Building Capacity Through Specialized Truckers
Forming partnerships with specialized and diversified truckers can help secure capacity when there’s none to be found.
Cool Moves: Expanding Into Refrigerated
As director of domestic logistics for lawn care equipment company MTD Products Inc., Valley City, Ohio, Dan Ziegler understands the importance of working diligently with the asset-based carriers in his transportation network. For Ziegler—who manages both the flow of parts into manufacturing plants and the delivery of finished products—the ability to have guaranteed capacity is key to his entire supply chain.
Coming off an economic recession that drained truckload capacity by 15 percent, shippers have a variety of service options at their disposal. The leading truckload carriers increased their presence in the dedicated contract carriage (DCC) and regional services markets to fill the void left by the recession-driven departure of small and mid-sized carriers. And some traditional truckload carriers leveraged transportation technology systems to enter the refrigerated market (see sidebar).
But while Ziegler and other transportation decision-makers can choose from an array of specific services, it’s still a matter of finding the right fit.
"I work with asset-based providers to build long-term partnerships and share information," Ziegler says. "The carriers have visibility to inbound and outbound moves from our location so we can identify synergies between our freight and their capacity."
Because of these partnerships, MTD has not experienced a great deal of turnover in its carrier network. "We want our carriers to help us create the most flexible and responsive supply chain possible," Ziegler says. "The carriers are offering more specialized services; in fact, almost every large asset-based carrier is trying to grow its dedicated business." To point, MTD expanded the use of its DCC provider by 25 to 30 percent in the past year.
"It’s a win for the carrier when you can commit a certain amount of volume to its assets and drivers," he says. "It’s also a win for the shipper because—if you do it right and have the systems in place to manage it—you will save money.
"But, most importantly, you will guarantee capacity," Ziegler continues. "You will be able to ensure that your parts are where they need to be, and your customers are getting products into their stores when they need them."
A Shaw Thing
As corporate transportation manager for Shaw Industries, a Berkshire Hathaway company and manufacturer of carpet and floor coverings, Ben Ball oversees approximately 100,000 annual linehaul moves. Like Ziegler, Ball has witnessed an evolution within the truckload market during the past 10 years.
Shaw, headquartered in Dalton, Ga., has seen capacity tighten following the recession. Recognizing the market pressures of rising equipment costs, the loss of productivity through tightened regulations, and a shrinking driver pool, Shaw looked for ways to best assist its carriers in a specialized truckload market.
"Like many other businesses, carriers have scaled down, and want to grow their fleets a little slower than they have in the past," Ball says. "Hiring drivers can be an issue, and equipment costs are rising ."
This changing environment inspired Shaw to become more proactive when working with its carriers. "We’ve always tried to be consistent with our carriers," Ball says. "But particularly during the past five years, as carriers were right-sizing, we worked to improve the information we provide them, as well as the way we analyze our network to identify our needs."
The slow economic recovery has masked some pressures of an even tighter capacity crunch on the horizon. "To cope, smart shippers will look to establish good business relationships with their carriers," says Peter Gatti, executive vice president of industry association The National Industrial Transportation League.
"If supply tightens, and the economy expands, shippers will see increased freight rates that will ultimately drive the market," Gatti says. "Evaluating carriers not only on price, but also on performance, will be an essential element of the selection process."
The broader scope of available services simplifies the process of selecting carriers, according to a transportation manager for a large medical products manufacturer.
"We no longer look at carriers in specific buckets such as truckload, dedicated, drayage, or heavy haul," says the transportation manager. "We look at a carrier’s entire breadth and depth of services, and won’t even consider using a carrier that doesn’t display some level of diversification.
"I am not going to contract with a truckload carrier unless it can offer more than a simple service anyone can buy on the spot market," he adds. "I refuse to let the continued commoditization of the market drive complacency, and not expect carriers to offer multiple services. These options are readily available to educated shippers."
New Era of Collaboration
Rather than shop for a specific dedicated contract carriage solution, or another targeted service offering, Shaw made the commitment to look deeper into its network data to offer information to the more than 90 carriers bidding to provide transportation from the company’s Dalton plant to its 28 regional distribution centers across the country.
"We used to provide projections by the week or month; but in our last network bid, we drilled down to the day," says Ball. "These daily projections gave prospective carriers a detailed view into what they could expect if we chose them to serve our network.
"We believed anything we could do to enhance carriers’ abilities to adapt to our business needs would create a better partnership—and it has," explains Ball.
The end result of this collaborative effort has been the creation of a transportation network that has worked well for Shaw and its carrier partners. The ability to leverage the best available data from Shaw has been key to building a more efficient network.
"Both parties are making an effort to be as precise as possible, and open to the real need," says Ball. "Providing carriers with more information allows them to be successful. They see the effort we put forth to drill down into our networks, and our willingness to establish a true partnership.
"Our carriers are sharing more details about their networks, as well—such as where their congestion points are. They have been proactive in getting information back to us," continues Ball. "We have gotten to know their pain points, which allows us to work more closely together to ensure the supply chain flows as it should."
