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.
There's a proverb that "there are no mistakes, just lessons." If that's the case, the less-than-truckload (LTL) sector has received a world-class education during the past five to six years.
After a terrible cycle that saw the LTL market shrink from more than $33 billion at the last peak (in 2006) to $25.2 billion at the recession's trough in 2009, carriers appear to have gotten their act together.
Market size has stabilized at about $30.6 billion, though that's still about 10 percent below its pre-recession high. Gone, at least for now, are the price wars that were largely designed to drive ailing YRC Worldwide Inc., the market leader at the time, out of business but ended up backfiring on the carriers that launched them. Volumes have returned as the economy has gradually improved, giving carriers the chance to restore sanity to their pricing and their bottom lines.
In addition, through network redesigns and tough operational pruning, carriers have sopped up a large amount of the excess capacity that plagued them through the downturn and in the early part of what has been a halting recovery.
"Capacity is now lined up pretty well with the needs of the market," said William J. Logue, president of FedEx Freight, the LTL unit of Memphis-based FedEx Corp. and the industry's largest player by revenue.
No carrier executive who survived the past six hellish years will get carried away with LTL's outlook. For them, just being able to string "LTL" and "stability" in the same sentence is an achievement.
"The industry is more focused and stable," said Logue. "The up-and-down swings are not there now."
"I'm a lot more comfortable with where we are today than where we were two years ago," said Jeff Rogers, president of YRC Freight, the long-haul unit of Overland Park, Kan.-based LTL carrier YRC Worldwide.
Rogers said pricing, while still competitive, is firm, stable, and consistent. "Everybody is being rational at this time," he added.
Old Dominion Freight Line Inc., considered by many to be the industry's best-run carrier, declined comment for this story. However, its executives were quoted in an analyst call to discuss first-quarter results as saying that pricing was "stable" and "good." Thomasville, NC-based Old Dominion did not cut its rates nearly as sharply as its rivals did during the downturn, a reflection of its pricing discipline and its already-strong financial position heading into the cycle.
Better days to come?
There may be further room for pricing improvement. According to an April 29 analysis from Morgan Stanley & Co., carrier margins can increase an additional 4 to 6 percent from current levels before they reach what would be considered normalized returns on invested capital. Provided a normal historical recovery takes hold, there is still opportunity for further pricing gains, according to the firm.
The firm noted that the margins of the most aggressive discounters during the down cycle, FedEx Freight and Con-way Freight, the LTL unit of Menlo Park, Calif.-based Con-way Inc., are still below the levels of the 2005 peak.
The Morgan Stanley analysis said improving economic fundamentals and an "oligopolistic industry structure"—10 carriers account for 73 percent of total industry revenue, by its estimate—"reinforce an already weak incentive to discount" among the carriers and are "supportive of price discipline."
In the past two to three years, truckload and intermodal rates have been rising, while LTL prices have remained largely flat to down. The LTL sector is now benefiting from that trend, as intermodal and truckload shippers start turning to the segment to get better pricing.
David G. Ross, transport analyst for Stifel, Nicolaus & Co., said the continued tightening of truckload capacity in coming years could result in "overflow freight" that will add all-important traffic density on LTL routes. Ross said LTL yields—excluding the impact of fuel surcharges—should increase up to 5 percent in 2012 and predicted carriers would enjoy pricing power through 2014.
A rising tide is not lifting every boat, however. ABF Freight System, the LTL unit of Fort Smith, Ark.-based Arkansas Best Corp., has, like its competitors, increased its rates. However, analysts said the resultant tonnage losses have put a unique hurt on ABF's network utilization because as one of only two unionized LTL carriers, it has the industry's highest cost structure. The company said that first-quarter 2012 tonnage fell 12.5 percent from the 2011 period, and the burdens of a high cost structure and unfavorable tax rates resulted in a higher-than-expected $18.2 million quarterly loss.
YRC, the other unionized carrier and one that faced insolvency in late 2009, has in recent years won a series of controversial cost concessions from the Teamsters union as a trade-off for its survival. ABF had sought similar givebacks from the Teamsters but didn't get them. It has also sued YRC and the union on grounds their pacts fell outside the national agreement governing labor relations with both carriers and are thus illegal. ABF declined comment for this story.
