With U.S. and Canadian troops serving in Iraq and Afghanistan, there is much talk these days about war. There is also a war going on in North America. It is a war of a different nature and it is being fought in the boardrooms of trucking companies and in the shipping offices of Traffic Managers. It is a war for LTL and small parcel market share.

The reasons for the war are obvious. According to Howard Schultz, CEO of Starbucks, “mall traffic in America is down between 9% and 10%”. According to a recent Business Week report (The Spending Mirage – April 21), “the decline is pretty much across the board: inflation-adjusted purchases of food, clothing, furniture, and motor vehicles are all down”. The so-called freight recession is being driven by an economic recession. Consumer spending is down. In addition, many consumers are carrying so much debt that they cannot spend any more. This is further impeding spending as economic uncertainty and increasing job losses are influencing even wealthy consumers to become more cautious.

The deepening U.S. recession is causing the big three small parcel carriers, UPS, FedEx and DHL to play “cargo cutthroat”, offering deeper discounts and reducing their once “sacred” accessorial charges to take market share from one another. As a result of postal reform, the U.S. Postal Service is launching its own array of competitively priced service offerings in May. This will raise the competitive bar another notch. To grow their market share in a declining market, price has been the weapon. Rather than hold the line on rates to increase yields, the small parcel carriers are using price as a weapon to gain market share.

The LTL carriers are also “duking it out” among themselves and in competition with the small parcel players. Carriers such as Averitt Express and Pitt Ohio are employing sprinter vans in their operations to more effectively handle small LTL shipments and individual parcels in the range of 100 to 150 pounds. Some larger LTL carriers have formed the “Reliance Network”. As reported in a prior blog, the six carriers in this network are seeking to gain market share by providing their customers with service to each of their partners’ regional service areas.

Con-way is achieving market share gains by providing “faster cycle turnaround times” thereby allowing their customers to maintain lower inventory levels. They are seeing revenue growth in the “high single to low double-digits”. They are also obtaining rate increases of “roughly 2 percent” on their contract customers. Estes has expanded its coverage to become a 50 state carrier.

While some LTL carriers (e.g. Con-way Freight, Old Dominion Freight Line, and Saia) are reporting year/year gains in tonnage, others (ABF Freight System, FedEx Freight, UPS Freight, Vitran and YRC Worldwide) are reporting declines. While most carriers are talking about market share gains, the fact is that the overall freight pie is shrinking. Clearly some LTL carriers, large and small, are feeling the pain.

This is making it tough for executives in trucking companies not able to gain market share. As an example, the Yellow Transportation division of YRC replaced its President for the third time in fifteen months. It also replaced its VP of Sales and Marketing. In a memo to employees, Mike Smid, North American Transportation President and CEO of YRC, who is taking over the reins of its ailing Yellow Transportation division, indicated that employees have a mandate to retain customers at any cost. Translated into trucking terms, this will mean rate reductions whenever necessary to retain customers. Market share losses will not be tolerated.

To improve the financial performance of its regional operations, YRC recently reduced its service coverage in some of its regional LTL operations where it lacked sufficient density to operate profitably. This will likely benefit the carriers that have better traffic densities in these markets and are able to better utilize this freight in their networks.

Clearly it’s a war out there as LTL and small parcel sales people take their rate sheets into Traffic Managers’ offices to retain or secure business. It will take a lot more than rate cutting and cost reductions to win the war. It will take a well thought out strategies, superior service, superior leadership and competitive differentiation. There will be winners and losers. These are challenging times in the trucking industry.