Brokers, 3PLs Raise Share of LTL Freight Shipments

This story appears in the April 8 print edition of Transport Topics.

Freight brokers and third-party logistics companies are making inroads in the less-than-truckload market, a trend that reflects the desire by those firms to expand and diversify beyond traditional truckload markets, according to industry analysts.

The trend toward more outside help also shows a new willingness by LTL carriers to accept shipments from third-party providers as a way to garner more freight and improve operational efficiencies.

For example, Frontline Freight Inc., an asset-light less-than-truckload carrier based in Santa Fe Springs, Calif., has boosted its business by an average of 60% a year over the past three years and is projecting 45% growth in 2013.

Revenue has gone from just under $10 million in 2010 to a projected $38 million in 2013 with 50% of its business now coming from brokerage firms.

“Brokers became an extension of our sales force,” said Matt Hunter, vice president of sales and operations at Frontline.

“We’re based in Southern California and, rather than invest in sales personnel throughout the country, we use brokers to get freight in,” he said.

LTL revenue controlled by brokers and third-party logistics companies, or 3PLs, now account for almost one-quarter of total LTL revenue, compared with no more than 2% in 1998, according to industry consultant Satish Jindel of SJ Consulting Group in Sewickley, Pa.

Jindel said the trend is likely to continue as technology allows for closer collaboration between shippers, carriers and transportation intermediaries.

While demand for LTL freight hauling has been slow to recover  from the economic downturn, a number of carriers are using relationships with freight brokers to generate eye-popping revenue growth.

At Frontline, the added revenue from brokers has allowed the company to open new service lanes more quickly and expand its portfolio of freight services to include truckload and intermodal shipping.

“Freight brokers are able to give us a wide variety of freight profiles,” Hunter said. “We can also offer more freight schedules and improve the level of consistency.”

Hunter offered an example of how having access to brokered freight benefits Frontline’s hauling operations.

“If I have a partially loaded trailer in Los Angeles on a Monday, I might hold it for a day to get a full load before dispatching it to Atlanta. With the influx of freight from brokers, I can close out that truck on Monday.”

Brokerage firms also are cashing in on the trend.

At Echo Global Logistics, for instance, LTL revenue has grown from $40.1 million in 2007 to $286.3 million in 2011, according to Michael Scheid, senior analyst at SJ Consulting.

Similar growth has been seen at companies such as Unishippers Global Logistics and Worldwide Express, which prior to 2007 were largely focused on arranging transportation of small packages and parcels for small and midsize shippers.

The amount of LTL freight moved under blanket-pricing programs by brokers has grown from $575 million in 2007 to $2.5 billion in 2012, according to data compiled by CarrierDirect LLC, a Chicago-based firm that specializes in helping freight carriers find freight from brokers and 3PLs. The overall size of the LTL market during the same time period actually shrank from an estimated $36 billion in 2007 to $33 billion in 2012, company officials said.

Inc. magazine listed BlueGrace Logistics, a company started by a former sales executive with YRC Freight in 2007, as the fastest-growing company in the transportation and logistics category based on results over the past three years.

Founder Bobby Harris said he expects the amount of freight procured through brokers and 3PLs to reach 50% of total freight volume in the LTL sector.

“It will soon be the biggest part of the market,” he said.

Harris said shippers are coming to brokerage firms for several reasons.

“People come to us as a technology provider. We’re unbiased. We give options. Few of our clients use just one carrier, and a good 3PL will match up strengths of carriers with needs of shippers.”

Ted Alling, chief executive officer of Access America Transport, headquartered in Chattanooga, Tenn., started his company 10 years ago by focusing on flatbed and truckload dry-van brokerage.

“There has been a substantial uptick in shippers using 3PLs for LTL services,” he said. “We’ve seen a huge increase in the small- and medium-size shipper markets because we are able to bring them dozens of relationships and provide a portal to instantly compare pricing, run reports and track shipments.”

Access America Transport ranks No. 16 on the 2012 Transport Topics Top 25 Freight Brokerage Firms list with gross revenue of $385 million. To keep up with growth, Alling said that over the next five years the company will add 550 employees to its payroll in Tennessee and another 500 at a recently expanded branch office in Minneapolis.

Both carrier and brokerage officials said they see continued growth for the outsourcing of transportation services by shippers.

“More companies are farming out transportation so they don’t have to have expertise in-house anymore,” said Braxton Vick, senior vice president of planning and development at Southeastern Freight Lines, an LTL carrier based in Columbia, S.C., that services a wide area of the South and Southeast.

Vick said Southeastern, which ranks No. 27 on the Transport Topics 100 largest U.S. and Canadian for-hire carriers, was one of the first trucking companies to actively solicit business from brokers and 3PLs.

“Some [carriers] wanted to fight them,” he said. “We decided early on this was not the proper thing to do. Instead, we set out to try to reduce the cost of doing business with them.”

The company focused on ways to better manage the data requirements of 3PLs.

“Many 3PLs assign special numbers to shipments, and they want carriers to track everything,” Vick said. “That gets to be a real challenge if you do it manually. So we built a system that incorporates special numbers and provides information in real time.”

Another system developed at Southeastern automatically monitors and reports missed pickups, which is a key metric for many shippers, he said.

Vick also said revenue from 3PLs currently makes up about 26% of Southeastern’s total revenue, and he expects that figure to grow.

“In the next five years, it will be 40%,” he said.

At Roadrunner Transportation Services in Cudahy, Wis., Scott Dobak, president of LTL services, said his company’s relationship with brokers and 3PLs is becoming more “strategic” in nature.

“It used to be a cat-and-mouse game,” he said. “They would beat us up on rates. Now it’s more of a partnership.”

Instead of issuing blanket rates to brokers who then simply resell the service to shippers, Dobak said Roadrunner — which ranks No. 32 on the for-hire TT 100 list — is working with companies to develop customer-specific rates and discounts that vary by lane and by region.

“It’s a collaborative discussion,” Dobak said.

Carriers are becoming more selective in dealing with brokers and 3PLs because of tightening capacity, said Joel Clum, vice president of CarrierDirect.

“Capacity shortages will lead to price increases,” Clum said. “The spread between tonnage and available capacity is beginning to expand as the economy rebounds and carriers refuse to invest in new equipment.”

Growth in the gross domestic product of 2.5% to 3% in 2013 “will exacerbate the capacity shortage, and carriers will be presented with more opportunities to flex their pricing power to shippers and 3PLs,” Clum said.

Marlin Kling, president of Midwest Motor Express in Bismarck, N.D., said the freight from brokers and 3PLs tends to be less profitable than freight sourced directly by carriers. Additionally, he said, it requires more service support.

“We tend to see more issues with improper weights and misclassified freight since neither the broker nor the 3PL sees the freight but merely acts as an intermediary,” he said.

Kling added, “At the end of the day, neither brokers nor 3PLs own equipment and their business will be the first business jettisoned if capacity becomes an issue.”