Improved LTL Pricing Can Increase Profits, Beat 3PL Competition, Execs Tell Conference

CORAL GABLES, Fla. — Less-than-truckload carriers need to improve their pricing discipline and sophistication to boost profits in a market where rate-driven, third-party logistics operators are playing a growing role, LTL executives said.

Logistics providers, including brokers, have increased their share of freight tendered to LTL carriers to 24% last year from just 2% in 1998, Satish Jindel, principal of SJ Consulting, noted at the BB&T Capital Markets Transportation Conference here Feb. 15.

Douglas Stotlar, CEO of Con-way Inc., said third-party logistics providers were able to boost market share during the recession, when freight was scarce and prices were depressed.

Today, however, LTL carriers need to price freight more effectively to obtain proper value for their services, Stotlar and other top LTL executives said.

“As capacity is getting tighter, we think that customers will want capacity directly from asset-based providers,” Stotlar said.

“Railroads had their moment and figured it out, and improved their margins,” he continued, citing Con-way’s 2011 progress in improving profit margins. “If we as an industry behave like the railroads . . . we’ll be fine. Enough capacity has come out [of LTL] in the last 36 months.”

YRC Freight President Jeff Rogers said, “It all comes down to discipline. We are our own worst enemy when it comes to pricing. We have to be more disciplined to get better pricing.”

Rogers focused on difficulties with pricing by third parties or shippers that want lower rates by using a device called “freight all kinds,” which is a flat rate for a shipment, regardless of the type of freight hauled.

The FAK device prices shipments that would have paid more to carriers if they were based on the actual characteristics of the freight, which hurts revenue, Rogers said.

A. Duie Pyle President Steve O’Kane maintained that carriers can counteract that price pressure by getting better information about the freight being hauled so that it can be priced properly.

Mark DiBlasi, CEO of Roadrunner Transportation Systems, said on Feb. 16 his company’s LTL business, which relies on owner-operators, uses third-party logistics for more than 20% of LTL revenue and is satisfied with the relationship.

Brokers function as an extension of the company’s sales force, he said. Because demand has risen and capacity is tighter than in past years, DiBlasi said, Roadrunner does not use FAK pricing.

Third-party providers who appeared on a panel with Rogers and O’Kane argued that effec-tive pricing in the industry was more complicated than a simple FAK rate.

Tim Barton, CEO of Freightquote.com, which provides LTL rate services, acknowledged that “3PLs do a lot of rate shopping. That gets really repetitive and bad. The carriers should have a problem with 3PLs from that perspective.”

The key to better pricing, he said, is to have more “granular” information about the particular freight being shipped on a case-by-case basis, so that both the shipper and the carrier can be satisfied. Improving technology can produce that better information, he said.

Barton called FAK “filler pricing” that is simply designed to create a one-time buying advantage for a shipper.

He also said his firm encourages carriers to set more “surgical” pricing, instead of relying simply on general rate increases, or GRIs, that are applied to all non-contract shipments.

Dan Lockwood, CEO of Unishippers Global Logistics, which also provides Web-based freight pricing for shippers, agreed.

“We don’t take GRIs,” he said. “We do [pricing] more strategically. You have to provide value [to carriers and shippers]. It can’t just be the lowest price.”

By looking more closely at particular freight moves, Lockwood said, carriers can benefit as more freight is channeled into their system.

One of the third-party businesses heavily focused on LTL is Echo Global Logistics, which generates 46% of its revenue from that business, targeting small and midsize shippers that lack rate leverage.

That concentration may drop, CEO Douglas Waggoner told TT, because Echo is seeking to expand its presence in other trucking markets, particularly truckload, through acquisitions and internal growth.