Jon Langenfeld, Associate Director of Research, at Robert W. Baird & Company delivered a very comprehensive and insightful presentation on the state of the American domestic freight transportation industry at this week’s SMC3 conference in Atlanta. While Jon was one of the more upbeat speakers at the conference, his 2010 outlook on the LTL segment of the industry was somewhat less positive.

Jon highlighted the double digit declines in tonnage and revenue per hundredweight among the major publically traded LTL carriers in 2009. He also noted that despite some terminal closures, LTL capacity has been largely unchanged. The most troubling comment was that the profitability of the entire industry is now in negative territory and is not sustainable.

This situation is not expected to change that quickly since LTL demand typically lags truckload demand. Truckload demand is showing only tentative signs of a turnaround. Excess capacity, weak demand, aggressive pricing, low fuel surcharge revenues, lender leniency in allowing financially weak carriers to remain in existence and the increased presence of freight brokers and 3PL’s as resellers of LTL service are all conspiring to make a bleak situation remain difficult, at least until mid year or longer.

This begs the question, what can carriers in this sector do to increase revenues and yields at such a challenging time? Many of the tried and true approaches were implemented in 2009. Carriers have attempted to speed up their networks by reducing handling costs and offering more direct service lanes. They have cut staff and reduced wages. They have reduced rates in an effort to increase volumes. With too many LTL carriers chasing too little LTL freight, these approaches are having limited success.

One approach that was mentioned in Atlanta and has been raised in other forums is the option of forming carrier alliances, specifically another North American LTL network similar to the Reliance Network. There are still a number of regional LTL carriers in Canada and the United States that are not able to offer full coverage of North America. Some have alliances with specific carriers in certain lanes but that is it. Forming alliances with a broader group of carriers allows the various team members to increase the volume of freight picked up from and delivered to new and existing shippers and as a by-product, improve yields.

There are essentially two types of alliances, operational alliances and marketing alliances. In an operational alliance, the participants serve as pick-up and delivery agents for each others’ companies but do not actively sell each others’ services. In a marketing alliance, the players go one step further by actively selling the full range of services of all of the member companies. While the former approach can generate some additional business, the latter, when done properly, can produce much bigger results.

Keys to Success

To make a marketing alliance work, the following elements must come into play.

1. Integrity
You have to be able to trust your partners and be able to communicate your plans for the future. This includes expansion plans so there are no surprises and ill will down the road.

2. Commitment
All participants have to commit to the ongoing sales and marketing of the alliance’s service capabilities.

3. Seamless Service
The service between carriers must appear seamless to the customer and the transit times should be as good as or better than what is available in the market today.

4. Through Tracing
All partners should be able to direct customers to their respective websites. Customers should be able to trace all shipments given to their partners in the same manner as their own regional shipments.

5. Through Pricing
There should be tariffs in place that offer pricing that is comparable to what a shipper would pay with a national or super-regional carrier.

6. Joint Marketing
There is a need for sales collateral that highlights the services of the full consortium of companies.

7. Sales Training
The sales people of all of the partners need to be trained on the services, transit times, value added and pricing levels for all of the inter-regional players.

8. KPI Development and Sales Management
KPI’s need to be created and monitored for this initiative. They must have the ongoing support and visibility of the senior sales and management teams to maintain the momentum of the alliance.

The Pitfalls

There are some potential problem areas with this approach. We don’t live in a static world. As a result, the coverage areas of the various alliance partners may change over time. To make these programs work, there must be a level of openness, trust and information sharing. This is not easy for everyone. It is also not always easy to maintain enthusiasm for the program over time, as carriers deal with other priorities and initiatives that arise. There is the issue of exposing your customer list to companies that could ultimately become your competitors.

Also, how do you deal with non-performing members and with potential new members who would like to join the club, particularly when you already have an incumbent in place that serves the same geographical markets? There are no easy answers to these questions. They can all be addressed but it takes hard work and good communication to come up with solutions that are acceptable to all of the partners.

However, the rewards can justify the effort. The national LTL market is in flux. The current industry paradigm is not sustainable. There is a lack of LTL freight in the market. Regional joint marketing programs or the formation of a new North American LTL network allows all of the participants to generate new revenues and increase yields without adding terminals and sales personnel.

Should any of you need help in forming and successfully implementing an alliance with other LTL carriers, please feel free to contact me at (416) 932-9701 or e mail me at dan@dantranscon.com.