Can the things that succeed at UPS work for LTL?

Jan. 16, 2008
If you had to pick a time to get into the less-thantruckload (LTL) business, this is probably not the time you would have picked, says Jack Holmes, president

If you had to pick a time to get into the less-thantruckload (LTL) business, this is probably not the time you would have picked, says Jack Holmes, president of UPS Freight. Reflecting on the August 2005 acquisition of the non-union LTL carrier Overnite Transportation, Holmes describes some of the transition and positions UPS Freight for the future.

UPS saw opportunities in having an LTL operation as part of its portfolio says Holmes, who was head of the team that transformed Overnite Transportation into UPS Freight. Two years after the acquisition, he moved from senior vice president of operations of UPS Freight to president of the trucking operation.

The company had to spend some time on service reliability and technology to bring the LTL operation into line with what it felt were customer expectations associated with its brand. Customer expectations were not as high in the LTL segment as they are for parcel and expedited services, explains Holmes, so UPS saw an opportunity to make any LTL operation it would acquire into a best-in-class provider, in part, by adding some of the same technology capabilities already available to package/express customers.

Typically, LTL has focused on internal technology, Holmes points out. Those are the things that support the LTL operation, not the customer-facing technologies. Building stronger customer tools and interfaces became one of the targets for the transition.

The other major area for improvement was to find and fix service issues. Has that worked for UPS Freight? Holmes points to the industry trend lines and says, “With the tonnage index dropping and having dropped, it’s been a tough environment.” UPS Freight is not seeing any drop, he claims. “We are improving our tonnage. We’re getting more shipments.” While his competitors have been reporting drops of 4% to 5%, Holmes says UPS Freight reported a 13.3% increase in shipments in the most recently completed quarter.

Jack Holmes, President UPS Freight

Holmes expresses confidence in the UPS Freight results, saying, “We are gaining market share in a declining market, but if this market were the same as it was last year, we’d still be showing market share gains.”

One key for UPS Freight is its relationships with other UPS operations such as small package, air, ground, international, or supply chain services and the doors that opens with their customers.

Does all of this present a problem with the unionized side of UPS? Holmes pauses to consider any circumstances where this might be the case. Small package is different from LTL, he concludes, and he says UPS Freight is not trying to move shipments from the small package side to LTL—effectively from a union environment to a non-union operation. The International Brotherhood of Teamsters (IBT) initially put UPS on notice that it would be watching for any efforts to shift loads to the non-union operation. It even handed out cards for union drivers and dock workers to fill out if they saw any instances of freight moving from the union side to the non-union side. IBT President James Hoffa, also announced at the time of the acquisition that the Teamsters would renew their efforts to organize the LTL carrier. To date, the IBT has been successful in organizing only the Indianapolis terminal of UPS Freight. That contract, approved late in 2007 after the successful completion of the agreement between the Teamsters and the UPS small package organization, will serve as a model for the Teamsters’ efforts to organize the remaining UPS Freight employees.

Addressing the prospect of a unionized LTL operation, Holmes says, “Our philosophy is that it is our employees’ choice, and we’re going to be successful running the company in Indianapolis under a union contract the same way that we’re going to be successful in Richmond, VA [the headquarters city of the former Overnite] under a nonunion contract.”

There are issues in a company with this kind of dual identity. Holmes admits there are trade offs where wages might be at different levels in the union and non-union terminals and there are issues of work rule flexibility, but, “There is some planning that goes into it, but either model you work under, our employees understand what it takes to be successful in this industry. I’ve been impressed with their knowledge of the flexibilities needed in an LTL carrier in this industry, it’s not a concern for us.”

UPS Freight also operates truckload, intermodal, and dedicated contract carriage units and a benefit of being part of the broader UPS portfolio comes with negotiating for service and rates with the railroads for intermodal moves. “There is a lot of opportunity for us right now, specifically on the expense side,” says Holmes, referring to intermodal. “We’ve already enhanced 9,600 lanes where we’re providing a day’s better service,” says Holmes, so part of the intermodal opportunity is to look at how much UPS Freight’s operations move equipment around and see if there are opportunities to improve service in any other areas.

The lane improvements UPS Freight has already made include adjustments in schedules for sorts or adding some drivers or equipment in some cases.

Where does Holmes expect UPS Freight to be in a year? He points to further integration of customer-facing technologies like pro-active notification and links to UPS World Ship that already operates on the small package side. He also expects shippers and consignees to see their pick ups and deliveries occurring at the same time every day. He admits UPS Freight is also working with UPS Supply Chain Services (SCS) to develop a port strategy that will link their domestic transportation services with the global supply chains the SCS group helps manage.

For more background on UPS Freight:

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