Truck Topics

A stagnant expedited market for the remainder of '03? One analyst's forecast

As any owner/operator, driver and corporate/management person in expedited freight can testify, the last few years in expediting have been a period of uncertainty.  Among the explanations cited for the expedited freight roller coaster ride include 9/11 and its effect on domestic security and the economy.

Other reasons given for the fluctuating expedited freight market include not only increased competition from within surface expediting by local or regional carriers who were previously focused on the courier or airfreight business, but also competition from the LTL trucking segment.

In addition, according to one analyst, surface expediting is possibly challenged by a paradigm shift in inventory and warehousing that will alter the supply chain philosophies of the 1990's.

The surface expediting industry has been evolving; not with the dramatic changes (trucking company bankruptcies, closures and mergers) that we've seen in truckload and less-than-truckload transportation, but with more subtle changes in expedited carrier policies, procedures and focus.

Obtaining hard statistical data about the business of surface expedited freight is sometimes a difficult task, simply because it doesn't receive the attention of the typical logistics analysts who report the numbers of "conventional" trucking. 

While still one of the fastest growing segments of the transportation industry, our part of the trucking world often doesn't register on the analysts' radar.

A message from an analyst
 
At the annual National Small Shipments Traffic Conference (NASSTRAC) held in April, an expedited freight industry analyst told the group that expedited shipments would only experience slight growth in 2003.

Ted Scherck, chief executive officer of logistics research firm the Colography Group, said that his company's forecast for expedited freight levels in 2003 held that the levels would keep pace with the economy's growth in general, or about 2 percent.  He projected a total of $81.4 billion revenue from US expedited cargo this year. 

Scherck told the NASSTRAC meeting, "Less-than-truckload shipments are being broken up and increasingly moved by ground parcel service, but expedited is not growing at historical levels."

So, what is The Colography Group and what does this mean for the surface expedite industry?

Based in Atlanta, The Colography Group is a twenty-year old company that "delivers primary research, strategic planning and new program development services to businesses looking to identify and capitalize on growth opportunities in the global time-definite, or expedited, cargo market, as well as to governments worldwide."

The company says that it identifies trends in time-sensitive freight through detailed interviews with "tens of thousands" of shippers.

The Colography Group's area of focus deals with expedited air, less-than-truckload, truckload and parcel freight.  This company's research and analysis does not deal specifically with the surface expedited freight segment, but it certainly presents an overview of trends that affect our industry.

This analysis also offers a potential answer to the question from many in surface expediting: "Where has the freight gone?"  The increasing numbers of LTL companies now offering or  in the development stages of time-sensitive freight transport illustrate the competition that surface expediting faces.

As The Colography Group CEO Scherck explains, "Expedited transport is fast becoming standard operating procedure in the LTL segment.  Today, more LTL carriers than ever are offering time-definite services and value-added options such as guaranteed delivery." 

Speaking at the Council of Logistics Management's annual conference in San Francisco in October 2002, Scherck said that "shocks to the system" are forcing businesses to reconsider how their goods are produced, stored, fulfilled and shipped.

He cited the September 11 terrorist attacks, a typhoon in Taiwan in the fall of 2001 that devastated a part of the nation's manufacturing infrastructure and, most recently, the labor-management dispute that shut all U.S. West Coast ports.

Scherck predicted many companies would move away from "total reliance" on a global, low-inventory strategy, where product is ordered and shipped on an as-needed basis and a minimal level of goods are kept on hand.

Instead, they will allocate more resources to the development of a limited number of strategically located regional warehouses and distribution centers. In addition, they will take the necessary steps to maintain sufficient inventories to meet customer requirements when, not if, future supply chain disruptions occur.

"There will always be circumstances where the low-inventory concept makes sense," he said. "In the 1990s, however, many businesses came to believe the low-inventory rule applied to virtually every product they made.

The boom in warehouses and inventory is a perfect fit for regional trucking systems that can pump out goods from warehouse to market over relatively short distances and at frequent order cycles," Scherck said.

"Surface transport systems have dramatically improved their delivery services and offer the same-valued features once reserved for airfreight carriers. As a result, they will continue to take share in the U.S. market from airfreight providers and long-haul truckers. We are seeing these same trends in other regions of the world."

An upcoming study

Earlier this month, The Colography Group released findings from the 2002 edition of its National Survey of U.S. Expedited Cargo, a comprehensive study of the buying habits and attitudes shaping transportation trends in the United States.

The survey, now in its 11th year, is built on detailed interviews with more than 30,000 transport and logistics decision-makers each year that collectively represent 75% of all U.S. domestic shipping activity.  The survey canvasses 144 U.S. industry groups and five employment categories ranging from small businesses to divisions of multi-national corporations. 

The interviews yield data that enables The Colography Group to "thoroughly analyze shipping trends by mode of transport, transit times, product line and individual carrier share at the industrial source and/or geographic market levels."

"The trend towards shorter delivery distances was first identified in the national survey nearly a decade ago, and the latest data continues to track this secular shift in shipping behavior," said Ted Scherck, president of The Colography Group.   "Even airfreight activity, traditionally relied upon to move products over relatively long distances, is experiencing the full force of the short-haul phenomenon that first appeared on our radar screen in the early 1990s."

Among the key findings in the 2002 national survey:

UPS controlled 63.4% of total U.S. ground parcel volumes in 2002.  The U.S. Postal Service (USPS) was next with 19.0% and FedEx Ground was third with 12.1%.

UPS' share of ground parcel volume weighing two pounds or less was 45%, with USPS second with a 36.3% share.

More than 52% of all ground parcel deliveries were made within 350 miles, and 32% of all deliveries were made within 150 miles.

Domestic air was expected to generate 37.7 percent of those funds, he said, while domestic LTL and air export services would generate 25.8 percent and 9.3 percent respectively.

Scherck said the main strength would come from domestic ground parcel deliveries.

"The large percentage of goods shipped for before-noon delivery the next day underscores that the 'need for speed', or faster transit times, is more acute today than ever," Scherck added.  "Our interviews tell us that buyers of overnight air services find compelling value--largely in the form of compressed delivery cycles and lower inventory costs-- in having their goods in-hand as quickly as possible.  They also tell us that airfreight remains the most viable option for cargo shipped more than 600 miles and requiring delivery before noon."

Less-than-truckload expansion

Several LTL carrier representatives have said they expected to increase their business of time sensitive shipments with targeted expansion plans this year.

Karen Crawford, president of less-than-truckload carrier Guaranteed Overnight Delivery (G.O.D.), told those assembled at the April NASSTRAC conference that G.O.D. aims to claim its share of the expedited freight market by launching it's USA Airfreight subsidiary later this year.

G.O.D.'s Crawford said the industry could support an expansion by LTL carriers, but that carriers that market short and long haul services under the same brand confused too many shippers.  Other LTL carriers are reported to be exploring ways to expand into the expedited and next delivery service.

Roadway Corp President James Staley, for example, said in March that the new labor contract Roadway had signed with the Teamsters union, along with Yellow Corp, ABF Freight System and about 25 smaller carriers, would allow more flexibility to expand in the expedited market.