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.
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
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.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."