MTD Products also leveraged the increased insights provided by a new transportation management system (TMS) to tighten its supply chain.
"The new TMS gives us better visibility and control of our shipments, and helps us develop relationships with our asset-based partners," says Ziegler.
"If we use a carrier on an outbound load to one of our customers, we try to find a backhaul to our location," he says. "We are trying to build not only return-trip routings, but continuous move routings where we can keep the carrier in our network. We are pursuing any avenue we can to guarantee capacity during our critical time of year—the spring and summer lawn-cutting season."
Carrier Perspectives: Leveraging a Variety of Services
Carriers also have a unique perspective on the role of diversified services. Phoenix-based truckload carrier Swift Transportation, for example, views the specialization of services as both a strategy and a customer support opportunity.
"Swift’s specialized services have grown over the years based on our strategy to meet shipper demand for value-added transportation solutions," says Richard Stocking, Swift’s president and chief operating officer. "One component of our approach has been to partner with shippers, and collaboratively work on developing specialized services including dedicated, intermodal, refrigerated, flatbed, and logistics.
"With our large asset presence and geographical coverage across the United States, Canada, and Mexico, we are constantly presented with opportunities to diversify from our traditional full truckload offering," he adds.
Among the benefits that Swift has seen from service specialization are enhanced relationships with shippers, and a variety of opportunities that are helping retain drivers in a challenging market.
"For shippers, service specialization offers greater value and ease of business, ultimately providing a competitive market advantage," Stocking explains. "For carriers, these specialized services give us more strength in the market, and build the relationships we have with customers.
"Growing specialized services is also one avenue to help retain drivers and provide meaningful employment," he adds. "Dray, local shuttle, and regional dedicated services provide drivers the opportunity to stay closer to home, and have more work predictability than long haul."
The value of schedule predictability for drivers cannot be overstated. Dan Van Alstine, senior vice president and general manager of Green Bay, Wis.-based truckload carrier Schneider National‘s DCC operation, places a fine point on the importance of what a dedicated route can mean for drivers.
"Drivers want a sense of connectedness and belonging," says Van Alstine. "They want to develop a relationship with the store that they deliver to twice a week, and the warehouse they pick up from every day. They want to know that they are part of a team, and that they make a difference every day."
Service diversification has become a powerful tool for a host of truckload carriers. Many that widened their offerings to include intermodal and logistics in addition to line-haul services, for example, have positioned themselves as transportation companies rather than truckers.
"For carriers to remain strong, and weather an unpredictable economy, diversification of transportation offerings is the only way to go," notes Shelley Simpson, chief marketing officer and president of Integrated Capacity Solutions for J.B. Hunt, a Lowell, Ark.-based logistics and transportation company that features one of the nation’s largest intermodal networks and DCC operations.
"A diversified portfolio allows shippers to work with a single provider for a greater portion of their supply chain," agrees Derek Leathers, president and COO of Werner Enterprises, a truckload carrier based in Omaha, Neb. "Diversification, however, forces providers to be able to deliver competitive solutions when dealing with shippers who have niche product and service operations.
"Providing capacity and quality service to shippers are top challenges for any carrier, regardless of their portfolio," he adds. "It comes down to shippers and providers having transparent dialogues regarding their business needs and what networks can support those needs.
"Top providers are continually reviewing their networks and making adjustments where necessary," Leathers says. "Shippers deserve that flexibility from their supply chain partners."
Niche Markets Redefine Direction
Covenant Transport, a long-haul truckload carrier based in Chattanooga, Tenn., also took the opportunity after the recession to examine developing specialty markets in an effort to find the right mix for its solo fleet.
"Covenant Transport has always concentrated on long-haul, expedited freight moving from the East Coast to the West Coast," says Covenant COO Sam Hough. "A recent diversification effort, however, focuses on a new ‘singles strategy’ to include a concentrated network of solo drivers who focus on niche markets with lengths of haul around 500 miles."
The shorter runs allow greater flexibility to use the company’s drivers to relay freight while getting them home more regularly.
"The regional and dedicated markets have grown significantly over the past few years because carriers realize that drivers like the consistency of dedicated runs, and can be home more often," Hough notes. "Moreover, the driver derives a greater feeling of ‘ownership’ regarding level of service."
Like other carriers, Covenant has seen improved driver retention from its entry into the specialized service markets. Hough also believes there is a notable chance for growth within both DCC and regional service operations.
"The growth potential is positive for the regional and dedicated markets, particularly when comparing over-the-road (OTR) versus rail," Hough says. "Regional OTR service insulates carriers from intermodal competition because the rails have a difficult time competing in the 200- to 300-mile short haul market.
"Conversely, the regional market becomes more competitive, and, therefore, carrier profit margins begin to decrease," he adds. "As the economy improves, and GDP increases, shippers could be forced to look at options such as dedicated or regional opportunities to continue to provide the best service possible. Selecting the right specialized market for your company is critical. Each market has its own unique challenges that you must be prepared to combat."
