It was never love at first sight. But freight brokers and less-than-truckload carriers may find that arranged marriages could end up being profitable ones.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
Jett McCandless and Tommy Skinner believe they have gone where no transportation folk have gone before. McCandless is
founder and president of a Chicago-based consultancy called CarrierDirect. Skinner is vice president of Shift Freight, based
in Santa Fe Springs, Calif. CarrierDirect is the primary sales channel for Shift, which operates a range of less-than-truckload
(LTL) services from the West Coast into the Midwest and the Northeast through an outsourced network of carriers.
Shift isn't the lowest-cost provider. Yet in 10 months in business, it has established itself as a reliable player that sticks
to its hauling commitments even if it means carrying the load at a loss. What is different about CarrierDirect and Shift is they
are believed to have formed the first LTL model built to work only with brokers and third-party logistics providers (3PLs).
So far, Shift's early life has been mostly free of the usual growing pains. It has quadrupled its revenue year-on-year. It
recently announced a 30-percent expansion of its coverage area. And it seems to have found a receptive audience. McCandless, who
consults with LTL carriers to help them penetrate the broker universe and who sits on Shift's board, calls the company the "future
of LTL carriers."
Whether Shift fulfills that lofty expectation remains to be seen. What is evident, though, is that brokers and 3PLs—
especially those living in the "transactional" world that matches loads with trucks—are increasingly interested in doing business
with LTL carriers. And LTL carriers are returning the eye contact.
BUILDING ON A SOLID FOUNDATION
LTL carriers and intermediaries are no strangers to each other. Many shippers would rather work through their 3PLs than directly
with the carriers, said Bill Crowe, vice president, corporate sales for LTL carrier YRC Worldwide Inc. About 40 percent of all LTL
shipments are today billed through a 3PL, according to data from the American Trucking Associations (ATA) and the Georgia Center
of Innovation for Logistics.
Old Dominion Freight Line Inc., widely considered the country's top LTL carrier, gets about one-quarter of its annual revenue from 3PLs, J. Wes Frye, Old Dominion's CFO, said on a recent conference call with analysts. Virtually all of Old Dominion's business with intermediaries comes from "strategic 3PLs," big firms that offer warehousing and distribution and other services that extend beyond transactional activities, said C. Thomas Barnes, president of Con-way Multimodal, a brokerage operating under the banner of Menlo Worldwide Logistics, a large 3PL that does a lot of work with the carrier.
Today, about three-fourths of all LTL business with intermediaries is considered "strategic," with the rest seen as
"transactional," Barnes said. Yet the transactional side is growing faster than the strategic side, an ironic twist given the
carriers' general distaste for working with transactional brokers and 3PLs, Barnes said.
If projections for LTL growth are accurate, there might be more opportunities for 3PL-LTL collaborations. LTL revenue will grow
by 8.1 percent a year through 2018, and will double to $103 billion a year by 2024 from $51.5 billion in 2012, according to ATA
and the Georgia Center data. That would be faster than the projected growth rate for either truckload or private fleet operations.
(Several experts interviewed for this story say that the 2012 numbers are overstated and that total LTL revenue today is actually
closer to $35 billion a year.)
Crowe, who presented the data at an April conference of the Transportation Intermediaries Association (TIA), said demand for
LTL services will continue to grow as improved supply chain technology allows shippers to build smaller-size shipments that move
in shorter-haul ground networks. This reduces inventory-carrying costs by shortening the time a shipper's cash is tied up in the
goods, he said.
Carriers, for their part, see brokers and 3PLs as a source of new shipper business. A growing number of small to mid-size
shippers now work with third parties, and carriers see intermediaries as the best way to tap that shipper market. According to
the consulting firm Armstrong & Associates, about 80 percent of the 100 smallest Fortune 500 companies used 3PLs to some
extent in 2012, up from 65 percent in 2008. About 81 percent of the companies comprising the Fortune 300 to 400 reported
using a 3PL in 2012, up from 71 percent in 2008. Those rates of growth were faster than for companies at the higher end of the
Fortune 500 scale, according to Armstrong.
