Rivers of change have converged to reshape the truckload landscape. A market segment once synonymous with long-haul trucking, truckload carriers are increasingly engaged in moving much shorter, often regionalized hauls and are more active in pursuing freight both on a dedicated-contract and spot-market rate basis.
The movement away from truckload carriers hauling freight predominantly with long hauls did not happen overnight, nor was it unleashed by any single factor. Rather, it's resulted from a confluence of factors — from shippers lengthening supply chains, to private carriers exiting the “last mile,” to for-hire carriers addressing the driver shortage, even to the arrival of more maneuverable tractors — that began picking up steam in the late '90s. And today the trend is being accelerated by the ever-dragging economy.
But regardless of when and by how much the economy eventually bounces back, the overwhelming trend to shorter hauls is not going away and by all indications will remain in place for the foreseeable future.
According to industry analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), the weak economy is fueling what he views as a long-term trend that started 15 to 20 years ago of for-hire carriers shifting company-owned trucks to dedicated contract carriage as well as regional routes when many private carriers began outsourcing their long hauls.
Now he says the trend is deepening as “for-hire carriers are increasing their penetration into regional freight markets and expanding dedicated contract carriage. This is because businesses are outsourcing regional and, in some instances local, ‘last-mile’ delivery services to for-hire carriers as the recession and sluggish recovery have forced [these] businesses to restructure operations to increase efficiency and productivity. However, Brady hastens to add that the short-haul trend does not mean the end of irregular-route long-haul truckload by any means. “Large for-hire carriers are shifting company-owned trucks to dedicated contract carriage and regional freight routes but have established brokerage businesses to continue to service shippers in long-haul irregular-route freight markets,” he explains.
“The long-haul truckload freight market is not going away because as shippers consolidate manufacturing plants and warehouses, they require long-haul truckload services,” Brady continues. “Who hauls the freight, though, is changing as large truckload carriers shift company-owned capacity to dedicated contract services and regional freight markets.”
He points out the shift implies that smaller for-hire carriers and owner-operators are increasing their penetration in the irregular-route long-haul freight market as large truckload carriers broker out more of this freight. And he says technological advances are enabling carriers as well as independent brokerages to communicate more efficiently and cost-effectively with many different owner-operators and small fleets while also maintaining a high level of service to their shippers.
ALL FREIGHT IS LOCAL
A good example of the trend in action that Brady offers is J.B. Hunt Transport Services Inc. He says Hunt is shifting capacity to its Dedicated Contract Services unit while shrinking capacity at its truck business unit.
When you get right down to it, like politics, all freight is local, says industry analyst Noel Perry, principal of Transportation Fundamentals and managing director of FTR Associates. However, he adds that the truly “big ah-ha!” is not that revelation but that all truck drivers are local, too.
In other words, how truckload carriers have had to deal with the unending driver-shortage and/or driver-churn issues (your pick) have further fueled their advances into dedicated contracts and regional-to-local freight movements.
“What has happened,” Perry explains, “is [large truckload] fleets have changed the way they manage freight. They have figured out it is smarter to run their own equipment regionally. That is to say, all freight operations are local — but the customer still wants solicitation to come from one place.”
Perry sees the trend toward more regionalized operations by truckload carriers as distinct from the one that has them building up their dedicated-carriage business units.
“Some of the growth in dedicated operations is driven by companies deciding to outsource the capital and management of their private fleets in exchange for accepting less control [of shipping product] but gaining fixed-cost savings and not having to hire and manage drivers.”
According to Perry, the shift having the biggest impact on the dedicated freight market involves what he terms “baseload” freight. “This means when a carrier can pick up enough predictable freight from one shipper on a point-to-point or round-trip route to ‘base’ a single dedicated operation on it.
“This kind of freight,” he continues, “is often called good freight. In the past, large shippers would bid out both their good and bad freight together to get homogenized pricing. What happened was savvy carriers — especially new entrants — would offer a discount to handle just the good freight or would offer a discount just to get a lane established. Over time, truckload changed from only moving mixed freight to separating out the good freight and handling it with dedicated carriage.”
The remaining bad freight in the system was no longer discounted, according to Perry, but was less profitable so irregular-route asset-based carriers lost money on it. That compelled large carriers to leave this segment altogether or broker the bad freight out to smaller carriers and owner-operators. He notes this freight, which used to get “sopped up” with the good freight, is now handled mainly on the spot market.
