Transportation Management Focus: You Move It, We Write About It  

-April 14, 2010 -

Logistics News: US Truckload Industry Struggles Likely to Continue, as Market and Carrier Strategy Changes Mean Shippers will Face New Landscape

As Hunt, Schneider Continue to Emphasize Intermodal, Long-Haul Truckload Market Will Shift; Role of Bid Optimization in Commoditizing Freight


SCDigest Editorial Staff

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By leveraging the rail carrier assets, Hunt is able to run its intermodal business with just some 2000 trucks. That means it is averaging about $900,000 per truck per year in that unit.

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The truckload shipping industry in the US is a nearly broken business model, says Thom Williams, a former trucking industry executive and now consultant to the industry at Amherst Alpha Advisors LLC.


“Standard truckload shipping has become a commodity business that is not likely to ever leave much if any profit for the carriers until the structure and relationships within the industry change,” Williams says.


Clearly, freight volumes and shipper demand have fallen substantially since the recession started in early 2008, and the collapse along with the financial system later that year.


While the economy is recovering, Williams says he doesn’t see the demand for construction materials and many consumer durables coming back strongly any time soon. These categories in the past represented significant share of the truckload market.


The spike in logistics costs, driven largely by rising oil and diesel prices in 2006-2008 also forced more attention to transportation costs and how to reduce them – a state that Williams says will be permanent.


Combined with Green Supply Chain initiatives, this increasingly means changes in packaging that reduce the footprint and weight of the freight that is being moved.


“Shippers have simply learned how to ship the same freight in less space, which further reduces demand for carriers,” Williams says.


Transportation professionals, in concert with the increased overall focus on logistics costs, continue to become more and more sophisticated – and to use increasingly powerful tools. Combined, these have given shippers even more advantage over carriers.


“Consider the various bid optimization systems that many software providers now have,” Williams said. “They’ve been around for awhile, but it’s only been in the past few years that they have really taken off beyond just a relatively few of the largest shippers.”


What that means, he says, is that shippers can “now have almost complete visibility to everyone’s rates, play them off against each other, and select the optimum carrier and rate combination,” he adds. “It further commoditizes the carriers.”


All this is good for shippers, of course, as TL rates are likely to remain depressed for the foreseeable future. But the “broken model” of the industry also means there will be changes that may not all be good for shippers.


Push to Intermodal


Two of the US’ largest truckload carriers, JB Hunt and Schneider National, have largely transformed their businesses away from long-haul truck load moves towards intermodal.

In this model, the carrier books the entire journey end-to-end and takes custody of that movement, but is in reality only directly moving the freight to and away from the origin and destination rail ramp. A rail carrier does most of the actual freight movement.


This is a financial boon to the truckers – they offer a somewhat more differentiated service versus straight TL carriage, and they get to book the revenue and profit without needing to invest in the assets used in the majority of the move.

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JB Hunt began its transformation more than a decade ago. Shippers may be surprised to know that of JB Hunt’s total 2009 revenue of about $3.2 billion, $1.74 billion of its came from its intermodal business. Only $446 million came from its traditional truckload business, which long ago lost its number one TL market share position to Swift.


But that was by brilliant design, says Williams.


“Intermodal represents about 74% of Hunts operating income, much more than its share of the total revenue,” he says. “The truckload business represents about 0% of profits - it hasn’t been contributing really anything to profits.”


Intermodal Dominates JB Hunt's Revenue and Profits


It goes further than that. By leveraging the rail carrier assets, Hunt is able to run its intermodal business with just some 2000 trucks. That means it is averaging about $900,000 per truck per year in that unit.


Contrast that with the truckload business, which has several thousand more trucks and does just $446 million in business. The impact on profits and return on assets in the intermodal segment from this asset leverage is huge.


Schneider has made similar strategy changes, but as a private company its financial details are not readily available.


Market Changes Coming


“The long-haul truckload market is a dying business,” Williams says.


What that means is that there will be fewer and fewer choices for shippers who need that mode.


He adds that the many of the larger carriers still focusing on truckload are trying to “regionalize” themselves to improve density, asset utilization, and profits. That in general means shippers will have to deal with more regionally-focused carriers rather than fewer truly national ones that can handle large shares of the shipping volume.


It also means in some cases shippers may have little choice but to go intermodal as the long-haul TL options disappear – something shippers not much using intermodal should get prepared for, he says.


Williams also sees the need for the truckload industry to consider more alliances and collaborative options, in which, for example, Heartland might move the TL freight from Ohio to St. Louis, and then Knight Transportation or another carrier take it from there to say Phoenix.


“Each carrier would have a better chance of profitable return freight in that scenario, because they are operating in their home markets of strength.” he says.


More on these topics soon from SCDigest.


Do you agree or disagree with Williams’ perspective? Is today’s version of long-haul truckload carriage a dying business? What do you think the impact on shippers will be from these market changes? Let us know your thoughts at the Feedback button below.

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