The New Realities of Procuring Freight Transportation Services

b2ap3_thumbnail_dreamstime_l_56602038.jpg

b2ap3_thumbnail_dreamstime_l_56602038.jpg

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.

Similarly, TFI has $748,000 on LTL revenues on the TT rankings but this represents a fraction of this company’s business that includes hundreds of millions of dollars in revenue from their stable of truckload, small parcel, and freight management services.

Forty years ago, there were limited home delivery freight services except for the Sears catalog and a few other mail-oriented home shopping services. There were no laptop and tablet computers, no smartphones, and no internet. Ecommerce and Last Mile Delivery did not exist; today the growth in these services is outpacing the growth of regular retail sales. In fact, some sectors of the asset-based retail environment are consolidating. The business world has changed dramatically, and the freight transportation industry has had to adapt.

Companies such as Amazon and many smaller entrepreneurs are transforming the distribution and retail sectors, and the freight industry. To be relevant, many freight transportation companies recognize that they need to provide a broad range of services to serve warehouses, fulfillment centers, businesses, retail stores and home consumers. This means that they must quickly and successfully expand their range of core competencies.

This poses some unique challenges for shippers and transportation companies. The question for shippers is how to find transportation companies that are not only diverse but that have a high level of expertise in each of the sectors that they serve. The challenge for carriers, particularly smaller carriers, is whether to stay small but competent in their area of core competence or try to build their revenues in their area of expertise while expanding into other sectors. Being good in one segment of the business is no guarantee success in another sector. The small parcel, LTL and truckload sectors require different types of terminals, technology and fleet equipment. For many companies, it makes far more sense to form alliances and partnerships rather than build or buy a business or businesses. In some cases, it makes more sense to focus on core competencies and divest from those segments of the business that they cannot operate as well.

As an example, Hub Group is exploring a possible sale of Mode Transportation, an operating unit that provides truck and rail freight brokerage and logistics services. The move comes at a time when the Oak Brook, Ill.-based company is reporting a surge in business and big gains in profits. In a statement Aug. 1, Hub said it is exploring “strategic alternatives” for Mode, one of two freight brokerage businesses units that operate within the company. Proceeds from a sale would be used for investments in existing Hub businesses, including technology initiatives and for acquisitions of businesses in new and existing service lines, the company stated.

The fact is most people and companies are not good at everything. We all have our strengths and weaknesses. For shippers, this means that they must identify transportation companies with core competencies in specific areas, rather than search for “pure” carriers that have certain levels of revenue in the same categories of revenue that existed 40 years ago. They must look internally to identify the range of services they need and then seek out transportation partners that can provide holistic rather than limited subsets of service. They need to find transportation providers that can seamlessly and effectively link various supply chain components (i.e. manufacturing facility to warehouse, warehouse to fulfillment center, fulfillment center to home consumer). Certainly, this gives the freight management companies a big advantage since this is what they have been doing for years.

This also means that companies that publish lists of transportation companies must step up their game. While it is important to list companies that provide LTL and truckload services, shippers now need to be able to identify the full range of services offered by each company (i.e. small parcel, local cartage, Last Mile Delivery, over-the-road and intermodal truckload, freight management, dedicated fleet, expedited transportation, warehousing, freight forwarding, customs clearance, air freight and ocean shipping). They also need to be able to evaluate the competence of each company in each of the sectors they serve.

Shippers need to be able to see the level of business from each sector but also years of experience, client list, and the resources the transport provider can apply to each sector (i.e. size of fleet, number or personnel, IT capabilities, quality of management team, etc.) to determine which companies to include in their procurement activities. At this point in time, shippers require more robust tools to identify those players that can provide high quality, integrated solutions to meet their ever-expanding needs.

 

To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).

Create your account

Pre-Built Demos Collection

Unfinity Plus comes with a beautiful collection of modern, easily importable, and highly customizable demo layouts. Any of which can be installed via one click.

Demo
Corporate & Business
View Demo
Demo
Finance & Account
View Demo
Demo
Consulting & Business
View Demo
Demo
Construction Business
View Demo
Demo
Transportation & Logistic
View Demo
Demo
Lawyers
View Demo
Demo
Event
View Demo
Demo
Medical
View Demo
Demo
Digital Agency
View Demo
Demo
Seo
View Demo
Demo
Hotel
View Demo
Demo
Church
View Demo
Demo
Gym
View Demo
Demo
Restaurant
View Demo
Demo
Photography
View Demo
Demo
App Launching
View Demo
Demo
Minimal Portfolio
View Demo
Demo
Industrial
View Demo