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What’s wrong with ‘outsourced’ loads?

What’s wrong with ‘outsourced’ loads?

An analysis of the financial reports of the country’s largest trucking companies shows that 42% of freight shipments are being “outsourced,” meaning small trucking companies are handling almost half of the loads booked with the familiar, national brands. This clearly presents an opportunity for small carriers and owner-operators, but it also brings an obligation to perform.

The LaneAxis Virtual Freight Management study is meant to get the attention of shippers, potential customers for LaneAxis, whose “seamless, expandable, one-stop freight management system offers a flexible, affordable per-load pricing model.”

"Our findings are clear—many shippers likely aren't getting the visibility they think they are," says Rick Burnett, LaneAxis CEO and founder. "Large shippers and carriers may be able to manage their own fleets effectively, but with so much freight being outsourced to small carriers with six trucks or less—which is 97% of the trucking industry—that's a problem. There's very little visibility into that network."

But is it truly a problem?

Not for the big carriers, or they wouldn’t be doing it. The really big carriers use small carriers as a way to manage capacity when freight demand fluctuates, or to handle the freight of customers that doesn’t fit a big carrier’s lane profile. (Of note in the data below, however: A couple of the big trucking companies purchase very little outside transportation.)  ​And they screen the carriers on their approved lists the same way shippers do: If a small carrier doesn’t perform up to expectation, it won’t be hauling freight for the big, name brand company (or its logistics unit) again.

Is it a problem for the little guys? Only if they’re not making money on that freight. Otherwise, business that may be “crumbs” to a Top 50 fleet is good, regular revenue. But again, the small trucking company has to deliver—just as they do for every customer. (More and more, however, this will require small carriers to invest in technology to remain competitive.)

So LaneAxis must be suggesting this outsourcing is a problem for shippers, and they need to keep an eye on it (by buying the LaneAxis freight management system). Well, shippers need to keep an eye on their stuff, period. And they should know if Mega-Carrier XYZ is or isn’t living up to its commitments. Ultimately, it doesn’t matter which loads traveled in a rig with different name on the truck door or another logo on the box, any more that it does which of XYZ’s company drivers are at the wheel. The bottom line is the bottom line: on time shipments at a competitive cost.

Now I’m not saying that LaneAxis doesn’t have an innovative platform, or that incremental improvement in efficiency or transportation spend doesn’t add up quickly for a big shipper. It’s just that sophisticated shippers are surely aware that the biggest carriers turn to small trucking companies to help manage their business. And it works.

Click to enlarge (LaneAxis/2015 annual reports)

Anyway, here’s some more detail from the study:

LaneAxis researched public filings from the 13 biggest publicly held carriers. The research revealed those companies spent a combined $17.8 billion last year on "Purchased Transportation." When measured against those companies' combined revenue of $42.2 billion, which averages out to 42.29% of those carriers' revenue being spent on freight outsourcing.

The research also revealed that average margin percentage for those carriers (the percent difference between Operating Income and Operating Revenue) is around 8%. So not only are customers likely losing visibility to 42% of their loads, they are likely paying 8% margin for that lost visibility, LaneAxis suggests.

Burnett points out that many shippers turn to large carriers, brokers, and third party logistics services (3PLs) to save on costs and hassles, but often the opposite is happening.

"We know small carriers are the backbone of trucking—and that's a good thing," he says. "But many of those carriers lack the inboard tracking units and back-office technology to deliver real-time visibility to shippers. That often leads to lost loads, inefficiency, and confusion. Virtual Freight Management fixes that."

 

 
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