A long-awaited decision by the Dept. of Justice (DOJ) clears the way for an alliance of seven regional LTL carriers to collaborate more closely to develop joint services and pricing while potentially opening the door to more such alliances in the future.
After deliberating for 18 months, DOJ said it won't challenge a proposal by the Reliance Network, which includes Averitt Express, DATS Trucking, Lakeville Motor Express, Land Air Express of New England, Pitt Ohio Express, Canadian Freightways, and Epic Express, to engage in collaborative activity as part of their nationwide LTL joint venture. The proposed conduct in this particular case “is not likely to reduce competition in regional LTL markets and could enhance competition in the long haul LTL market,” DOJ said in the ruling.
The agency added that each carrier serves a distinct geographic region with insignificant overlap among their respective operations, already faces significant competition in their home territories in which they operate, yet collectively account for less than 20% of the LTL freight services in these regional markets and far less than 20% of a nationwide LTL freight transportation market.
“What this means is that DOJ recognizes that our collaborative effort is actually pro-competitive,” Geoff Muessig, Pitt Ohio's executive vp and chief marketing officer, told Fleet Owner. “This ruling means we can now collaborate and create joint pricing across the country.”
“It's basically carriers' response to the downturn in freight volumes,” said Chris Brady, president of Commercial Motor Vehicle Consulting. “It provides the carriers additional services to offer their customers.”
Muessig also noted that such joint ventures between regional LTLs are becoming the new business model as they give regional LTLs the flexibility to handle more business without the massive investments necessary to build out terminal networks plus add equipment and personnel.
“The other piece is that shippers are now on board with this joint structure,” he stressed. “Historically, shippers were averse to such joint efforts because they viewed them as just interline agreements. Now they see that these joint ventures create a single network — allowing each LTL to generate additional business while giving shippers a single price and the ability to track and trace shipments across our joint network.”
That's the main reason why the Reliance Network requested a business review from DOJ's antitrust division almost two years ago, so the seven regional carriers involved in the alliance could engage in collective rate-making for multi-regional shipments in order to offer seamless nationwide LTL service.
“When carriers form these strategic alliances, they often have different information services and you might have service problems,” Brady said. “Now you have seven carriers with different systems; that's definitely an obstacle” that will need to be overcome.
But Muessig pointed out that all the LTL carriers involved have combined their information technology, operations, sales and marketing efforts to operate as a single nationwide entity, while also continuing to operate their distinct regional LTL businesses independently.
Satish Jindel, president of transportation research firm SJ Consulting, said DOJ's decision in this matter potentially opens the door to the formation of more such ventures.
“This may indeed speed up more joint venture proposals and bring more efficiency to the LTL market,” he explained. “By allowing these carriers to establish national pricing, it provides cost recovery and reasonable margins for them to invest in the network, while allowing them to eliminate cost, redundancies and inefficiencies. It also gives shippers more options on the national level for LTL service.”
Yet DOJ's decision may also establish more discipline among LTL carriers as well. “The government pretty clearly states you can establish these collective ventures as long as your home territories do not overlap,” Jindel said. “So if you decide to open up a terminal in another state to directly compete with a fellow regional carrier within the alliance, then you run the risk of the government pulling you out from these partnerships. As long as there is no overlap between the partner companies, these alliances can function.”