Flak over 'FAK'
Despite the marked improvement, LTL carriers still face two big structural problems. The first is that large shippers continue to use their volume clout to beat back attempts at rate increases; the second is that carriers regularly misprice "Freight All Kinds" (FAK) shipments tendered to them. As a result, carriers undercharge for shipments that weigh more than they realize, allowing shippers to pay lower rates than they should. Because of those two issues, pricing is "still not where it needs to be" to enable carriers to earn their cost of capital, said Ross.
Rogers of YRC Freight said the issue of FAK mispricing has been around for years but has become more prevalent with the increasing influence of third-party logistics service companies (3PLs), which tender a large percentage of loads that generate FAK rates. He said YRC tries to avoid 3PLs that are just "price shoppers" and works instead with those intermediaries "who bring us new business and take cost out of our pricing structure."
Logue of FedEx Freight said the sector needs to move away from "classification" pricing, where rates are determined by the characteristics of commodity classes, to a more simplified structure based on shipment distances, or "zones," and density. The latter approach, long used by FedEx's core parcel customers, would be a "game-changer" for LTL if adopted, Logue said. He added, though, that such a move would likely be a long and complex transition for shippers and carriers.
Satish Jindel, president of Pittsburgh-based consultancy SJ Consulting, said at a recent industry conference that the current classification rate structure "creates no incentive for shippers to adopt good pricing practices." Many LTL users have enjoyed a pricing windfall over the past 30 years, and the flip side of that can be found in the paltry increase in carrier yields, Jindel noted.
In 2011, LTL rates per hundredweight—the most commonly used barometer to measure carrier yields—stood at $16.71, according to SJ Consulting data. In 1983, they were at $14.08 per hundredweight. The annualized 0.6-percent gain has been dwarfed by the annualized 2.6-percent rise in the cost of labor and trucks, SJ data shows.
Slow road to recovery
As an example of the pricing needs of one carrier, YRC's rates would have to rise about 8 percent above where they are today to restore and maintain consistent profitability, according to Charles W. Clowdis Jr., a trucking executive for decades and now head of transportation advisory services for the consultancy IHS Global Insight.
Rogers of YRC Freight said an 8-percent across-the-board increase "is not going to happen" given current market conditions, though on some lane segments the carrier is securing increases higher than that. A key challenge facing YRC is that its customer mix is tilted more heavily toward high-volume corporate business than the company wants. Rogers said, however, that he's more comfortable than he's been in years asking large accounts for rate hikes. In the meantime, YRC continues to go after non-corporate accounts that would command higher prices for its services, he said.
Rogers said the carrier doesn't "need an 8-percent increase" to be consistently profitable and viable. He said, "getting to where we need to be will not be based on price."
The LTL industry, which lives and dies on freight density and network efficiency, knows that pricing actions alone won't return it to sustained profitability. The housing industry, which played a big part in LTL's performance until its own meltdown in 2007, remains unsteady. Without much future contribution from housing, Ross expects LTL tonnage to grow just 1 to 2.5 percent annually this year and next. Even a modest 2- to 3-percent increase in 2014 would depend on at least a moderate housing recovery, he added.
Ross said he does "not believe carriers should rely on pricing alone to restore necessary margins, as network efficiency and cost control remain highly important."
The venture-backed fleet telematics technology provider Platform Science will acquire a suite of “global transportation telematics business units” from supply chain technology provider Trimble Inc., the firms said Sunday.
Trimble's other core transportation business units — Enterprise, Maps, Vusion and Transporeon — are not included in the proposed transaction and will remain part of Trimble's Transportation & Logistics segment, with a continued focus on priority growth areas following completion of the proposed transaction.
