G.O.D. says no to LTL

Guaranteed Overnight Delivery (G.O.D.) joined the ranks of former Northeast regional carriers in late October when it announced it would discontinue less-than-truckload (LTL) operations. New Penn Motor Express, a division of Yellow Roadway Corp., acquired G.O.D.'s customer list and was handling pick ups and deliveries for those customers who had not already found alternative carriers.

Peter Latta, president of A. Duie Pyle, a non-union regional LTL carrier based in West Chester, Pa., says that while the closure of G.O.D. would redistribute the freight the carrier had handled, "The market senses that the end is nearing and there's an erosion of the business leading up to the closure announcement." He speculates that the material part of G.O.D.'s business when it closed was freight it was handling as a result of USF's closure of USF Red Star earlier in the year.

The volatile Northeast region has claimed at least five regional LTL operations in the last 10 years. USF Red Star blamed its failure on a unilateral job action by the International Brotherhood of Teamsters that caused an irreparable loss of customers and revenue. USF acted quickly to extend its USF Holland operations into the region, and opened eight terminals in the region this past fall.

The changes in the Northeast came with a cost for USF. While the Red Star shutdown delivered losses of $7.8 million, USF Holland also incurred about a $1 million operating loss due to the start-up of the eight terminals.

USF is in the early stages of "pruning out" marginal accounts that don't meet profitability or freight mix characteristics the carrier wants. While that speaks to the USF bottom line, it could be troubling to some Northeast shippers who had enjoyed G.O.D.'s aggressive pricing.

"If you look at the cessation of businesses in our industry, it seems to prove time and again that the low-priced carrier doesn't have an effective costing model to support and rationalize their pricing levels and programs and, therefore, is not the surviving carrier," says Latta. But pricing alone wasn't G.O.D.'s problem, according to Latta. Its fragile operating model attempted to provide speed by eliminating breakbulk operations that added steps to the process. Those steps also add reliability, Latta explains.

As the USF experience shows, terminal operations are expensive, albeit necessary, elements of regional LTL operations. How those networks are rationalized to provide a presence in the market and achieve density the carrier needs and service levels the shippers require can spell the difference between success and failure.

If the leading Northeast regional carriers can't satisfy all of the freight demand in the region, there is no doubt one or more of the smaller carriers Latta refers to as "sub-regionals" will be vying for the business.

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