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As the long, slow recovery from the Great Recession continues, shippers and carriers have become used to modest economic growth. Demand for freight services has been steady but not robust. The muted demand for freight services has not put undo pressure on truck capacity; rate increases have been limited in recent years. This may be about to change.

Regulations have placed constraints on the management of trucking companies, particularly full load carriers. The Hours of Service regulations coupled with the ELD (electronic logging device) mandate are placing limits on the number of hours that a driver can legally operate a truck. These directives limit truck capacity. The difficulties in finding quality drivers and the high turnover ratio among current drivers provides additional challenges for many truck fleets. To address the potential erosion in capacity, truckers are applying a variety of technologies.

Good quality transportation management systems are allowing truckers to better manage their routes and balance their lanes. Dimensional scanners are helping LTL carriers manage the space available on their trailers by matching freight rates to cube utilization. ELD technology provides carriers with information on how long their drivers and equipment are held up at customers’ facilities. The net result of all this is that small parcel, LTL and truckload carriers can be much more accurate in tailoring their freight rates to the “carrier friendliness” of their clients.

How can shippers become more "carrier friendly”?  Here are a few items to consider.

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As I look at the LTL freight transportation today, it is hard to believe that just a few years ago, this was one of the most battered sectors of the freight industry. The LTL freight industry took a tremendous pounding during the Great Recession as business volumes contracted by about twenty-five percent. As operating margins shrunk, LTL carriers closed or consolidated terminals and cut staff in an effort to right size ether businesses. Shippers took advantage of the situation by conducting multiple freight bids to leverage their volumes to extract rate concessions.

Seven years later, the industry has changed dramatically and the pendulum has swung back in the carriers’ favour. As volumes return to pre-recession levels, LTL carriers are finding their networks full of freight. As the North American economy improves, manufacturing is on the rise. The near shoring movement is also bringing some manufacturing jobs back to America. In addition, the driver shortage is making it difficult to find drivers, particularly for long haul truckload routes. A clogged intermodal system is limiting the opportunities to divert over the road truckload freight to the rail system. The net result is that some of this freight is being diverted to large LTL shipments so it can move with an LTL carrier. In other words, this is creating traffic for an already full LTL system.

Unlike the truckload sector where even the largest players control only a small (single digit) percent of the total truckload sector, the LTL industry is highly concentrated among a core group of companies. The top 9 LTL carriers in the United States (e.g. FedEx Freight, Con-way, YRC, UPS Freight, Old Dominion, Estes, USF Holland, Reddaway and New Penn, ABF, R & L Carriers and Saia) control almost seventy percent of the LTL market. In Canada, the major players, TransForce (e.g. TST Overland, Canadian Freightways, Kingsway, QuikX, Quiktrax, Clarke Transport and Vitran), the Day and Ross Group and Manitoulin would also control a major share of the LTL market. With limited capacity and pricing discipline, this gives this group of companies considerable pricing power. With high quality costing models, these companies can now seek meaningful rate increases or de-market poor paying accounts. In other words, the “fun” is back in this business.

To further improve yields, FedEx Freight and UPS Freight are introducing density based or dimensional or cube-based pricing. I wrote about the potential of this trend years ago( and it is finally starting to take hold. Just as airlines charge for “bums in seats” and adjust their plane sizes to each route and the potential passenger traffic, LTL freight carriers are going to become much more diligent about charging shippers for the cubic space occupied on their trailers. Shippers with poor packaging, who don’t nest their products effectively or don’t design their products well or load them smartly, will face a nasty surprise. With so much industry consolidation, it won’t take long before dimensional pricing becomes more standard across the industry.

Another reason why LTL carriers are having more “fun” is in their attitudes toward logistics service providers. A few years ago, 3PLs were viewed as the enemy. They were seen as trying to poach LTL customers and replace their carriers by taking control of the direct customer interface. Times have changed. LTL carriers are increasingly viewing 3PLs as business partners. They are forming alliances with companies that have common objectives and customer profiles so they can collectively bring value to the customer. The large LTL carriers are going a step further by creating their own internal logistics or at least freight brokerage arms.

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An article in the February 11 issue of Bloomberg BusinessWeek caught my eye and got me thinking about another way of reducing freight costs.  Here is the idea.

Hardys became Britain’s best-selling Australian wine brand by selling wine for as little as $5 a bottle, despite the 37 percent surge in the home country’s currency since 2009.  To do that and earn a profit, Hardys changed their paradigm for shipping wine.  Accolade Wines, the producer of Hardys, came up with the idea of shipping the equivalent of 32,000 bottles of wine in a 24,000 liter plastic bag.  The company reduced shipping costs by $3 a case by moving the wine 10,000 miles to a bottling plant that is a two hour drive from London.  The bottling plant receives the shipping containers via truck each day.

Australia’s wine industry that generates the equivalent of $5.8 billion in annual sales, now ships more than half of its overseas shipments in bulk.  The wine makes the 40-day trip to Europe in plastic “bladders.”  Richard Lloyd, Accolade’s global logistics manufacturing director stated:  “We don’t ship glass around the world; we ship wine.”

The BusinessWeek article highlights that shipping in bottles can add 25 cents per bottle to the cost.  Shipping wine by the case fills a ship with containers of bottles.  A third of the volume is taken up with bottles and cartons.  While a 20-foot container can hold 9,000 liters of bottled wine, it can carry a 24,000-liter bladder at slightly higher cost.

While shipping freight in bulk is not new, it is not commonplace for certain commodities.  For low cost products, that typically move in bottles or cans (e.g. no name fruit juices or tomato sauce), “deferred packaging” may help reduce freight costs.

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