Shorter Supply Chains Mean More Growth for Truckload Carriers, Officials Say

By Rip Watson, Senior Reporter

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NEW YORK — Truckload carriers are well-positioned to grow faster as supply chains continue to shorten in the next several years because of their speed and flexibility advantages over intermodal movement, major shippers and carriers agreed.

That was the message from top logistics officials at Wal-Mart Stores and MillerCoors, as well as major fleet operators such as U.S. Xpress Industries and Schneider National Inc. that also have nationwide intermodal options.

The executives spoke at the Wolfe Research Global Transportation Conference here recently. Also speaking were representatives from intermodal providers such as J.B. Hunt Transport Services, who said rail-truck business will capture business from the all-highway option.

Comments from both carriers and shippers were focused on long-term trends, since both shipping options have seen volumes decline steadily as the recession has deepened over the last six months.

Officials such as Kelly Abney, vice president of corporate transportation for Wal-Mart, and Eduard Jimenez, manager of logistics strategy and controls for MillerCoors, linked long-term truckload growth to the shortening of supply chains and steps to streamline distribution and reduce inventory.

Peter Goulding, executive director of global transportation for Estee Lauder, also tied expected future truckload growth to more efficient supply and manufacturing patterns affecting his company.

“Our business strategy causes us to look more and more at speed from the DC [distribution center] to the store,” Abney said, adding that truckload is a better tool to optimize smaller freight movements.

Intermodal still may be a viable option, Abney explained, especially if those operators can create more capacity for refrigerated shipments. Intermodal’s attractiveness also is linked to rising fuel prices, he noted.

Abney added that streamlining of the supply chain is “moving inventory backwards out of our stores and utilizing capacity upstream” in distribution centers. Wal-Mart is in the process of reviewing its store-stocking policies and shelf space allocation, which will take even more inventory out of the system, he said.

In MillerCoors’ case, a drop in rail shipments, including boxcar, is the result of a three-year effort to change the distribution patterns for the brewing companies that merged last year, Jimenez said.

He said the company’s goal of reducing length of haul from 1,200 miles to about 400 miles will prompt more moves by truckload, though intermodal efforts to provide more shorter-haul regional service could boost its share of freight business.

Intermodal operators are countering that trend by moving into shorter distance markets and underlining the cost advantages of intermodal, executives such as Paul Bergant, president of Hunt’s intermodal unit, said.

Bergant also noted a trend by four of the company’s largest customers to tie their intermodal business to improving their “carbon footprint” and lowering emissions.

Intermodal “started as a price play, but now the service offering has more components,” he said. “We believe we can grow in that space. We’ve seen a major shift in the way people view intermodal service. If we took a show of hands, I don’t think anyone here would say energy costs won’t be a factor in the future.”

Citing a survey done by a railroad, Bergant said 1.5 million truckloads moving in the eastern half of the United States could be converted to intermodal.

Intermodal maintains an average price advantage over truckload of about 10% to 15%, he said, though the spread rose to as much as 40% when diesel prices peaked.

Dan Avramovich, chief operating officer of Pacer International, said intermodal’s advantages from an economics standpoint will prevail over the long term.

Both he and David Yeager, chief executive officer of Hub Group Inc., stressed the importance of improved rail service, such as capital improvements to add more double-stack trains.

Other major carriers that offer both types of services but are primarily truckload operators shared the shippers’ view.

“Truckload will be the clear winner,” said U.S. Xpress Enterprises co-chairman Max Fuller. “If you look at where companies source their goods and the building of plants closer to the consumer, that is changing the supply chain.”

Schneider Vice President Steve Duley agreed with Fuller’s view of future modal growth, as did a shipper, Ashley Dorna, who is executive director of supply chain for Niagara Bottling.

CRST International CEO John Smith also sided with truckload, but said that intermodal growth could come close to keeping pace.