Opinion: Sharing LTL, Parcel Best Practices

b>By Satish Jindel

i>President

J Consulting Group Inc.

To gain access to the growing deferred air freight segment, for example, LTL carriers have shortened delivery transit times across most of the nation to less than three days. Con-Way is able to cover lanes up to 600 miles in one day; Pitt Ohio accomplishes the Philadelphia to Chicago 800-mile lane in a day; and Averitt moves shipments between Los Angeles and Dallas in two days.

With these advances, the gap between LTL and ground parcel service has widened, prompting parcel carriers to imitate LTL linehaul best practices. FedEx Ground, for example, is now one day faster in 48% of lanes and delivers more than 50% of packages in one to two days — and 80% in fewer than three days.

The LTL industry’s well-known consolidation is taking on a new complexion wherein the acquirer is a parcel carrier stretching its boundaries to become an all-inclusive, global supply chain service provider.

Who could have predicted the effect the coming together of FedEx and Caliber System in the late ’90s would have on generally accepted industry best practices? A traditional, cost-effective trucking industry began to benefit from the imaginative “youth” of the express and parcel industries, resulting in an 84.9 operating ratio for FedEx Freight.

FedEx Freight mimicked sister company concepts when it was the first LTL carrier to offer “money back guarantees” on standard LTL delivery and “advanced service notification” to alert shippers to potential service failures.

Parcel-like best practices have helped FedEx Freight quickly move to the top of the LTL market with a reputation for superior on-time service, 12% annual revenue growth, 24% annual profit growth, 12% of the LTL shipment market share and the largest LTL carrier by shipment count.

Another parcel-carrier best practice transfer is FedEx Freight’s use of computer screens at each outbound door with load detail and dispatch time. The electronically updated list provides a visual cue for freight handlers to quickly transfer shipments from inbound trailers and staged dock positions. The programmed dispatch time triggers an alarm warning handlers they have 30 minutes until the trailer departs to achieve higher productivity and on-time service.

The parcel giants’ sharing of best practices across industry segments is giving them competitive advantage over other pure parcel and LTL carriers. The continuing transfer of best practices between parcel and LTL will further expand to include:

n Shipment Integrity: Long considered a competitive advantage of LTL carriers, parcel carriers are now deploying technology and methods to address this need of shippers even for multiple parcels not suited for conversion to LTL carriers. UPS’ investment in package-flow technology will contribute significantly to closing the gap on large shipments with LTL carriers.

n Electronic Manifests: Parcel carriers have had great success getting shippers to use electronic manifests — so great, in fact, that only about 15% of all parcels are tendered via paper manifest. In stark contrast, the LTL industry trails badly behind, with about 85% of all LTL shipments tendered via paper bills of lading. With parcel carriers as sister companies, expect FedEx Freight and Overnite, which was acquired by UPS this year, to push for a greater role for electronic manifests in the LTL industry.

n Shipper Discipline: LTL carriers are known to accept shipments tendered in any kind of packaging or no packaging at all. The cost of such action by a few shippers is then absorbed by all others. Parcel carriers have successfully implemented restrictions and fees to encourage proper packaging by shippers. If this is accepted in the parcel industry, then why not in the LTL segment?

n Accessorial Charges: While LTL carriers recognize extra costs for certain special services, parcel carriers have done a much better job of establishing and collecting charges for them. For parcel carriers, the number of accessorial charges increased from eight in 1985 to more than 40 in 2005. The amount collected now exceeds 10% of total revenue. The convergence of parcel and LTL best practices at FedEx and UPS will bring more compliance and the introduction of extra service fees.

n Weight and Cube Capture: The LTL and parcel industries both have suffered from incorrect shipment weight and cube information. Parcel carriers have now deployed technology at shippers’ docks and in their own facilities to capture actual weight and dimensions of parcels to ensure correct billing. A version of FedEx Express’ “purple light,” so-called for the color of the carrier’s laser scanners, should not be far from deployment at FedEx Freight facilities for further margin improvement.

The cross-pollination of best practices in the LTL and parcel industries is producing results for FedEx, while UPS stands to achieve similar benefits with its acquisition of Overnite — depending on how it handles the labor situation.

Unlike the nurturing required for start-up ventures, acquiring companies in compatible industry segments has the advantage of existing infrastructure and the ability to bring together experts to share best practices. Parcel and LTL carriers lacking these symbiotic best-practice relationships need to consider their own options for generating idea exchanges if they are to achieve similar momentous changes.

Michele Carville, a consultant with SJ Consulting Group Inc., contributed to this essay. The company is based in Pittsburgh.

This opinion piece appears in the Dec. 12 print edition of Transport Topics. Subscribe today.