Terms of the deal were not disclosed but as part of this agreement, Colorado-based Trimble will become a shareholder in Platform Science's expanded business. Specifically, Trimble will have a 32.5% stake in the newly expanded global Platform Science business and will receive a Platform Science board seat. The company joins C.R. England, Cummins, Daimler Truck, PACCAR, Prologis, RyderVentures, and Schneider as a key strategic investor in Platform Science along with financial investors 8VC, Activant Capital, BDT & MSD Partners, Softbank, and NewRoad Capital Partners.
According to San Diego-based Platform Science, the proposed transaction aims to enhance driver experience, fleet safety, efficiency, and compliance by combining two cutting-edge in-cab commercial vehicle ecosystems, which will give customers access to more applications and offerings.
From Trimble customers’ point of view, they will continue to enjoy the benefits of their Trimble solutions, with the added flexibility of the Virtual Vehicle platform from Platform Science. That means Virtual Vehicle-enabled fleets will receive access to the Virtual Vehicle Marketplace, offering hundreds of new and expanded applications, software, and solution providers focused on innovating and improving drivers' quality of life and fleet performance.
Meanwhile, Platform Science customers will enjoy the added choice of Trimble's remaining portfolio of transportation solutions which will be available on the Virtual Vehicle platform, the partners said.
"We believe combining our global transportation telematics portfolio with Platform Science's will further advance fleet mobility and provide our customers with a broader portfolio of solutions to solve industry problems," Rob Painter, president and CEO of Trimble, said in a release. "Increased collaboration between the new Platform Science business and Trimble's remaining transportation businesses will enhance our ability to provide positive outcomes for our global customers of commercial mapping, transportation management, freight procurement, and visibility solutions. This deal will result in significant synergies along with tremendous opportunities for employees to continue to grow in a more-competitive business."
The acquisition comes just five months after Platform Science raised $125 million in growth capital from some of the biggest names in freight trucking, saying the money would help accelerate innovation in the commercial transportation sector.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
With the economy slowing but still growing, and inflation down as the Federal Reserve prepares to lower interest rates, the United States appears to have dodged a recession, according to the National Retail Federation (NRF).
“The U.S. economy is clearly not in a recession nor is it likely to head into a recession in the home stretch of 2024,” NRF Chief Economist Jack Kleinhenz said in a release. “Instead, it appears that the economy is on the cusp of nailing a long-awaited soft landing with a simultaneous cooling of growth and inflation.”
Despite an “eventful August” with initial reports of rising unemployment and a slowdown in manufacturing, more recent data has “calmed fears of a deteriorating U.S. economy,” Kleinhenz said. “Concerns are now focused on the direction of the labor market and the possibility of a job market slowdown, but a recession is far less likely.”
That analysis is based on data in the NRF’s Monthly Economic Review, which said annualized gross domestic product growth for the second quarter has been revised upward to 3% from the original report of 2.8%. And consumer spending, the largest component of GDP, was revised up to 2.9% growth for the quarter from 2.3%.
Compared to its recent high point of 9.1% in July of 2022, inflation is nearly back to normal. Year-over-year growth in the Personal Consumption Expenditures Price Index – the Fed’s preferred measure of inflation – was at 2.5% in July, unchanged from June and only half a percentage point above the Fed’s target of 2%.
The labor market “is not terribly weak” but “is showing signs of tottering,” Kleinhenz said. Only 114,000 jobs were added in July, lower than expected, and the unemployment rate rose to 4.3% from 4.1% in June. Despite the increase, the unemployment rate is still within the normal range, Kleinhenz said.
“Now the guessing game begins on the magnitude and frequency of rate cuts and how far the federal funds rate will be reduced,” Kleinhenz said. “While lowering interest rates would be good news, it takes time for rate reductions to work their way through the various credit channels and the economy as a whole. Consequently, a reduction is not expected to provide an immediate uplift to the economy but would stabilize current conditions.”
Going forward, Kleinhenz said lower rates should benefit households under pressure from loans used to meet daily needs. Lower rates will also make it more affordable to borrow through mortgages, home improvement loans, car loans, and credit cards, encouraging spending and increasing demand for goods and services. Small businesses would also benefit, since lower intertest rates could lower their financing costs on existing loans or allow them to take out new loans to invest in equipment and plants or to hire more workers.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.