entry/two-keys-to-maintaining-truck-capacity-this-winter ).

The following are some additional steps to take to become a Preferred Shipper.

1. Integrate a Freight Transportation Strategy into the company’s Business Plan

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