Asset-Based LTL Companies and Short-Haul Brokerage Services

Asset-Based LTL Companies and Short-Haul Brokerage Services

Because neither rail service nor air freight present LTL trucking companies with a significant threat as substitute products, there are really no good substitutes (other than same mode competitors and the third-party logistics industry) for the services provided by asset-based LTL trucking companies in the United States. For this reason, many LTL trucking companies have created third-party logistics or brokerage divisions in order to counter the threat posed by 3PLs.
Third-party logistics services usually own no assets, but instead act as brokers of asset-based transportation company’s services. These logistics services rely upon their technical expertise with computers and software, as well as their bargaining power with asset-based transportation companies, to provide shippers with a variety of low-priced transportation alternatives.
If all services offered by the company are sold by every salesperson, there is no danger of cannibalization of an asset-based company’s LTL business when providing a brokerage service of this kind. By acting as a broker, the company can offer low pricing for “out of area” shipments, as well as for large volume LTL and truckload shipments (using another trucking company’s equipment) thereby ensuring that their own capital equipment is used for more profitable business.
Between 1993 and 2002, the total amount of freight transported in the United States grew 18% to 16 billion tons, and the value of that freight grew 45% to $10.5 trillion. Of that amount, trucking moved 64% by value and 58% by weight. It is sure to have grown since that time. I apologize for the dated information.
The majority of shipments made by the average U.S. shipper are less-than-truckload (LTL) shipments that require next day service within approximately a 300 mile radius of the origin terminal, or second day service within 500-600 miles, but not at a specific time of day. There is a great demand for this type of service, but also a great number of companies able to provide it.
The majority of tonnage hauled by motor carriers today travels fewer than 500 miles. Regional trucking was the fastest growing segment of the trucking industry in terms of change in net spending between 2001 and 2002. During that same period, spending on national LTL service declined by 4.4 percent. Since then, the situation cannot have changed completely.
Brokering short-haul truck shipments presents a great opportunity. Destinations that might be otherwise difficult to serve because of their location in remote rural locations (for instance, half-way between break-bulk terminals), can be more profitably served in this way. The company’s geographic area covered can also be expanded. At start-up, the company can simply obtain rate quotes from various LTL companies (letting them know that they have competition). Hopefully, the company can eventually use their volume of business to convince other asset-based trucking companies to conform to a standardized bid process, while keeping a searchable database for rate comparison purposes.
Establishing services such as this, that increase switching costs and discourage substitutes, should be a key strategy for any company. Offering the customer multiple services helps to increase switching costs and discourages the customer from seeking other out other transportation companies. However, each of the products sold must be clearly defined (in order to prevent cannibalization of other products/services) and each individual shipment must be profitable. The company must gain competitive advantage through an integrated offering of differentiated, profitable services.