DIFFERENCES AND DISTINCTIONS
Not all freight is alike, however, and experts caution that brokers and 3PLs accustomed to working with truckload carriers will
need a separate playbook if they take to the LTL field.
Brokering a truckload shipment is relatively simple: Freight moves in a linear fashion from point A to point B. A typical LTL
shipment, by contrast, involves multiple stops and numerous human touches, and carrier tariffs can be tricky to navigate. In
addition, LTL freight must be classified under specific, and sometimes obtuse, commodity codes that are based on various product
characteristics. In short, LTL is everything that truckload isn't.
Experts on a TIA panel said brokers can successfully handle LTL if they understand that LTL's complexity makes it nearly
impossible for brokers and 3PLs to manage each shipment without draining their margins. "LTL is a fantastic niche opportunity. It
is not a [good] niche opportunity if you have to touch every load," Andy Berke, vice president, strategic development for
Riverview, Fla.-based 3PL BlueGrace Logistics, told brokers. Following that path—that is, manually managing each individual LTL
shipment—would result in a broker only making about $30 to $50 a load, Berke said.
The good news, Berke said, is that brokers can "automate the heck out of LTL." Although tools like rate and routing engines can
be expensive to develop and implement, they can yield enormous benefits if done right, he said. "If you can crack the code where
the customer is tendering [the freight] and selecting your provider through you, you are making money in your sleep," Berke told
the group.
Brokers also must know the details of a shipper's products because, unlike truckload, LTL shipments are governed by a phalanx
of classification codes. Carriers reweigh every shipment they receive, and any misclassification identified during that process
means the broker or 3PL must go back to the shipper for more money. Matt Williams, president of Pro Star Logistics, a Salt Lake
City-based 3PL, said the goal is to make it easy for the carrier to execute a shipment and to avoid classification problems. "You
have to understand your shipper's commodity better than when you're shipping via truckload," he said.
YRC, for example, relies heavily on its 3PL partners to ensure the freight they receive is properly classified, Crowe said.
"Intermediaries know exactly what we know about the classification" of freight upon tender, he said. It is the third-party's
responsibility to educate the customer in how to properly classify a shipment, he added.
A CHANGED CLIMATE
Brokers and 3PLs looking to expand into LTL must also recognize that the marketplace has changed dramatically. Four years ago,
with the U.S. economy digging out from the Great Recession and with LTL carriers undercutting each other to grab market share,
space was relatively plentiful and was priced cheaply. The carriers then embarked on a multiyear program of network and equipment
rationalization. Today, truck capacity has tightened, predatory pricing is history, and rates have increased and could go higher
still. Carriers now have little tolerance for potential partners whose commitment doesn't extend beyond searching for the lowest
rate du jour.
"The true kind of price reseller is in trouble," Jack Holmes, president of UPS Freight, the LTL unit of Atlanta-based UPS Inc.,
told attendees of the National Strategic Shippers Transportation Council (NASSTRAC) annual conference in mid-April. Brokers and
3PLs that "don't have relationships [with LTL carriers] will suffer," especially as tightening capacity allows carriers to be more
selective about who they work with, Holmes said.
Even Skinner of Shift recognizes the inherent risks in getting deeply involved with the transactional broker crowd. "You can't
let them beat you up," he said in an interview at the NASSTRAC conference.
At this point, brokers and 3PLs need LTL carriers more than the other way around. The big truckload carriers are building
substantial brokerage operations, a strategy that impacts all brokers but especially those who earn their living through
transactional activity. Even the traditional parcel carriers have gotten into the act. UPS Freight is expanding its truckload and
intermodal brokerage operations as well as an asset-based, dedicated contract carriage service that uses a hybrid of owned and
outsourced equipment.
As big companies muscle in on brokerage in a bid to capture more of a shipper's total spend, many brokers, especially those who
do little more than provide domestic dry van services, may be in trouble if they can't expand their value proposition. Opening up
the LTL channel could be a way for intermediaries to do just that.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.