LTL Carriers Now Targeting 3PL’s for Business Growth
Some years ago, I had the privilege of running one of Canada’s elite IMC’s and freight brokerage businesses. At that time we offered a fairly full portfolio of ground transportation services including LTL, partial truckload, full truckload, intermodal and carload services.
We were proud of the fact that we offered domestic Canada and cross-border LTL services. We sought out carriers that could offer us wholesale (discounted LTL tariff) pricing that we could use to create retail rates. We cobbled together a North American network of LTL carriers that allowed us to provide our customers with a good quality service. While not true marketing partners (in terms of sharing sales leads and unrouted freight), they were valued operating partners that picked up and delivered the freight that we secured on behalf of our customers.
At that time, LTL revenues were a small part of our business. The LTL revenue we provided to our various partners was not a large percentage of their revenues either. We had difficulty finding LTL carriers that were willing to work with us. Shippers were more inclined to sort their business by mode and work directly with asset based providers, particularly in the LTL arena.
Since that time the world changed. The growth in the capabilities, size and scope of 3PL providers along with shipper needs for suppliers with a complete menu of services have shifted the balance of power. Whereas 3PL’s and freight management companies previously had to do the chasing and courting to recruit LTL service providers, these carriers now recognize that 3PL’s have achieved a significant level of control over the customer interface. No longer viewed as “freight pimps” or parasites, 3PL’s now command more respect by virtue of their IT capabilities, supply chain expertise and the higher pecking order they have achieved with many shippers.
As a result, it was with great interest that I read that one of North America’s largest LTL providers, the troubled YRC Worldwide, is forging closer relationships with third-party logistics providers as it tries to rebuild its business. This is being driven by the realization that brokers or logistics intermediaries account for more than a third of YRC Worldwide's revenue.
The company claims it began a sweeping re-evaluation of its relationships with 3PLs last year as it rolled out a restructuring program affecting every corner of its operations. Eventually, it plans to launch new products and services with 3PL partners and closely integrate its less-than-truckload operations into their supply chain networks. It's a step other motor carriers need to take to stay on the road in a fast-changing market, said Bruce Kennedy, YRC Worldwide's vice president of enterprise strategy.
"In August 2009 we began an initiative to change our culture internally and externally from one of frankly competition (with 3PLs) to collaboration," Kennedy said. Kennedy told trucking and logistics executives at last week’s SMC3 meeting in Florida that previously "an intermediary was considered a threat." The carrier started restructuring its 3PL strategy by identifying all the logistics providers in its customer database -- more than 2,000 companies, Kennedy said. It then classified those 3PLs to reflect their marketplace roles, from supply chain managers to forwarders and brokers to price negotiators and "rate resellers." From that initial 2,000, YRC identified a subset of 200 logistics companies "that were significant in terms of their spend and potential spend with us," Kennedy said. "We took action to align ourselves with those partners we truly want to identify with."
There are a couple of things that stand out to me in the YRC initiative. If the statistic above is correct, YRC does not have control of the direct customer interface with a third of its customers. This leaves a significant block of its business vulnerable to third parties that can shift this freight at its discretion. Second, why did YRC wait so long to launch a marketing program targeted at such a large segment of its business? This suggests that YRC is having difficulty attracting shippers through its own sales program.
LTL carriers have also begun to realize that developing close ties with particular 3PL’s can allow them access to a whole new set of clients. When Con-way Freight expanded its business with Caterpillar Logistics last month, it not only gained greater access to freight from the $32.4 billion Caterpillar but also to more than 65 other companies that contract Cat Logistics to manage their supply chains.
Relying more on 3PLs for freight can be a difficult step for trucking executives who built their freight business on direct relationships with shipper customers. But viewed in the context of the slowly recovering economies of North America, the significant share of business controlled by 3PL’s and the need to find growth in the sector of the transportation industry acknowledged to have the most capacity, this appears to be a sound strategy for LTL carriers to employ.