Opinion: Old LTL Labels Have Withered
B>By Satish Jindel
I>President
J Consulting Group
Originally, regional carriers benefited from the shift in shipping from national to regional distribution centers. Single-region carriers expanded their boundaries and became super-regional or inter-regional companies.
uring this same period, as most regional carriers used nonunion workers, it was popular to say the industry’s future would be determined by its labor structure. Union carriers were viewed as dinosaurs facing extinction. The future was said to belong only to nonunion firms.
The present state of the LTL business specifically, and freight transportation more broadly, would suggest that those old labels did not determine the future for carriers.
When the two largest unionized LTLs, Yellow and Roadway corporations, announced their merger in the middle of last year, they were projected to lose significant revenue to nonunion competitors and their stock was downgraded. However, Yellow Roadway stock has appreciated 100% since then — better than many nonunion LTL carriers.
Furthermore, New Penn Motor Express, Yellow Roadway’s unionized Northeastern regional, is well known as a profitable carrier and has consistently generated enviable operating ratios in the 80s.
USF Corp. provides another good illustration of profitability for union and nonunion carriers. Its USF Holland subsidiary is the only fully unionized carrier within the group of four regional carriers, and yet it is more profitable than some of its nonunion sister companies.
Being nonunion does not ensure success. In 1997, after incurring significant losses from its nonunion regional carrier group, Caliber System shut down two nonunion regional carriers — Spartan Express in the South and Coles Express in the Northeast, and then sold off Central Freight Lines.
At the end of last month, nonunion Guaranteed Overnight Delivery shut its doors in the Northeast, and Clark Bros. Transfer was sold to SCS Transportation at the start of this year.
Looking at trucking more broadly, the largest corporation in the business is unionized carrier UPS Inc. It generated a higher operating margin in 2003 — 13.3% — compared with 7.6% for mostly union-free FedEx Corp. The outlook for UPS is at least as bright as it is for its nonunion competitors.
Benchmarking the LTL industry against UPS is relevant since UPS generates almost $4 billion in annual revenue from handling multiple-piece shipments that weigh between 200 and 2,000 pounds. Shipments with such a profile represent more than 80% of all freight for traditional LTL carriers. UPS has not been compromised in securing this freight by being a unionized carrier or for having a combined network of short-haul and long-haul services.
The segmentation of the LTL industry by union and nonunion labor; by coverage areas of multi-regional, super-regional, single-regional and nationwide; or by length of haul, may have been appropriate in the past.
The present less-than-truckload world, however, is best viewed as national and regional carriers, just as one would find in the industry’s parcel and truckload sectors.
Segmentation by length of haul also is irrelevant now. Yellow, Roadway, ABF Freight System and Watkins Motor Lines, traditionally considered long-haul carriers, are aggressively modifying their operations and services to penetrate short-haul markets. Similarly, Con-Way Transportation Services, FedEx Freight and Old Dominion Freight Line, known as short-haul and regional carriers, are increasing their long-haul business.
Almost 40% of Yellow’s tonnage and 35% of ABF’s tonnage are delivered in two days or less, while 20% of Con-Way’s tonnage, 18% of FedEx Freight’s tonnage and 40% of ODFL’s tonnage are delivered in three days or more.
The changes occurring at shippers needing access to the global economy are having a significant effect on the mix of freight and modes of transportation used in the U.S. market. As a result, for carriers to prosper, they will have to handle both the coast-to-coast and the regional shipping needs of their customers.
The developments in information technology that have enhanced the visibility of shipments tendered to carriers are also contributing to shippers’ needs to partner with fewer carriers that can still meet their customers’ broader needs. This is the reason for the introduction of new services by traditional LTL carriers such as Con-Way, Averitt Express, Estes Express Lines and Old Dominion. These companies now offer expedited, truckload, international and logistics services.
The current environment that favors LTL pricing is likely to continue even in the unlikely possibility that the driver shortage is solved. For decades the LTL carriers have operated with low single-digit margins of operating income, while parcel giants have operated with double-digit margins.
The new pricing strength we are seeing for LTL carriers is favorable even for shippers. In recent years, LTL carriers have significantly improved their transit times for coast-to-coast service from five days to four and by going up to 600 miles in one day and more than 1,200 miles in two.
In addition, many have offered guaranteed delivery, which has allowed shippers to convert air-freight shipments into LTL at significant savings and without compromising service. FedEx Freight has used these enhancements to achieve tonnage growth of 18% and yield improvements of 7.2% in the most recent quarter.
The future for LTL carriers — whether with union or nonunion workforce and whether national or regional in geographic scope — should continue to be bright for those that are innovative and customer-focused. New barriers to entering the LTL business that limit geographic expansion or result in some carriers going out of business will become more formidable to overcome for smaller carriers.
The business environment today requires LTL carriers to have brand awareness, a broader portfolio of services and technological capabilities that favor larger carriers. The past labels of union vs. nonunion and long-haul vs. short-haul only limit shippers and investors from making the right selection for their shipping needs and investments.
SJ Consulting is a transportation strategy consulting firm based in Sewickley, Pa., that has done work for LTL and parcel carriers.
This story appeared in the Nov. 15 edition of Transport Topics. Subscribe today.
