State of The Freight Industry and Deferred LTL JOC Inland Distribution Conference October 24, 2014 @CarrierDirect @CNWMultimodal
JOC Inland Distribution Topics Overview of the Freight Marketplace The Growing Popularity of Deferred LTL
Freight Marketplace Topics U.S. Economy Truckload Private Fleet Less-than-Truckload Third-Party Logistics Asset-Light
% Change in Real GDP (Seasonally Adjusted) Q2-2010 Q3-2010 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 Q3-2013 Q4-2013 Q1-2014 Q2-2014 Q3-2014 (Est) Q4-2014 (Est) Truck Tonnage Index (2000 = 100) After Q1, 2014 Has Been a Strong Year For The Economy Economy TL Private Fleet LTL 3PL Asset- Light Seasonally Adjusted US GDP from Q2 2010 2014 ATA Monthly Truck Tonnage Index (2007 Present) 6 5 4 3 2 1 0 3.9 2.8 2.8 3.2 1.4 4.9 3.7 1.2 2.8 0.1 Moderate estimates for remainder of 2014 1.1 2.5 4.1 2.6 4.2 2.7 3 135 130 125 120 115 110 Continued strong freight levels keeping trucking companies busy 2009 starting to seem like just a bad dream -1 105-2 -3-4 -1.3 The aftermath of one of the most brutal winters in recent memory -2.9 100 95 2007 2008 2009 2010 2011 2012 2013 2014 Source: Bureau of Economic Analysis, 6/25/14 Q1 14 Revised Estimate Source: American Trucking Associations, Transport Topics
What s Happening in the Truckload Sector Economy TL Private Fleet LTL 3PL Asset- Light 1 Driver recruitment and retention is still the biggest issue, as thousands of seats go unfilled due to prospective drivers being kept out of the industry by new government regulation, increased company scrutiny and the allure of comparable blue collar jobs with better lifestyles 2 High levels of uncertainty around how FMCSA changes will affect the day-to-day of trucking operations, leaving many small trucking companies worried if they ll still be able to compete as more regulation rolls out 3 Trucking companies (and LTL guys, too) making decision to allocate assets to dedicated lanes as they re able to grab more revenue per mile from long-term commitments with customers 4 A lot of opportunity to convert loads to intermodal, but not able to do as much as there should be due to rail line congestion, not having enough equipment and allocating assets towards bulk markets
The Private Fleet Market Has Shrunk As Dedicated Capacity is Used Private Economy TL LTL 3PL Fleet Asset- Light 1 High levels of trepidation about having assets following the major tractor-trailer accidents in 2014 with FedEx and Wal-Mart; shippers wonder if having assets are worth the risk 2 Many shippers shed their assets as a means to reduce CapEx during the Great Recession, finding a very willing group of carriers like JB Hunt, Schneider, Swift, Penske, etc. who would dedicate assets to them 3 The shippers who still keep their Private Fleets are highly conscious of asset utilization and safety metrics, requiring the same level of sophistication that for-hire trucking companies have in their companies
LTL Carriers Feeling Good With More Freight In Networks and Pricing Power Private Economy TL LTL 3PL Fleet Asset- Light 1 The new challenge: how to deal with the problem of having too much freight in their networks and the right way to purge the bad freight strategically that won t backfire when freight levels ease 2 LTL carriers being affected by the good and bad spillover from the truckload market: huge challenge in finding OTR drivers (P&D not so much a problem), but also getting the potential benefit from the freight spillage that moves from truckload to LTL (but again, see trend #1) 3 Tech is the next big initiative for LTL carriers who see the writing on the wall that the better they know their network the better they ll be able to generate profit (if management makes the right decisions with it)
New Leaders In Market And Consolidation May Pave Way For Change in LTL Private Economy TL LTL 3PL Fleet Asset- Light Carrier 2013 Revenue* Change from 2012 Share of Market Carrier 2013 Revenue* Change from 2012 Share of Market $5,095M +1.7% 14.47% $1,835M +4.8% 5.21% $3,466M +2.2% 9.85% $1,730M +5.4% 4.91% $3,127M (1.9%) 8.88% $1,721M +3.1% 4.89% 2,502M +5.2% 7.11% $1,298M +3.8% 3.69% $2,126M +9.5% 6.04% $1,139M +3.7% 3.24% Every Other LTL Carrier $11,161M 31.71% *Includes ancillary business unit revenue in some cases Source: Journal of Commerce, Company 10K Reports, Internal Estimates
We re Standing On The Edge Of Big Pricing Changes For LTL Sector Private Economy TL LTL 3PL Fleet Asset- Light Output From Carriers Operating System Dynamic Pricing Pricing based on needs of carrier s network Ability to set future discounts to guide freight shipments to days that are typically light Dimensional Pricing Real-Time Information Gathering Pay for space taken up in trailer vs. confusing class-based system FedEx/UPS goes first, then the industry Pushed Into 3PLs and Shipper Systems Web Services Connections Driver / sales rep pricing using handheld dimensioners LH planning before freight hits dock Getting Paid For What s Moved vs. Hoping For Best Ability to Standardize / Tier Pricing For Different 3PLs Immediate Change Of Freight Mix vs. Long Tariff Changes Source: CD Internal Perspective
3PLs Entrench Themselves Deeper In Industry, Get Bigger and Better Economy TL Private Fleet LTL 3PL Asset- Light 1 M&A has continued in the logistics space as small, mid-sized and large logistics companies are gobbled up by market-share-hungry 3PLs looking to scale quickly by organic / inorganic means 2 Interesting mix of events where strategic 3PLs work to become more like brokerages and transactional 3PLs look to tackle more complex supply chain problems for shippers 3 The brokerage market is getting much more difficult to get into (not because of the bond increase), but because of Truckload and LTL carriers reducing the number of 3PLs they do business with
