Capacity. That single word explains, better than any lengthy treatise, why shippers look to the less-than-truckload (LTL) carriers to move their domestic freight. Based on a recent Freight Pulse study conducted by financial services firm Morgan Stanley with Material Handling & Logistics, shippers anticipate it will be easier in 2014 (at least in the early months) to find available capacity on national and regional LTL carriers than with truckload or intermodal carriers.
Shippers spend more than $800 billion annually on domestic freight transportation ($836 billion, according to the CSCMP’s 2013 State of Logistics Report), and according to U.S. government data, 70% of that freight by tonnage goes on a truck—usually either via private fleet or truckload carriers.
At first glance, LTL hardly seems to be a major consideration for shippers, considering that only 1% of freight volume moves on LTL trucks. According to Morgan Stanley’s analysis of data compiled by the American Trucking Associations, private fleets (34%) and truckload carriers (33%) between them transport two-thirds of all domestic freight, so by comparison LTL’s 1% seems little more than an afterthought.
The key, though, is the availability of the trucks. In the Freight Pulse 30 study, shippers were asked to rate expected capacity for various transportation modes on a scale from 1-10, with 10 being very tight capacity. While truckload carriers—the least expensive motor carrier option—earned a score of 6.6, shippers gave LTL carriers a much better capacity score of 5.1. Thus, while LTL rates are generally considerably higher than truckload rates, that cost differential is somewhat mitigated by the greater ease in finding an LTL carrier with available capacity.
Even so, supply chain professionals are always aware of the pressure from senior management to reduce their transportation spend, and what that frequently leads to is the question, “How can we limit the amount of freight we ship on LTL carriers?” As vice president of supply chain with Technicolor Global Logistics, a California-based third-party logistics provider (3PL), Elaine Singleton works with major companies such as Disney and Warner Brothers to reduce their transportation costs, and she offers several tips for shippers looking to do the same.
“First you must understand your total costs associated with shipping items from point A to point B involve more than just the cost of the truck and driver,” Singleton points out. “Also included in the total costs are costs for facilities and inventory, so it is important to locate distribution facilities to minimize distance and travel time. Optimize shipments by aggregating loads into larger vehicles or ship more truckload than LTL. Pool shipments at a cross-dock facility, aggregate loads among multiple shippers, or consolidate loads and locate backhauls to minimize empty miles.”
Aggregation, she explains, is a viable strategy for all LTL freight. It involves creating a single shipment of two or more orders from the same shipper to the same receiver on the same day that would otherwise have been released as individual shipments.
“Look beyond your own supply chain for collaborative cost savings opportunities, such as co-loading,” Singleton recommends. “When multiple shippers can co-load on the same truck, instead of shipping individual orders, cost savings abound. This works particularly well for two shippers who are in close proximity to each other as well as their customers. Under a collaborative shipping program, both orders may be co-loaded under a single pick-up/stop-off bill of lading.
Asset utilization is maximized by mode-shifting from a large LTL shipment to a full-capacity truckload shipment.”
