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uShip’s growth shows e-commerce impact on LTL pricing

by William B. Cassidy, Senior Editor, Journal of Commerce  /  Two years ago, the idea of an online spot market for less-than-truckload freight seemed innovative but unusual, something that might occasionally be used by carriers and shippers. But that was before began rewriting the transportation playbook.

The online LTL marketplace launched by uShip in 2014 now is growing by triple digits, increasing net revenue 228 percent in the first quarter, Chief Marketing Officer Richard Metzler said. Now the Austin, Texas-based company has plans to expand its pricing platform.

“We have plans to expand it to be multimodal, which we will implement over the next year,” Metzler said in an interview. “Truckload would be next, and then perhaps a parcel offering.” The system could be integrated with uShip’s international freight offerings, as well, he said.

uShip, originally founded to expedite one-time consumer shipments of vintage furniture and other items, now has more than 350,000 registered freight shippers worldwide, and roughly 25 percent of them — more than 87,000 — use the online LTL marketplace, the company said.

Most, but not all, of those companies are involved in domestic freight movements. A growing number are bridging domestic LTL and international freight markets, Metzler said.

Freight forwarders and steamship lines that move less-than-containerload, or LCL, freight “are a logical connection point,” said Metzler, who in the past 30 years has worked for transportation companies spanning the express, ocean, third-party logistics and trucking industries.

Increasingly, U.S. LTL shippers are getting involved in the movement of goods straight from the ship to the customer’s inland dock, Metzler said. “The small to medium-sized shippers are injecting themselves into this. In addition to F.O.B. Origin, you can have F.O.B. Destination,” which allows the seller to retain ownership of the shipment until a claims-free delivery is made, he noted.

uShip is benefiting from a rapid evolution in transportation being driven by the fast growth of e-commerce and increasingly ubiquitous deployment of mobile technology and smartphones.

The transformation is brginging to online shopping and fulfillment as an experience for consumers is the leading edge of this evolution. Its ramifications, most evident when a package arrives on a desk or at a door, are rippling out through supply chains, reaching down to the level of how LTL freight is priced — something about which consumers probably know little and care less.

Consumer expectations about shopping, however, are changing, and business expectations about shipping are following suit. Shippers engaged in e-commerce increasingly want the same type of service from their suppliers that their customers want from them, including the ability to go online, compare LTL rates and purchase service at a dynamic market price, Metzler said.

The core audience for the uShip LTL “instant-rate” marketplace is the small to mid-sized LTL shipper, and e-commerce “is a key channel for us,” he said. “When you have a younger company, if you will, they’re trying to figure out how to ship and compete against the larger guys. With us, they can go to the market everyday, and we become the Travelocity for freight.”

Many of those small to mid-sized shippers in uShip’s “sweet spot” do not have contracts with large LTL carriers, and when they do are frustrated by the complexity of LTL pricing based on tariffs and the freight classification system — a system unique to the U.S. market. They know larger, high-volume shippers get contract rate discounts that are out of their reach.

The online marketplace provides a click-through alternative. “You have 35 carriers jockeying for position based on price,” Metzler said. “They’re doing dynamic pricing and yield management,” not unlike the kind of dynamic pricing practiced by the airlines, he said. “A lot of the carriers price aggressively on their backhaul lanes. If they have two pup trailers a day coming out of South Florida, they will price differently” to fill those trailers in a tough outbound market.

That ability to find freight for a difficult backhaul lane is a major advantage for carriers participating in the marketplace. So is the ability to dynamically change pricing based on day-to-day market conditions. Shippers can compare rates, and compare spot versus contract pricing, Metzler said.

“This is totally different from using a broker, where they’ve got a blanket rate or customer specific pricing,” Metzler said. “This is testing the market everyday. It’s a different way of managing LTL freight. It just hadn’t been done so much before.”

“Hadn’t been done before” is a phrase those involved in freight transportation can expect to hear more often. Pressure from large shippers concerned about bloated inventories, coupled with advances in technology, is encouraging carriers and technology firms to innovate.

“This goes well beyond pricing, it’s about building tools that support real-time decision making,” said Lance Healy, founder and president of Cleveland, Ohio-based Banyan Technologies, a cloud-based transportation management service that offers a dynamic LTL pricing system.

Banyan is one of many technology companies making greater use of application program interfaces, or APIs, to establish those connections. Their goal is to pave the way for more dynamic pricing and greater optimization of shipper supply chains and asset networks.

For that to happen, carriers of all types and shippers will have to “graduate” from electronic data interchange, or EDI, to greater use of APIs, Metzler said. “You can make EDI work, but it’s much more limited and less flexible. The juice isn’t worth the squeeze for the smaller shipper.”

The uShip LTL marketplace also uses dimensional weight-based pricing, which smaller shippers already know from the express package market, rather than freight class-based LTL pricing. “That’s where the LTL world is going,” Metzler said. Shippers have the opportunity to compare dimensional and class-based rates and “optimize” their spending, but few opt for the class method, Metzler said, although it is the basis for shipper-carrier LTL pricing contracts in the U.S.

Although the online marketplace draws smaller shippers, it also brings in big carriers. Since its start in 2014, the marketplace has grown to include 30 LTL trucking companies, including the five largest carriers, FedEx Freight, XPO Logistics, YRC Freight, Old Dominion Freight Line, and in a recent addition, UPS Freight. An online spot market holds two main attractions for these carriers: a group of potential shipper customers they often have trouble connecting with through traditional business channels and the ability to build freight density in trailers and in lanes.

In that way, trucking companies can build profitability shipment by shipment while shippers save up to 15 to 30 percent on freight costs, according to uShip. The company cited a 3D printer manufacturer that saved 20 percent on its LTL shipping costs through the online marketplace.

That’s not insignificant in a market where LTL rates are still rising, year-over-year. Excess capacity may be driving down truckload rates, but there’s not as much excess space, if any, in the LTL sector, where capacity is more often measured in terminal doors rather than tractors.

LTL trucking companies are sticking with the pricing discipline learned after a rate war during the recession slashed prices and led to damaging losses for several trucking companies. And some LTL carriers are increasing rates despite declines in shipment volume and tonnage.

“Our contractual pricing has continued to increase between 3 and 5 percent,” James Welch, CEO of YRC Worldwide, said during an April 28 conference call transcribed by Seeking Alpha.

“We’re going to continue to stay very committed to our strategy of pricing for profitability, and making that our number-one priority versus market share,” Welch told Wall Street analysts.

That focus is shared by many in the LTL sector, and that’s likely to lead to expanded use of technology by carriers to improve efficiency and profitability, while shippers turn to technology to reduce costs and better manage inventory. Those goals, they may find, aren’t incompatible.

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