Perry says the growth in regionalized freight is distinct but parallel to the still-rising trend to dedicated carriage. He contends this is because for-hire fleets have learned — and accepted — that driver turnover costs are less when truck operations are run regionally.
“Fleets can gain higher utilization and yield this way while being able to get drivers home,” he points out, which is where most of them want to be at the end of a shift.
“To make regionalizing feasible,” says Perry, “large carriers are dividing their business into different groups united by a simple network system. This way they can get higher equipment utilization as well as better yield by knowing [locally] where they can raise rates.”
He points to Heartland Express as a good example of regionalizing truckload. “Heartland has a hub-and-spoke network with each hub serving a specific territory. Each hub manager lives in that region and the trucks return there as well.” This literally puts them closer to the freight and, notes Perry, can enable such efficiencies as having a driver wind up his or her shift picking up freight that he or she will deliver the next day.
According to Perry, it's key that truckload carriers bear in mind that there simply is more regional than national freight at this time. He credits this situation to the lengthening of supply chains over the past 15 or so years. “Any retail or wholesale supply chain becomes more regional as it grows,” he explains. “As volumes rise, more warehouses [or distribution centers] are needed,” which means there are more links in a given supply chain and their transportation needs can be serviced regionally — if not also locally as “last-mile” delivery offerings.
“We track average length of haul and it has shrunk,” advises David Shrader, senior vice president-operations for load-matching services provider TransCore Freight Solutions. “The annual survey we do of carriers and brokers shows that in 2010, they were running in the 850-mi. range, versus 10 years ago when it was 1,000. So, there is a distinct trend in the truckload spot market to shorter hauls. And we expect driver shortage to keep the trend to shorter hauls going.
“We are also seeing an increase in load availability as well as capacity participation in spot markets,” he continues. “A lot of it is due to seasonality [of freight], but it is important to view each shipping lane for its own dynamics. Lanes can only be in balance due to seasonality or if capacity shifts elsewhere.” He adds that the spot market has grown because it is a “very efficient way to handle freight — and it almost always gets a better rate than a [dedicated] contract.”
According to Mark Montague, TransCore's industry pricing analyst, 10 years ago loadboards were used to fill backhauls. “But going into 2010, we saw headhauls [for carriers] being posted on the boards due to shippers not being able to get that freight moved.
“Given current economic conditions,” Montague continues, “shippers are less likely to be willing to raise contract rates. So rather than run all their lanes at a higher rate, shippers are increasingly shopping it on the spot market; essentially they are playing a waiting game [until the economy improves].” He notes that TransCore maintains a public link — transcoretrendlines.com — where it posts stats on spot-freight volume and rates and is updated every Tuesday.
Montague also points out that TransCore data shows that a “lot of local freight — under 500 mi. — is being posted as well on loadboards.”
“There is a real trend for larger carriers to go after the shorter regional hauls by setting up specialized business units,” advises TransCore senior marketing manager Ken Harper. “This is driven in large part by the driver shortage.”
Who knows when the driver shortage will ever end, but certainly the economy is bound to bounce back sometime in the next few years. What is certain is the truckload landscape has dramatically changed.
According to Schneider National, which provides truckload (including national, regional and dedicated) as well as intermodal and logistics offerings, it is far from the only carrier selling its customers a much broader portfolio of services to keep pace with the changing truckload marketplace. “Even midsized carriers today are coming to market with multiple service offerings,” says Marc Rogers, vice president and general manager of regional services.
“Over the past decade,” he continues, “shippers have shortened the supply lines from their distribution centers to stores,” leading to a rise in dedicated freight and shorter hauls. “And the price of truck fuel has led more of them to look at intermodal movements.”
“Our customers have become very good at managing their inventories,” remarks Dan Van Alstine, senior vice president and general manager of dedicated services. “That tighter inventory means they have to be closer to their end customers, hence distribution centers have become more regionalized. The equation of higher fuel costs and more distribution centers [in the supply chain] is what's led to more regionalization,” he adds.
Rogers says Schneider views intermodal as a long-haul door-to-door solution while on trucks, truckload freight may be moved long-haul via Schneider's “regular or expedited service” as there are “not railroad tracks everywhere.” He notes that the carrier has a “large presence in Canada and Mexico, and we are seeing manufacturing returning to Mexico [from overseas].”
Schneider, advises Rogers, is continuing to grow its dedicated business from “private-fleet conversions and as a solution when there are challenging elements to a regional-freight scenario.”