If necessity is the mother of invention, then the current “freight recession” is encouraging carriers to seek new ways to reduce costs. In the next two blogs, we will take a look at this issue. In this blog we will focus on some of the cost savings programs that have caught my eye in recent weeks. In the next blog, we will focus on the topic of how to reduce costs without cutting service.
The LTL business is a very labour and capital intensive industry. Carriers in this industry must have multiple terminal locations and employ people at these locations to “cross-dock” the freight and deconsolidate it into direct loads to specific destinations. In an effort to remove some of the costs from its “hub and spoke” network, YRC Corporation recently negotiated a new class of “utility” worker. Jim Roberts, president of Trucking Management Inc., the labour bargaining arm of YRC recently commented that with “a continuing erosion of freight levels for the foreseeable future, the union took the bold step of enabling the largest carriers to grow their operations by creating new shorthaul, expedited operations, as well as look at new ventures in the truckload market….It allows the companies to get away from the traditional hub-and-spoke system under which they currently operate.” Roberts stated that “they can touch the freight fewer times” and move it along more quickly”. These changes are expected to be particularly helpful to the Yellow Transportation, Roadway Express and USF Holland divisions of YRC.
YRC is also looking at other measures to improve its financial performance. YRC Officials have announced that it plans to take steps to integrate the operations of its two national carriers, Yellow Transportation and Roadway. This will be interesting to watch since the company has stated publicly that it plans to maintain the two brands in the market. The integration will likely take the form of running joint line haul schedules and combining terminal facilities in certain locations.
Both USF Holland and USF Reddaway, part of the YRC Regional Group, have had problems since taking over the operations of other USF regional carriers (e.g. USF Dugan). Company officials have stated that they plan to look at “the effective geography for these carriers.” Since freight density is so critical to the profitability of LTL carriers, it is likely that these carriers will pull out of those locations where there is insufficient freight to run consistent schedules. It will also use its new union agreement privileges to move goods through its so-called “corridor hubs” or “flow centers” to minimize handling and speed up deliveries.
Deutsche Post’s DHL Express is expected to employ a similar strategy to curtail its losses on its U.S. domestic small parcel operation. Research analyst Menno Sanderse with Morgan Stanley in Europe expects to see a “substantial cut in network size, combined with subcontracting and a focus on international services….”
In addition to labour and terminal costs, fuel is another large and increasing component of the LTL freight industry. LTL carriers are coming up with a variety of strategies to deal with rising fuel costs. A. Duie Pyle, a northeast based regional LTL carrier has something that most other carriers of a similar size don’t have, its own 500,000 gallon fuel tank in West Chester, Pennsylvania, the location of its head office. Interestingly enough, high fuel costs were not the original idea behind the purchase. Steve O’Kane, president of the company originally made the purchase as a safeguard against supply disruption. However the company has found ways to gain economic advantage by purchasing supplies in advance of a cost spike and filling its trucks in anticipation of a drop in prices. In this case, the company then goes out and stockpiles fuel at the lower price.
Other companies are employing different strategies to reign in the high cost of fuel. Dave Anderson fleet manager at North American Transportation in Hayward, California stated that they have “gone to auto-shift transmissions on 100% of our units”. North American is using transmissions made by Eaton Corp. (that were spec’d on its 2006 model Freightliners) for its 80 trucks. “It makes a perfect shift every time - - the computer does it all, helping with the shifting and fuel economy…. We’re also running more fuel efficient tires - - using low-rolling resistance tiers and constantly monitoring pressure”. Mr. Anderson also mentioned that his company monitors its drivers’ idling times and speeds in an effort to conserve fuel. Midwest regional carrier Djuric Trucking monitors drivers by using Global Positioning System equipment on its 65 trucks and by checking that its drivers do not go out of route.
Whether it is creating a new class of employee, by-passing “hub-and-spoke” networks, eliminating service in low volume areas, purchasing fuel tanks, acquiring fuel efficient engines and tires and/or utilizing GPS tracking systems to limit out of route miles, carriers are employing a variety of strategies to improve efficiencies during these challenging times.