Brokers Are Commoditizing LTL Carriers… And That’s a Good Thing
Much discussion in the transportation industry centers around how less-than-truckload (LTL) resellers, or brokers, are commoditizing the LTL carrier marketplace. While carriers don’t claim that brokers are packaging up their contracts and listing them on the Chicago Board of Trade to be exchanged like pork belly futures contracts, some do believe resellers are stripping the value from their brand and lumping all carriers together on the same level to compete on price alone.
It is true that resellers have transformed the trucking industry by creating transparency through listing carrier rates and transit times for moving freight from, say, Atlanta to Des Moines. But will each carrier provide the same customer experience for that move at the same price? Not by a long shot. Their service levels are dramatically different.
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Three grades of LTL carriers are taking shape in the market: premium, standard, and economy. Nuances exist within these tiers, but in the past two decades, the lines have grown thicker as carriers—consciously or unconsciously—divide themselves across grades.
As users of LTL services, it is critical that shippers and brokers understand the differences among these carrier types. With a premium carrier, you will likely pay a bit more, but get a high on-time performance rate, clear shipment visibility in transit, and low claims ratio. If you’re shipping a part that will shut down a plant if it doesn’t arrive in two days, use a premium carrier every time.
But if you’re moving low-value, dense freight that just has to get there in a reasonable length of time, why pay for the extras that would make it a premium service? Move it with an economy carrier and pay less.
What this means for LTL carriers: Create a reseller strategy and pricing program that accomplishes internal goals such as bringing on more tonnage or revenue, and correcting lane imbalances. Explain to the reseller when (and when not) to use your services, and what to expect when they tender a shipment to you. Don’t try to be everything to everyone.
What this means for LTL resellers: Build your LTL network and understand each carrier’s strengths and weaknesses. Spread that knowledge so the entire organization—from management to the customer service team and individual sales reps—understands it.
Don’t be afraid to get creative with pricing. If a carrier takes the time to build a custom pricing tariff, signing up for it will have value, such as aggressive backhaul pricing, and avoiding tricky pickup or delivery areas that will create challenges for both brands. If costs are associated, you will make them back immediately by providing customers wit h value-added services and knowing how to utilize partner carriers correctly.
It is unlikely that LTL carriers will be completely commoditized, but premium, standard, and economy grades are becoming more relevant. This could be a negative development for some. LTL carriers that offer services outside their core competencies, and resellers who refuse to strategically engage LTL carrier partners, will be left behind as the market evolves.
But carriers and resellers that embrace change, and set up their businesses to operate in a marketplace where they can co-exist, can capitalize on this extraordinary opportunity.