Gross Revenue (As Reported as Run-Rate Estimates) Transactional Brokerages Continue to Get Bigger And Offer Complex Services Economy TL Private Fleet LTL 3PL Asset- Light $10B $1B $750M $500M $250M Single-Mode Multi-Mode Complex Multi-Mode Source: Transport Topics, CD Estimates Solutions Brokerage Can Competitively Offer Customers CarrierDirect
Entrance of Tech Companies Are The Biggest Threat To Low-Value 3PLs Economy TL Private Fleet LTL 3PL Asset- Light Non-Commercial Freight Moves Transactional Rate Reselling Need an armoire moved on a no-name carrier? No problem. Value-Added Transportation Services I don t know anything about this carrier, but here s your rate. Good luck! High-Value Logistics Based on your needs, I recommend using CWF. Good? Great. I ll get this done for you. We ll handle all your freight from our facilities. We ll take care of everything. Future tech startups will take the form of marketplaces or exchanges who efficiently pair shippers with carriers Companies who only provide rates to shippers without a hook will be replaced by these tech companies 3PLs who offer higher value services are less likely to be affected Some value-add services to protect a 3PL from obsolescence include: Multiple service options (e.g. TL, LTL, International, Parcel) Warehousing services High-degree of carrier knowledge and ability to meet a customer s needs on any given shipment Legend High Risk Little Short-Term Risk Very Little Risk
Asset-Light Continues To Be A Market Many Want To Get Into Economy TL Private Fleet LTL 3PL Asset- Light 1 More asset-light carriers entering the market each quarter, bringing a new level of competition to the marketplace for carriers that rely on contractual partnerships / interline agreements to haul freight 2 The asset-light carriers who disregard service and play on price alone are being abandoned by shippers and brokerages as frustration grows from unreliable transit times and congestion because of opting for slower intermodal line-haul (e.g. not using expedited rail options or OTR) 3 Established asset-light carriers (e.g. RRTS) putting their efforts into diversifying their solutions and branching into full-fledged logistics solutions vs. standard consolidation networks
JOC Inland Distribution Topics Overview of the Freight Marketplace The Growing Popularity of Deferred LTL
Deferred LTL Is Getting New Solutions, Changing Expectations of What Can Be Done Quality of LTL Vendors Economy Premium The Old Way of Deferred LTL Services Making pickups when there s available capacity, with a high degree of rolled pickups Holding on to the freight until a trailer is completely full, by weight or cube Selecting the lowest and cheapest linehaul (generally Intermodal Standard) Making deliveries when capacity is available to the final consignee Higher Quality Deferred LTL Solutions Very low missed pickup ratio, utilizing best in class practices to get all freight dispatched Moving freight according to defined linehaul schedules to meet customer commitments Making deliveries when they committed to, with market leading on-time delivery percentages Growth In Deferred LTL Sector but Premium service for reliability and damages. *Subject of case study Slightly longer transit times, with lower costs *
SHIFT Freight: Innovating Deferred LTL Shipping with Technology CASE STUDY Pick Up Preparing for Transit In Transit Out for Delivery Delivered Highly automated dispatch process, with technology that routes dispatches efficiently to appropriate trucks Multiple backup carrier options utilizing Cargomatic, Independent Contractors or Cartage companies to make sure pickups are made Service Metric: < 3% Shipments Rolled to Next Day
SHIFT Freight: Innovating Deferred LTL Shipping with Technology CASE STUDY Pick Up Preparing for Transit In Transit Out for Delivery Delivered Shipments received in the Southern California terminal and inspected as they arrive for OS&D Technology immediately updated to let shippers and 3PLs know where their product is Shipments staged according to transit requirements Service Metric: Pictures taken of 100% of shipments and made available to customers
SHIFT Freight: Innovating Deferred LTL Shipping with Technology CASE STUDY Pick Up Preparing for Transit In Transit Out for Delivery Delivered Linehaul scheduled to meet SHIFT s transit time commitments to shippers (not load factors) Technology utilized to keep customers up to date as to status of the shipment, pushing updates via web services and EDI 214 Service Metric: > 75% of freight moved OTR and 25% by Intermodal (if transit commitment can be made)
SHIFT Freight: Innovating Deferred LTL Shipping with Technology CASE STUDY Pick Up Preparing for Transit In Transit Out for Delivery Delivered Appoints pre-made by SHIFT planners, where possible, to meet requirements needed by consignees Priority for delivery partners with high degrees of technology to monitor shipments as it s OFD Service Metric: < 0.5% claims for damages on shipments moved across all lanes
SHIFT Freight: Innovating Deferred LTL Shipping with Technology CASE STUDY Pick Up Preparing for Transit In Transit Out for Delivery Delivered Status updates automatically fed through SHIFT s system and pushed via Web Services and EDI 214 to customers PODs and other document quickly scanned and posted online with all documents needed for customers Service Metrics: > 95% on-time deliveries
Tommy Barnes President Con-way Multimodal CarrierDirect Joel Clum (312) 725-6712 joel@carrierdirect.co @CNWMultimodal Con-Way Mutimodal www.con-way.com/en/other_modes @CarrierDirect CarrierDirect www.carrierdirect.co