Expedited Service: The Time is Right
The challenges for any new asset-based carrier are numerous in these slow-to-recover economic times. Yet with the trend in asset utilization taking place across a range of specialized service markets, the leadership at V3 Transportation, a time-critical transportation provider based in Brunswick, Ohio, identified an opportunity to launch an expedited fleet in January 2013.
Customer response to the new service has been strong, says V3 Transportation CEO Bob Poulos, and the company reached the 50-truck mark in just seven months. Poulos and John Sliter, V3 president and COO, believe the company is already well-positioned to take the first steps in its five-year growth plan to build a 600-truck expedited fleet.
"Coming out of the recession in 2009, fleets took a huge hit as expedited freight movement slowed to a crawl," explains Poulos. "Carriers rebuilt their business by diversifying into less capital-intensive modes such as air freight, truckload brokerage, and other non-asset businesses. We believed that the market was ready for a new entrant whose sole focus would be time-critical and specialized freight."
Expedited is becoming more than just a platform to manage production labor cost or missed sales opportunities. "New demand triggers will fundamentally change the future economics of the expedited market," Poulos says. "We see a trend toward increased cycle times; continued low inventory levels; and higher velocity, smaller quantity movements in the supply chain."
The competitive landscape in expedited ground transportation is dominated by FedEx and Panther Expedited Services. Beyond those two large players, the market is fragmented, with dozens of small and mid-sized providers operating fleets ranging from 25 to 350 trucks.
"The expedited market is entering its next maturation cycle as new industries are being forced to embrace the mode due to historically low inventory levels, increased cycle times, and the need for higher velocity, smaller shipments through the supply chain," says Poulos. "Industries such as retail, consumer packaged goods, and manufacturing historically push product through their supply chains, then change their tolerances based on how the end consumer is buying the product.
"We see a movement from a ‘push’ supply chain to a ‘pull’ supply chain where companies more selectively source and ship their product to the end user," he says.
The Road Ahead
Given the challenges that exist in the marketplace, and those looming on the horizon, shippers will value access to capacity even more in the future. Along with many of his fellow shippers, MTD’s Ziegler is quick to acknowledge that equipment costs will continue to rise—especially if more fuel emissions regulations become a reality. Additionally, industry observers and analysts agree the driver shortage will not improve in the near term. And if the economy begins to thaw at a faster pace, all the factors driving the capacity crunch will grow more acute.
"The future is a little scary because we are going to face capacity shortages," says Ziegler. "To guarantee capacity, shippers need to get creative and focus on the relationships they have with carriers. What can you do to work with carriers to ensure your parts move when you plan them, and your customers get their orders when they want them?"
Ziegler hopes this spirit of cooperation will continue. "Carriers are drilling down on information—by lane and geography," he says. "Shippers are working with carriers to make sure the supply chain is operating well.
"Shippers who don’t focus on building relationships risk carriers not wanting to do business with them, and it will cost more to go elsewhere," he adds.
"We have a lot invested in our carrier relationships, and we want those relationships to continue," Ziegler notes. "It’s the best way to find and secure the capacity we need to keep the supply chain flowing."
Cool Moves: Expanding Into Refrigerated
When the recession hit a broad spectrum of industries serviced by the truckload sector, and shipment volumes decreased, carriers began to examine new business models and transportation technologies to diversify services and explore new markets. In recent years, some large truckload players established—and have grown—new refrigerated service offerings.
“Technology improvements have greatly affected the refrigerated transportation market,” notes Richard Stocking, president and COO of Swift Transportation. “These technological advances are improving the quality of perishable products at the time the consumer purchases them.”
The ability to apply improved transportation technology and more capacity to the refrigerated market has added velocity to the food supply chain. Additionally, the refrigerated sector offers carriers an all-important consistency of freight.
“Refrigerated goods have always had a ‘shelf life’—the longer it takes to sell the product, the more the quality of the product deteriorates, and, consequently, loses value. In retail terms, that correlates to a loss of revenue,” says Stocking. “Transportation technology advances; improved and more efficient refrigeration units; and upgraded or improved packaging, fruit/vegetable coatings, and bioengineering have helped to reduce the deterioration of food products.
“The refrigerated sector doesn’t see the same volume fluctuations driven by the economy or other factors that the dry van sector experiences,” he adds. “Everybody has to eat. Many perishable products are seasonally grown and sold in the United States. In years past, consumers were used to going without during the ‘off’ season. But, because of refrigerated advances, the products can now be imported from other countries and shipped here.”
When staking out claims on new revenue streams such as refrigerated service, carriers keep an eye on customer demand.
At J.B. Hunt, for example, “We intend to continue entering new specialized markets,” says Brian Webb, senior vice president of business development. “Five years ago, for instance, we saw an opportunity in delivering big and bulky items to homes, offices, and job sites. That led to the creation of our Final Mile network. We now have delivery trucks and crossdocks strategically located 150 miles or less from 98 percent of the U.S. population.
“With any new market, we listen closely to our customers for an opportunity to solve a supply chain or customer service challenge,” Webb says. “We will enter a new market if we can offer an improved alternative solution—especially if we can leverage all our complementary service offerings.”